Last month Royal Dutch Shell Plc (London: RDSA, NYSE: RDS/A)–amid a spate of cancellations of similar projects in recent months–announced a final decision to proceed with the first carbon capture and storage (CCS) project in the Canadian oil sands.

CCS is technology that attempts to capture carbon dioxide (CO₂) from a human-created source–often industry and power-generation systems–and then store it in permanent geologic reservoirs so that it never enters the atmosphere. The US is the leading funder of large-scale CCS projects, followed by the European Union and Canada.

CCS could significantly reduce CO₂ emissions, particularly when used in greenhouse gas-intensive coal plants. But getting to the point where it can have a serious impact requires large-scale investment.

According to the Worldwatch Institute, capacity will have to be increased several times over before CCS can begin to make a dent in global emissions. The storage capacity of all active and planned large-scale CCS projects is equivalent to only about 0.5 percent of the emissions from energy production in 2010.

According to Shell, the Quest Carbon Capture and Storage Project will reduce CO₂ emissions from the Athabasca Oil Sands operation by 35 percent, or more than 1 million metric tons a year.

Athabasca Oil Sands mines bitumen deposits that are within 75 meters of the land surface. Mechanical shovels dig the sand and large trucks transport it to a treatment area, where warm water is added to help separate bitumen from clay and sand. The product of this process is then piped to the Scotford upgrader plant near Edmonton, Alberta, for processing into synthetic crude oil. The steam-methane reformer units at Scotford produce hydrogen for upgrading bitumen, a process that releases carbon dioxide.

Quest will capture CO₂ from Scotford using an amine solvent, a liquid comprising water and amines, then transport it via an 80 kilometer underground pipeline to a storage site north of Shell’s Scotford facility to the northeast of Fort Saskatchewan, Alberta.

Captured CO₂ will be injected more than two kilometers underground into a porous rock formation called the Basal Cambrian Sands, which is located beneath layers of impermeable rock. According to the Quest project website, “Sophisticated monitoring technologies will ensure the CO₂ is permanently stored.”

Shell claims Quest will reduce direct emissions from the Scotford upgrader by up to 35 percent, which is equivalent to permanently removing 175,000 cars from North American roads.

In the middle to late 2000s CCS was the subject of considerable hope, coupled with questions whether the technology was over-hyped. Now it’s treated to a fair bit of skepticism, from sources as variegated as The Economist and National Geographic. Both publications point out that, after an initial rush of interest, including significant government commitments such as a USD3 billion grant in the infamous US stimulus bill of 2009, projects are now being cancelled right and left by want of public funding or because costs are beyond original expectations.

The Worldwatch Institute reports that global funding for CCS remained unchanged at USD23.5 billion in 2011 compared to 2010. There are currently 75 large-scale, fully integrated CCS projects in 17 countries in various stages of development, but only eight are operational. And the number of operational projects hasn’t increased since 2009.

In fact from 2010 to 2011 the number of large-scale CCS plants operating, under construction, or being planned declined. Numerous projects in Europe and North America have been cancelled. And in April 2012 Canada-based power generator TransAlta Corp (TSX: TAC, NYSE: TAC)

Scrapped a plan to build a CCS facility at an Alberta coal-burning plant because financial incentives were too weak to justify costly investment.

It’s enough to validate The Economist’s and National Geographic’s skepticism about whether what is a nascent industry can mature into a period of growth in the near future.

But news from the Athabasca Oil Sands Project–a joint venture among Royal Dutch Shell subsidiary Shell Canada Ltd, which owns a 60 percent share and is the operator, Marathon Oil Corp (NYSE: MRO) through its Marathon Oil Sands LP, a 20 percent owner, and Chevron Corp (NYSE: CVX) via Chevron Canada Ltd, which also owns 20 percent– sheds some positive light on the situation.

This week Shell Canada executed a contract with Fluor Corp (NYSE: FLR) for engineering, procurement, and construction (EPC) of the Quest project. Fluor, which has been providing preliminary services and front-end engineering and design for Quest since 2009, will provide full EPC services for a 1.1 million metric ton per year CCS facility at the Scotford upgrader. Construction is underway, with first injection of CO₂ in 2015.

The Energy Resources Conservation Board of Alberta (ECRB) conditionally approved Shell Canada’s application for Quest in July 2012. The ERCB included 23 conditions related to data collection, analysis and reporting. It also requires Shell Canada to seek separate approvals for any additions to the project. The Alberta office of Environment and Sustainable Resource Development, which has review authority over ECRB decisions, has yet to impose additional conditions.

Total cost of the project is estimated at USD1.35 billion. The Canadian federal government and Alberta’s provincial government are kicking in a combined CAD865 million over 15 years. Quest was awarded CAD120 million grant from the Clean Energy Fund, which was established by the Canadian government to demonstrate CCS technology with an initial investment of CAD1 billion. The Alberta government has offered to provide CAD745 million to the project from a CCS development fund established with CAD2 billion.

Athabasca Oil Sands mines bitumen; fuels produced from oil sands bitumen emit 5 percent to 15 percent more CO₂ than the average barrel of crude consumed in the US on a full life-cycle or “wells-to-wheels” basis.

Applying CCS technology will allow producers to address concerns about the environmental impact and long-term sustainability of developing oil sands reserves, which constitute the world’s third-biggest resource. It also could contribute to global knowledge that might help other CCS projects get up and running.