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Providing coverage of Alaska and northern Canada's oil and gas industry
April 2009

Vol. 14, No. 17 Week of April 26, 2009

Canada faces alignment

Panel calls for national policy to make consumers, industry pay for emissions

Gary Park

For Petroleum News

What little hope the Canadian petroleum industry and producing provinces may have held that a move toward carbon capture and storage technology would appease the formidable U.S. push to tough climate-change measures is now close to evaporating.

When President Barack Obama ended his one-day visit to Canada in February, there was a fleeting sense that his agreement with Prime Minister Stephen Harper to cooperate in developing CCS methods might have slowed the headlong plunge into a carbon tax.

The advocates of CCS as a leading tool in the greenhouse gas fight are rapidly finding themselves pushed to the sidelines.

A National Round Table on the Environment and the Economy, a panel of Canadian business leaders and environmentalists, issued a new report April 16 calling for a unified national approach.

It called on the Canadian government to move with haste to make consumers and industry pay for greenhouses gases in order to protect the economy and fight potential international tariffs and duties on Canadian products.

The advisory panel said Canada must accept that the U.S. will launch a wave of protectionism under the banner of environmental action.

Protectionist challenge

Panel Chairman Bob Page said that, for Canadian companies, “It is the most serious, protectionist challenge that we’ve had to face.

“There is an urgency in terms of compatibility, not uniformity, but compatibility between Canadian programs and American programs, just to allow us to continue the existing (North American Free Trade Agreement) trading relationship between Canada and the United States.”

He said the oil sands resources of Alberta and Saskatchewan were particularly at risk.

Environment Minister Jim Prentice had previously said that to head off any trade-related consequences he is working to ensure that Canadian rules are comparable to those in the U.S.

His office said the advisory panel’s recommendations will get serious attention from Prentice as part of his ongoing efforts to develop a GHG-reduction plan.

“As the minister expressed, the economic downturn and the commitment of the U.S. president to move quickly requires that we fine tune our approach to tackling climate change,” a spokesman said.

The NRTEE’s report, entitled “Achieving 2050: A Carbon Pricing Policy for Canada,” insists that “now is exactly the time to seize the opportunity before us ... and lay the groundwork for a truly effective long-term climate change policy framework through a nationally collaborative approach to a unified carbon-pricing policy in Canada and an internationally harmonized approach in North America.”

National price on carbon

The panel suggests that Canada should impose a national price on carbon of about C$100 per metric ton by 2020 or sooner, rising to C$200 by 2050, to reduce carbon emissions by 20 percent below current levels by 2020 and 65 percent by 2050.

Reaching those targets means Canada has to adopt a “fast and deep” plan to make sure carbon prices strike deep into the economy.

The NRTEE estimates its blueprint would add C$1,000 to the annual cost of living for the lowest-income Canadians who are making C$28,258 per year, rising to C$4,000 a year for households averaging C$248,672 per year unless “mitigating action is taken.”

Among other items, the panel estimates new annual spending of C$3.4 billion would be needed to improve energy efficiency or reduce energy consumption and compliance costs would run to C$1.9 billion.

In addition, Canada would need to impose new tariffs on imports to ensure foreign suppliers were not evading Canada’s carbon pricing regime.

Page said such a drastic course of action is essential based on his discussions with U.S. officials and politicians in Washington, who have made it clear the U.S. is ready to go it alone.

“I don’t think we have a hope in hell of fighting them,” he told the Globe and Mail.

He said Canadians tend to exaggerate their ability to wield influence in the U.S. Congress, when key U.S. senators and representatives have told him “Canada will play no role in terms of the development of a very complex piece of legislation. …”

“I think we have to be realistic in terms of the momentum that’s building of a protectionist nature which just happens to have the environment as a tool to use here,” said Page.

Report says no choice

The NRTEE report said Canada has no choice but to introduce climate-change policies this year that are more aggressive and sweeping than those announced so far.

The report said an effective plan must target the entire economy and not just heavy industry and should start with the Canadian government phasing out its plan for “intensity-based” GHG reductions tied to units of production, turning instead to a national cap-and-trade system that sets absolute limits on GHG emissions, regardless of how much production increases.

The panel also said the federal government should avoid the patchwork of climate-change policies being introduced by provincial governments and work on a single national system.

The report estimated that a cap-and-trade system would “trickle down,” adding 21 cents per liter to the price of gasoline by 2020.

Canada’s Council of Chief Executives welcomed the recommendations, endorsing the call for a unified policy across Canada — an objective that would be certain to encounter stiff resistance and perhaps a constitutional showdown between the federal government and the provinces of Alberta and Saskatchewan.

U.S. legislation introduced

The sense of urgency stems from a bill introduction in April in the House of Representatives that would establish U.S. national emission caps and impose border duties on imports from countries deemed to have lax climate-change rules.

A further push came April 17 when the U.S. Environmental Protection Agency said six GHGs, including carbon dioxide, are a threat to public health and welfare, possibly allowing the agency to impose the first mandatory controls on GHGs under the federal Clean Air Act.

The finding is subject to a 60-day comment period. Public hearings are scheduled for May 18 and May 21, although Rep. Ed Markey, D-Mass., said Congress will choose to legislate curbs on GHGs rather than allow the agency to impose regulations.

Jack Gerard, president of the American Petroleum Institute, said the agency finding endangers the U.S. economy and every family if it results in “complex, costly requirements” on business and institutions.

Charles Drevna, president of the National Petrochemical and Refiners Association, said “such a regulation would have an enormous impact on every facet of the economy” and constitute the agency’s “single largest and potentially most complex assertion of authority over the U.S. economy.”

Debate mirrored in B.C.

The debate that lies ahead in Canada over the best course to take is mirrored in British Columbia, which is in the midst of a campaign leading to a May 12 provincial election.

Standing alongside Premier Gordon Campbell at a drill site in northeastern B.C. on April 16, Richard Dunn, EnCana’s vice president for external relations, said that “if a price is put on carbon” by the B.C. government, EnCana “supports all consumers paying equally.”

He was reacting to promises by the opposition New Democratic Party that it would scrap the Liberal government’s carbon tax on transportation and home heating fuels, saying it is costing jobs and causing economic hardship.

Under leader Carole James, the NDP would instead tax fossil fuels at their source and raise another C$400 million over three years from a new tax on gas flaring.

Premier Gordon Campbell said the NDP plan would stifle future investment in B.C., where the oil and gas industry pumped C$3.6 billion into provincial coffers last year, making it the province’s largest single revenue generator.

Dunn said EnCana — which expects to invest C$1 billion in B.C. this year and provide 7,000 jobs — paid C$4 million to C$5 million last year in carbon taxes, which he viewed as a fair way to price carbon, allowing his company to plan because the tax rates increase predictably over time.

Asked what he thought of the NDP proposal for a flare tax, he said, “We’re always looking at the investment opportunities and the need for competitiveness.”

Without being more specific, Dunn seemed to be indirectly pointing to EnCana’s own decision to transfer more of its capital spending to B.C. after Alberta introduced its new royalty regime.






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