Now that President Barack Obama has agreed with those who have long argued coal is the leading source of carbon emissions, the case for Keystone XL may have received an indirect lift. But that prospect could also be viewed as a long shot.
If Obama succeeds in realigning energy consumption in the United States - an objective that seems destined for protracted litigation by the powerful coal industry - the oil sands could be a beneficiary and, in turn, give new life to pipelines out of Alberta.
His new regulations are estimated to reduce greenhouse gas, GHG, emissions by 169 million metric tons a year by 2030, compared with the 18.7 million metric tons that the U.S. Environmental Protection Agency estimates would be contributed by XL and its related oil sands activity.
Whether those contrasts will get recognition is an open question since the opponents of XL have already skillfully deflected other comparisons that are favorable to the pipeline - notably estimates that total GHGs from the oil sands are only slightly greater than those from coal-fired power plants in Wisconsin alone.
What direction the debate takes may have to wait until next year when the United Nations sponsors a new round of international climate talks in Paris, the first since Copenhagen in 2009, which failed to achieve any clear results.
By acting against coal, the United States is positioning itself to play a more assertive role in Paris as it applies pressure to China and India to take bolder steps by seeking tougher measures in Canada.
Canada-Mexico alliance
For now, Obama, in rolling out the first major regulations to curb GHGs in the United States, targeting reduced carbon emissions by 30 percent from 2005 levels by 2030, has prompted Canada and Mexico to join forces in boosting their oil and natural gas production.
A Mexican government delegation was in Calgary on June 2 to entice Canadian companies to take advantage of Mexico’s wide-ranging energy reforms.
Leonardo Beltran Rodrigues, a senior official in Mexico’s secretariat for energy and natural resources, said his country is “fully committed to the transformation of the energy sector. We can do it with many people, but we would rather do it with friends.”
Faced with a decline in its oil production to 2.5 million barrels per day from 3.4 million bpd 10 years ago, Mexico is counting on its reforms to rebuild its output to 3 million bpd by 2025.
Carlo Dade, director of trade and investment policy at the Canada West Foundation, said the winding down of 70 years of energy nationalization in Mexico is a chance for Canada to benefit from Mexico’s search for guidance on regulations, best practices and skills development - a chance for Canadian firms to apply the expertise they have accumulated in the oil sands.
And establishing strong Canada-Mexico energy ties could gain the attention of the United States, where the current emphasis is more on tackling climate change than energy security.
Pressuring Canada
However, in such a volatile environment, scaling back coal-fired power production does not have a guaranteed outcome, even if a U.S. Chamber of Commerce study is accurate in predicting the phasing out of coal will increase retail electricity prices by 6 to 7 percent by 2020 and another 3 percent by 2030, or drive out manufacturers who have based their operations in the U.S. because of cheap energy.
A hint to Canada that it should not get swept up in its assumptions came June 2 from Bruce Heyman, the U.S. Ambassador to Canada, in his first speech since taking office in April.
He followed up Obama’s moves by calling for greater action against GHGs in Canada, including measures to tackle emissions from oil production.
“We need to continue to work together moving toward a low-carbon future, with alternative energy sources, with greater energy efficiency, and sustainable extraction of our oil and gas reserves,” he said.
Heyman said North America’s “newfound energy abundance should not distract us from the need to improve efficiency and combat climate change. This is not a task we can take on individually. It can only be successfully challenged together.”
He made no mention of XL or any other large-scale projects and gave no indication whether the regulations on coal emissions could have an impact on Canada.
However, Prime Minister Stephen Harper has consistently delivered a message over the years that Canada wants to coincide its carbon emissions policy with that in the United States.
But he appeared to vacillate in the House of Commons on June 2, suggesting that comparisons relate to how Canada and the U.S. treat their coal-fired plants, not how they are dealing with overall GHG emissions.
Harper argued that Obama is trailing Canada by two years in moving against coal-fired plants and is “taking actions that do not go nearly as far as this government went.”
University of British Columbia professor Kathryn Harrison, a specialist on global climate policies, told the Globe and Mail that Obama’s measures are designed to move the U.S. far ahead of Canada in reducing emissions to 17 percent below 205 levels by 2020, having already reached 7.5 percent.
Alberta’s view
While it waits to see what steps Harper might take, the Alberta government is making independent moves to introduce rules that it hopes will make progress in tipping the scales towards major energy projects, notably export pipelines to serve the U.S., Asia and Europe.
The government’s Alberta Energy Regulator was given authority in April to force companies to conserve excess gases emitted from oil sands operations rather than venting them into the atmosphere or burning them off.
But the rules are confined to facilities identified as a health threat to residents in the oil sands region, notably Native communities, and are not a blanket requirement to eliminate all gas emissions.
Alberta Finance Minister Doug Horner has complained that his province does not get enough credit for the environmental initiatives it has taken, such as a requirement for oil sands producers to reduce GHGs by12 percent per barrel, or pay a penalty of C$15 per metric ton above the cap.
That’s a message the Alberta industry and government continue spreading to lawmakers in Washington, D.C., although the government is confronted with demands to know why it has not yet acted on a proposal floated a year ago to reduce emissions by 40 percent a barrel and to increase the penalty to C$40 per metric ton.
Horner, echoing the federal government, has said the industry is reluctant to endorse those measures until Canada and the United States agree to parallel emissions rules.
Many observers share a view that if Canada wants to turn the tide of XL opposition, it must get serious about overall emissions. Now Obama, without casting his final vote on XL, may have tightened the screws on his northern neighbor.
