CALGARY, Alberta, Oct 1 (Reuters) - Canada will launch the world’s first commercial-scale carbon capture and storage project at a coal-fired power plant on Thursday, a closely watched experiment designed to cut 90 percent of the plant’s carbon emissions.

The carbon-capture unit at the Boundary Dam power plant in Estevan, Saskatchewan, will be formally commissioned after a four-year C$1.35 billion ($1.21 billion) retrofit. Governments and industry around the world will be watching to see if the plant’s operator, SaskPower, can turn large-scale carbon capture and storage (CCS) into a commercial success.

SaskPower, owned by the Prairie province of Saskatchewan, installed the CCS unit to prevent about 1 million tonnes, or 90 percent, of Boundary Dam’s annual carbon dioxide emissions from entering the atmosphere once the unit reaches full operating capacity later this year.

Most of that carbon will be bought by Canada’s No. 2 oil and gas producer, Cenovus Energy Inc, and used for enhanced oil recovery.

Concerns about greenhouse gas emissions have prompted several countries to pledge support to CCS projects and spurred companies to explore new technology. However, progress on the handful of CCS projects that have been approved has been slow and costly.

Seven years ago, the European Union declared it wanted up to 12 CCS demonstration projects to be running by 2015 but none have yet been authorized.

Some environmental groups lauded the opening of the Boundary Dam project and said it should encourage governments and companies that have recently cut investment in CCS to reconsider.

“Finally, people cannot say that this is unproven technology,” said Frederic Hauge, head of Norwegian environmental group Bellona.

“It will be much harder to reach climate targets without CCS. We shouldn’t take the chance that we can combat global warming without CCS.”

The Sierra Club of Canada, however, criticized the CCS project for boosting crude oil production by providing carbon for enhanced oil recovery.

“It’s a propaganda move to appear to be taking action on climate change when in reality it is actually furthering the interests of oil,” Sierra Club Canada Executive Director John Bennett said.

SaskPower Chief Executive Robert Watson said the project’s next step is to assess the economics to see if the CCS technology can be applied to other power stations.

“We want to see how much per kilowatt hour it is to produce the power with carbon capture and compare that against possible future designs, so others in future have something to benchmark against,” Watson said.

“Other countries have tried this but their costs went up dramatically. We really spent a lot of time on the design (of the CCS unit).”

COSTS AND SUBSIDIES

The total cost of the Boundary Dam project is not yet finalized but it has overrun initial estimates of $1.24 billion.

Some critics of CSS say it can only succeed through government subsidies.

Boundary Dam received $240 million in funding from Canada’s federal government, while Shell Canada’s Quest CCS project, due to be the first in Alberta’s oil sands, has received $865 million in federal and provincial government funding.

Boundary Dam sits on top of 300 years worth of coal deposits just north of the U.S. border, but the plant would have been phased out under Canadian government regulations coming into effect next year that limit its carbon dioxide output to less than 420 tonnes per gigawatt hour of electricity, Watson said.

The Boundary Dam CCS unit will reduce the power station’s carbon dioxide output to 150 tonnes per gigawatt hour.

SaskPower retrofitted an existing unit within the power station and connected it via pipes to the adjacent, newly built, carbon capture building. There, gases go through a process of filtering, compression and liquefaction to remove 90 percent of the carbon and all of the sulphur dioxide.

It is the first post-combustion CCS project of its kind. Another CCS project under construction at a coal-fired power plant in Kemper County, Mississippi, will be pre-combustion and only capture around 65 percent of carbon dioxide emissions.

Watson declined to say how much Cenovus will pay for its 10-year deal to take about 1 million tonnes of carbon per year, but he said that without that sale the economics of the project would be very different.

SaskPower will also sell the captured pollutant sulphur dioxide.

Cenovus spokeswoman Jessica Wilkinson said the carbon would be shipped 66 kilometres (41 miles) by pipeline to the mature Weyburn oilfield, which produces 25,000 barrels per day thanks to carbon dioxide being pumped underground to increase reservoir pressure.

Without carbon dioxide Weyburn would be producing about 8,000 bpd, Wilkinson said.