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Pembina Institute urges oil sands slowdown Environmental group says ‘unconstrained’ expansion risks squandering a resource; wants royalty overhaul, ‘national’ framework Gary Park Petroleum News Canadian Contributing Writer
A respected Alberta-based environmental organization wants the Canadian and Alberta governments to slow the pace of oil sands development by rolling back fiscal incentives before the northern Alberta landscape, air and water is ruined.
The Pembina Institute said Ottawa should establish a “national energy framework” for the resource that could include a carbon tax, which has been vigorously opposed by the Alberta government and the oil industry.
In a new report entitled “Oil Sands Forever: The environmental implications of Canada’s oil sands rush,” the institute said a slowdown is needed until the consequences of the C$100 billion investment currently planned for the oil sands is better understood.
“The rapid and unconstrained oil sands expansion now before us risks squandering a publicly owned resource and creating a legacy of environmental degradation and long-term environmental liabilities,” said Pembina Executive Director Marlo Raynolds.
The report said Alberta is not properly equipped to handle the current environmental impact of oil sands production of 1 million barrels per day, let alone the 3 million bpd forecast for 2015 and 5 million bpd by 2025. Report calls for It called for:
• Ending federal tax advantages that allow an accelerated writeoff of capital investment costs and an unspecified increase in Alberta royalties to end the current practice of collecting 1 percent until capital costs on new projects are covered.
• Redirecting the incentives to energy efficiency in the oil sands and more stringent conservation measures.
• Forcing the oil sands sector to become “carbon neutral” by 2020, requiring emissions of greenhouse gasses to be offset by investments elsewhere.
• Establishing a national energy framework by the end of 2006 to set targets for energy efficiency, conservation and renewable energy, including a carbon tax levy on each barrel of oil and cubic foot of natural gas. Report challenged by government, industry The Alberta government and the Canadian Association of Petroleum Producers were quick to challenge the Pembina proposals.
Energy Minister Greg Melchin said newer projects already face higher royalties than earlier ventures and the rise in oil prices means operators are paying off their front-end costs faster.
He said it is Alberta’s place to impose carbon taxes, not the federal government.
CAPP President Pierre Alvarez dismissed Pembina references to subsidies, saying the regime of accelerated depreciation is no different from the treatment of other industries.
He said royalties do not constitute incentives.
To start meddling with the fiscal terms would be unfair to those companies that have spent billions of dollars years before they see any cash flow.
However, Alvarez conceded that greater efforts are needed to reduce the environmental impacts of development and to that end the industry is opening to working with the Pembina Institute on new management systems and technology. Study author: limits, standards needed Don Woynillowicz, the study’s chief author, told reporters that environmental limits and well-defined reclamation standards should be in place before any new projects are approved.
Noting that Alberta Premier Ralph Klein is expected to step aside in the next 18 to 24 months, he said new leadership may be more open to changes in the province’s energy industry to promote a more environmentally sustainable growth plan.
Co-author Chris Severson-Baker said there is little awareness among Albertans and most Canadians about the environmental impacts of oil sands development.
The only way companies will become more responsive is to impose clear constraints on the industry, he said.
Severson-Baker said companies are doing nothing to tackle issues such as air quality, water intensity and land disturbance, which he said is inconsistent with the oil sands sector’s reputation as the most innovative industry in the world.
Woynillowicz also said the government is not deriving the maximum financial benefit from the oil sands.
He said oil sands production rose by 133 percent from 1995 to 2004, but royalties dropped by 29 percent, with the average per barrel royalty sliding to C50 cents from C$1.60.
The study said that producing one barrel of oil from the oil sands consumes two to five barrels of water and enough gas to heat 1.5 homes for a day.
It said the oil sands are the largest single contributor to a 24 percent rise on Canada’s greenhouse gas emissions since 1990.
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