The governments of Canada and Alberta will invest $865 million for a carbon-capture and storage demonstration project at Shell's Scotford oil sands upgrader near Edmonton.

The Shell Quest, expected to be operational by 2015 pending final regulatory approval, is a joint venture with 60 percent held by Shell Canada Ltd. and a 20 percent stake each by Chevron Canada Ltd. and Marathon Oil Sands L.P. It could capture up to 1.1 megatons of greenhouse gas emissions annually, a reduction of about 40 percent.

"Commercial scale projects such as this will not only reduce greenhouse gas emissions in Canada but advance technology that can be used around the world," said Alberta Energy Minister Mel Knight.

According to a Canada-Alberta government study, CCS technology could allow Canada to cut its greenhouse gas emissions by as much as 600 million tons a year by 2050, which represents almost three-quarters of the country's current annual emissions.

Alberta signed a letter of intent for Quest, committing $745 million over the next 15 years, drawing on its $2 billion fund for the environment. Ottawa signed up for $120 million, with the cash coming from its Clean Energy Fund. Ottawa has $650 million set aside for CCS projects.

Graham Boje, Shell Canada's vice president of health, safety and sustainable development, pointed out that the Quest project does not yet have the green light and "has a long way to go" before it becomes a fully operational CCS project.

Shell still has to conduct additional engineering studies, undergo public consultation, and obtain a number of regulatory approvals for the project. It will take a "couple of years" before the oil giant is ready to make its final call, Boje said.

As part of the deal, Shell is required to share non-commercial information, including the effects of the carbon dioxide recovery on plant operations as well as information about sequestration.

"Finding ways to reduce greenhouse gas emissions is one of the most important challenges facing society, and developing substantial CCS capability with governments and key stakeholders is one of our greatest priorities," Boje said.

Yet the Quest project has its share of critics. "This is not the direction we need to go in," said Amy Taylor, director of Alberta Energy Solutions with the Pembina Institute, an environmental group, the Edmonton Journal reports.

"We need a massive investment in other areas, like energy efficiency," she said. "This is a very significant subsidy for one of the world's largest and most profitable oil companies, and the government needs to take steps to ensure that polluters soon start shouldering the full cost of CCS deployment."