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Kyoto gets second chance Parties holding balance of power in Canada’s parliament make sweeping amendments to clean air legislation; add to petroleum industry unease By Gary Park For Petroleum News
Canada’s fractured Parliament has seen the three opposition parties gang up on the government by forcing through a drastic reworking of plans to tackle greenhouse gas emissions.
Holding the balance of power and the ability to topple the government of Prime Minister Stephen Harper, the Liberal, New Democratic and Bloc Quebecois parties have endorsed a newly named Clean Air and Climate Change Act that restores commitments to implement the Kyoto Protocol and sets mid- and long-term targets for GHGs.
Government Member of Parliament Mark Warawa said a provision in the new act to impose heavy penalties on polluters could cost industries “billions of dollars,” adding to confusion and unease in the petroleum industry, which is struggling to make sense out of environmental directions being taken by the federal and provincial governments.
In the process the opposition parties have pushed Canada to the brink of a federal election in late spring, with the environment as the dominant issue.
Oppositions’ bill imposes timelines The new act, Bill C-30, imposes:
• Kyoto targets to reduce GHGs by 6 percent from 1990 levels by 2012;
• Establishing or adhering to world-leading pollution standards;
• Hard targets for industry to lower GHGs rather than the so-called intensity-level limits that are tied to units of production; and
• A C$20 per-metric-ton fine for carbon emissions above the targets, rising to C$30 by 2012.
The Liberals, the former government and largest opposition party, are proposing absolute cuts in GHGs of 20 percent by 2020, 35 percent by 2035 and 60-80 percent by 2050.
“What we’re really doing here is rewriting the law entirely,” said Liberal environment spokesman David McGuinty, referring to the Harper government’s Clean Air Act unveiled last fall.
“It is now up to the prime minister to decide whether he is going to abide by … the will of parliament. What we have done is put Humpty Dumpty back together again in a way that perhaps the prime minister might not like.”
Original bill made no mention of Kyoto The original act avoided setting any cuts in GHGs until 2020, although some limits on large producers were to be phased in, starting in 2010 as a buildup to across-the-board reductions of 60 percent to 70 percent by 2050.
But that bill made no mention of Kyoto requirements the government believes are unattainable and would be destructive to the national economy.
Bill C-30 results from the government’s decision to send the initial bill to a special committee to deal with 100 amendments — an opportunity the pro-Kyoto opposition parties seized to embark on a wholesale overhaul of the legislation.
Whether the new act will be sent to the House of Commons for a vote is a moot point.
Environment Minister John Baird said the government would “take some time to look at the entirety of the changes. I can tell you I’m not happy.”
He accused the opposition of weakening a bill that was drafted to give the government power to reduce air pollution and GHGs which Harper said would “replace rhetoric with results, a plan that is going to move from short-term headlines to long-term progress.”
“This is clearly more about politics than it is about serving the environment,” Baird said.
He said the opposition removed provisions to create national air quality standards, to require annual reports on air quality and to boost research and monitoring of air quality.
Baird said he would not say whether the government would table Bill C-30 on April 16 after a two-week Easter break, but “at some point” he promised Canadians would have a chance to pass judgment on the actions Harper has taken on clean air and climate change.
Conservatives hope to govern until 2009 The Conservatives are hoping to govern until 2009, but because Bill C-30 involves spending new money and creating new taxes it would trigger an early election if adopted by the House of Commons over the objections of the Conservatives. Observers are speculating an election is possible on May 28 or June 4.
Defeat for the Conservatives could spell deep trouble for the entire oil and gas sector, with the oil sands fingered as Canada’s largest environmental culprit.
“We’re not looking for an election,” Baird said. “If the Liberals want one that will be their call.”
For now, he intends to press ahead with the government’s agenda, including the release of emissions targets for the largest industrial contributors to GHGs, notably the oil sands operations and power plants, with the changes expected to take effect in 2010.
That announcement was originally promised for sometime in late March, but is now seen as possible government ammunition for a federal election campaign.
Regulations a worry to petroleum industry Those regulations are a source of worry to the petroleum industry, which is faced with a double jeopardy as the federal and provincial governments push ahead with measures to combat GHGs and regain favor with voters.
Alberta has announced its own plans to legislate a 12 percent cut in GHGs per unit of production, starting July 1 and affecting about 100 industrial operations.
In British Columbia, Premier Gordon Campbell said his government will impose regulations to reduce GHGs by at least 33 percent below current levels by 2020.
In Saskatchewan, the government plans to unveil its plans in April, but has not indicated how stringent they will be.
What isn’t clear to industries is whether provincial and federal actions will be blended or whether they will be cumulative, or what monitoring and reporting procedures will be enforced.
No one is more concerned than oil sands operators and investors.
Tom Greenberg, investment banking director with Credit Suisse Securities (Canada) told a late March conference that “people are very concerned about the direction that regulatory bodies are going to take with regard to GHGs, to royalty review (by the Alberta government)” and to the phasing out of federal government’s accelerated capital cost allowance.
He said one of the key issues in the oil sands sector is “leverage to commodity prices” which has led to a significant run up in the equity valuations of oil sands companies.
But some “warning bells have begun to ring on the environment front, on the regulatory front, on the cost front and on the commodity front.”
Greenberg said that what is important to investors, who view the oil sands as being in their early development stages, is certainty around the regulatory, fiscal and environmental regimes if the flow of money into oil sands projects is to continue.
It is also crucial for operators to communicate effectively with the market because investment decisions “can either allow a project to forge ahead or be killed in its infancy,” given that investors have many other investment options.
Greenberg said the investment community is now taking a much closer look at how projects will be financed, how much they will cost, where the product will be sold and where construction labor will be obtained.
The oil sands companies have already seen their stock market values come under pressure in recent weeks.
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