Green plan gets cautious support

Canada’s oil and gas sector doesn’t feel discriminated against by federal greenhouse gas regulations; companies have various options to achieve their emissions target, which is 60 million metric tons of the planned national reduction of 150 by 2020

Gary Park

For Petroleum News

With the usual proviso that “the devil is in the details,” leaders of Canada’s petroleum industry appear satisfied that they will not be singled out for special punishment under federal government’s climate-change regulations.

There is still a long way to go in negotiating the terms with provincial and territorial governments and calculating the actual costs of curbing greenhouse gas emissions or GHGs, but, for now, what Ottawa rolled out April 25 and 26 did not bring a wave of doom-and-gloom assessments.

TransCanada Chief Executive Officer Hal Kvisle suggested the industry was “not surprised by what came out” because it has been involved over the past year in extensive discussions with the government to ensure environmental objectives were met without “major negative impacts on the Canadian economy.”

However, he said the largest emitters of GHGs — the oil sands and coal-fired electricity plants — “will be very challenged to meet the targets.”

The greatest source of relief for the oil and gas sector was the government’s decision to initially set intensity-based targets linked to units of production, rather than imposing absolute caps on GHGs without allowing for an increase in production.

Large polluters will be required to cut their emissions per unit of output by 18 percent by 2010, then 2 percent a year as Canada moves toward an overall reduction of 20 percent by 2020.

Companies unable to meet those standards will pay a maximum C$15 per metric ton, rising to C$20 in 2013, for emissions exceeding the limits.

Otherwise they will have the option of buying emissions credits from Canadian companies, along with a small number of international credits.

That money will go into a technology fund to support research and development efforts aimed at significant, long-term reductions in GHGs.

In other words, companies will be able to choose the most cost-effective way to achieve the targets, ranging from in-house reductions, contributions to the technology fund and domestic emissions trading and offsets.

Companies that took steps to reduce their GHGs before 2006 will be rewarded with a limited one-time credit for early action, while operators of new facilities will be given a three-year grace period before they are required to start lowering their emissions.

Petroleum industry responsible for 60 million metric tons

He estimated the cost to the Canadian economy will peak at C$8 billion in the “worst” year of the plan.

Labeled “Turning the Corner,” the policy is the answer by the Conservative government of Prime Minister Stephen Harper to what it says was 10 years of inaction by the previous Liberal government, which signed the Kyoto Accord but allowed GHGs to increase by 23 percent until it was toppled in January 2006.

“In as little as three years, greenhouse gases could be going down, instead of up,” Baird said, claiming Canada “now has one of the most aggressive plans to tackle greenhouse gases and air pollution in the world.”

“The prices for consumer products like vehicles, natural gas, electricity and household appliances could go up. But it’s a small price to pay to ensure a lasting environmental legacy,” he said.

He said the industrial targets are “concrete, challenging, yet realistic.”

However, the government concedes it will not meet its Kyoto commitments to reduce 1990 GHG levels by 6 percent over the 2008-2012 period.

It has estimated that meeting such a timetable would pull C$51 billion out of the economy and could cripple some vital resource sectors, notably the Alberta oil sands.

Baird said Canada — in the face of heated criticism from environmentalists and some European countries — will now not attain the first round of Kyoto objectives until 2025, although he insisted Canada will participate in the next round of Kyoto negotiations to cover the post-2012 period.

It is not clear how other signatories to Kyoto will respond to this breach of the accord.

On the domestic front, Julia Langer, director of the World Wildlife Fund’s global threats program, said Canada’s entire industrial emitters program is a “sequence of loopholes,” with the ceiling on payments into the technology fund “geared to business as usual for the tar sands sector.”

The first-blush response from investors was to bump the share values of companies such as Suncor Energy, Canadian Oil Sands Trust, Canadian Natural Resources, Petro-Canada, Husky Energy, EnCana, Nexen and Imperial Oil — all of them with major stakes in the oil sands.

New rules expected to add costs

Industry leaders weren’t ready to make a sweeping concession, with Pierre Alvarez, president of the Canadian Association of Petroleum Producers, saying the plan represents another cost on top of the federal decision to phase out a capital cost allowance for the oil sands and the likelihood of increased oil sands royalties after the Alberta government completes a review this year.

“It comes at a time when the industry is already facing tremendous challenges,” he said.

Alvarez agreed with Baird that the regulations are tougher than those in any other jurisdiction in the world, but how much they will amount to on a barrel of oil equivalent basis will take more time to estimate.

He doubted any “hard numbers will be put out there for a while.”

On the plus side, Alvarez was pleased the Canadian government will open negotiations to harmonize its regulations with Alberta’s legislated 12 percent cut in emissions so that the costs introduced by the two governments do not become cumulative.

Alberta Environment Minister Rob Renner sees no difficulty in harmonizing the plans, especially since Ottawa is pursuing an intensity-based solution. He said the numbers are similar, only the timetables are a little different.

Senior industry executives met April 26 in Calgary with federal Natural Resources Minister Gary Lunn and Indian Affairs and Northern Development Minister Jim Prentice.

Following the session, Kevin Meyers, president of ConocoPhillips Canada, said the federal plan is a “good start” towards lowering emissions and “hopefully eventually stopping them and reversing them.”

But he said the targets are aggressive and there is a major job ahead to work out the details.