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

Vol. 14, No. 11 Week of March 15, 2009

Swimming against US tide

Canada hammers home belief technology solutions beat cap-and-trade

Gary Park

For Petroleum News

Increasingly on edge as President Barack Obama presses ahead with plans for a cap-and-trade system for carbon emissions and fully awake to threats of environment-based protectionist measures in the United States, the Canadian government is pulling out all stops to keep Washington focused on technological solutions.

In a hasty follow-up to the mid-February summit when Obama and Prime Minister Stephen Harper agreed to jointly pursue the development of carbon capture and storage answers to greenhouse gas emissions from coal-fired power plants and oil sands projects, Canada sent Environment Minister Jim Prentice to Washington earlier in March to meet with top U.S. officials.

He ended his two-day visit by insisting the two governments will work together to develop clean energy and reduce emissions, including the negotiation of an international accord at the climate change talks in Copenhagen in December.

But Prentice also said Canada is not prepared to pay an unreasonable price as the new Obama administration sets its sights on climate change regulations that place caps on greenhouse gas emissions covering a broad sweep of the U.S. economy.

He said Canada must continue its discussions with “our American neighbors relative to their domestic policy because we share the same economic space and environmental space and we need to make sure that our policies are workable.”

Prentice’s actions and comments underscore the concerns in Canada that, regardless of the apparent harmony at the Obama-Harper summit, the U.S. may be on a path that poses threats extending far beyond the oil sands to the chemical industry, steel production, electricity exports and energy-intensive manufactured goods.

CCS promotion a relief

When the two leaders agreed to a “clean energy dialogue,” with the emphasis on promoting the unproven carbon capture and storage or CCS technology, the Canadian petroleum industry and resource-based provinces breathed a palpable sigh of relief.

Alberta Premier Ed Stelmach welcomed what he interpreted as proof that Obama was “clearly speaking Alberta’s language,” by favoring an economic and environmental balance by investing in CCS.

Dave Collyer, president of the Canadian Association of Petroleum Producers, said he heard nothing from Obama to indicate that the U.S. was intent on “an immediate change in regulations or anything that would cause me to be concerned about discrimination against oil sands production.”

He said the joint U.S.-Canada approach should be able to achieve the “right balance” between economic growth, energy security and environmental protection.

However, within a week of his return to Washington, Obama was again turning up the volume on environmental measures that have Canadian exporters worried about duties and other trade measures if the U.S. imposes tough rules on the industrial sector and places Canada in the environmental-laggard category.

Trade agreements possible tool

Lisa DeMarco, a Toronto attorney with MacLeod Dixon and a climate-change practitioner, told the Globe and Mail that the U.S. could use environmental exemptions in trade agreements as a “shield to allow for trade protectionism in goods of higher or different emissions intensity.”

Obama’s initial budget request to Congress for fiscal 2010 gave weight to that view by indicating the U.S. government will start collecting revenue in 2012 from a mandatory cap-and-trade program for carbon emissions from power plants, oil refineries and other industrial sources.

DeMarco said Obama’s budget proposal reflected his ambition to cap GHGs by 2012 and require fossil-fuel users to purchase permits to emit any carbon dioxide that results from the combustion of coal, oil or natural gas.

The budget projected those emissions allowances would raise US$645 billion over seven years, while earlier estimates from the Congressional Budget Office projected that anywhere from US$50 billion to US$300 billion could be generated annually from an emissions trading scheme by 2020.

If Obama sticks resolutely to hard caps and ends up imposing a carbon tax, or adopting import tariffs and other trade actions against countries deemed to have a competitive advantage over the U.S. by applying less-stringent climate-change regulations, the mood of collaboration between the U.S. and Canada will quickly evaporate.

Harper promoting targets

Harper forcefully made his case before Obama at a news conference on Feb. 19 that he sees little difference between Canada’s strategy of setting “intensity targets” to limit GHGs per unit of production, and Obama’s preference for hard caps, which impose absolute limits.

Harper said those approaches are “two ways of measuring the same thing,” while making his case that Canada is aiming higher than the U.S. by vowing to cut 2006 GHGs by 20 percent by 2020,while Obama is targeting a 14 percent reduction in 2005 U.S. emissions by the same year.

In addition, the Canadian government is planning to rely on incentives, tax breaks and higher efficiency standards to reduce energy consumption.

High road

For now, however, Canada is taking the high road, with Prentice telling a news conference in Washington on March 3 that the U.S. and Canada are establishing joint working groups to coordinate in an estimated US$7 billion worth of CCS technology projects to lower carbon emissions from the twin evils — U.S. coal-fired power plants and the Alberta oil sands.

He said the U.S. has earmarked US$3.5 billion, while Canada has a similar amount, including C$2 billion from the Alberta government and C$1 billion each from the Canadian and Saskatchewan governments.

“The focus of the clean-energy dialogue has been to ensure that we collaborate on those investments … and, frankly, make sure that the investments are appropriate and advantageous for both CCS in the context of the oil sands as well as in thermal electricity,” Prentice said.

“We share the largest free-market energy system in the world and it’s difficult to imagine acceptable policies on the regulation of carbon in the environment that are discordant,” he said.

But Prentice also acknowledged the regional differences in Canada — with Ontario and Quebec supporting and Alberta and Saskatchewan opposing cap-and-trade and British Columbia introducing a carbon tax — pointing to the challenge of building collaborative relationships.

He said development of CCS technology has been “proceeding apace” in Western Canada’s hydrocarbon industry and holds promise for thermal coal applications.

CCS projects by 2015

That message was reinforced by Jim Carper, president of the Alberta Carbon Capture and Storage Development Council — a joint government-industry-academic group — who said Alberta’s C$2 billion innovation fund for CCS puts the province in the forefront of a global effort to get pilot projects under way.

He said Alberta will have three to five projects operating by 2015 to better understand the technology.

Each of the projects could capture and store 5 million metric tons of CO2 per year — a start, though a long way from Alberta’s goal of using CCS to reduce emissions by 139 million metric tons by 2050.

Carter doubted a cap-and-trade marketplace could achieve those results.

“You buy someone’s credit, but this doesn’t offer a technological solution,” he told the Edmonton Journal. “At the end of the day people have to figure out how to reduce the amount of CO2 going into the atmosphere and that takes research and development, science and engineering.”

Carter believes government assistance will be needed until 2020, at which point CCS could be self-funding.

In the meantime, Harper is taking every opportunity to reach U.S. audiences to drive home the importance of Canada’s oil and gas in the U.S. energy-security equation and to warn of the consequences if the U.S. cuts off oil sands-derived imports.

Interviewed on CNBC’s The Ludlow Report he said, “If you look at American needs for energy and where Americans can get it at a reasonable price, (an import ban) is completely unrealistic.

“We will do what we can to reduce the carbon footprint, but there should be no illusion,” he said.

“Economic reality will hit (oil sands) environmental policies pretty hard when someone goes to implement them.”






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