The Canadian and Alberta governments are doing all they can to persuade key decision-makers in Washington, D.C., to approve the Keystone XL pipeline, amid speculation that Alberta is pondering tough new environmental standards to soften its public image.
Speculation is rife that Alberta is testing the petroleum industry and Canadian government responses to plans for a sharply higher carbon tax, matched by a 40 percent reduction in per-barrel greenhouse gas emissions, GHGs.
Unable to obtain a clear-cut victory for their case that Keystone XL will deliver Bakken crude along with Alberta oil sands crude to the Gulf Coast, thus bolstering U.S. energy security and creating thousands of jobs, the two governments are digging even deeper into their bag of tricks.
In separate missions to Washington, D.C., earlier in April, Alberta Premier Alison Redford and Canadian Environment Minister Peter Kent “spread the good news” about new efforts to strengthen their environmental policies.
What they and a parade of visiting provincial premiers and federal cabinet ministers encountered was stiffening resistance to Keystone XL and uncertainty over when the Obama administration will make its final decision on the pipeline.
Decision months away
Even TransCanada’s Alex Pourbaix, president of energy and oil pipelines, had little good cheer to offer after speaking at a U.S. House of Representatives Energy and Power subcommittee hearing on a proposed bill that would grant approval for Keystone XL without a presidential permit.
He reported later that a decision on the permit is now “many more months down the road,” dashing hopes of a verdict by the end of June.
Making her second trip in two months to Washington, Redford, along with her International Relations Minister Cal Dallas and Environment Minister Diana McQueen, told senators, members of Congress and other power brokers that Keystone XL can be built at the same time Alberta can reduce GHGs and be a good steward of land, water and air.
Her lobbying was accompanied by a second round of Alberta government advertisements in U.S. publications, including the Washington Post, aimed at convincing Americans that approving XL would benefit both sides of the Canada-U.S. border.
“America’s desire to effectively balance strong environmental policy, clean technology development, energy security and plentiful job opportunities for the middle class and returning war veterans mirrors that of the people of Alberta,” the advertisements proclaimed.
At the same time, a coalition of XL opponents launched a new TV ad campaign and hit many U.S. morning talk shows with an “all risk, no reward” message.
Greening the image
But the ultimate attempt to “green” Alberta’s image was taking place in backrooms in a round of preliminary negotiations with the petroleum industry, specific companies and the Canadian government on a controversial proposal by Redford’s government to impose a new carbon levy and require big oil producers to slash their GHGs .
“We are currently in the early stages of exploring a variety of options through a collaborative process,” said McQueen. “These discussions are ongoing and revised targets have not yet been finalized.”
Although the province was not prepared to disclose actual targets, various leaks from meetings with Kent and senior oil executives point to a staged cut in per-barrel GHGs of 40 percent and an increase in Alberta’s carbon tax to C$40 per metric ton from C$15.
Alberta Energy Minister Ken Hughes said he expects to get feedback from the industry “over the next few weeks.”
Plan for 2020
The so-called 40/40 plan, to take effect in 2020, would replace the current penalty on large industrial polluters who must reduce their GHG emissions intensity by 12 percent or pay a C$15 per metric ton levy if their carbon emissions exceed 100,000 metric tons a year.
Danielle Smith, leader of the Wildrose Party in the Alberta legislature, called the proposal “shocking, disruptive and unilateral” and a breach of Redford’s promise not to increase taxes.
Simon Dyer, policy director at Alberta’s Pembina Institute, said the 40/40 plan would mark a “substantial strengthening” of Alberta’s environmental laws.
“Clearly this is high stakes as it relates to concern in the U.S. about our climate policy,” he said. “Time is of the essence.”
Dyer said his independent organization has not been consulted on the proposal, unlike previous environmental initiatives, and “would appreciate the opportunity to learn more about the specifics.”
The Canadian government has declined to comment on the nature or status of the talks with Alberta, but Kent said in February that the administration of Prime Minister Stephen Harper had been in talks with the province, two oil and gas industry lobby groups and three oil sands producers — Suncor Energy, Cenovus Energy and Canadian Natural Resources — and was “very close” to finalizing GHGs for the petroleum sector. An official in Kent’s office said it is premature to disclose any numbers.
No comment from CAPP
The Canadian Association of Petroleum Producers, representing companies producing more than 90 percent of Canada’s oil and gas, declined to comment on any aspect of the latest negotiations.
But, according to provincial sources, CAPP has previously suggested Alberta adopt a 20/20 plan — a 20 percent reduction in per barrel GHGs and a C$20 per metric ton penalty for those unable to comply.
Internal Alberta strategy objectives make it clear that the province now believes it has no choice but to adopt more stringent emission targets and penalties as it works to convince others of its commitment to the environment.
That points to a considerable gap between industry and government, with industry officials arguing that a hike in the carbon levy could impair their competitiveness.
Environmentalists estimate the Canadian and Alberta governments would have to impose a levy of C$100 per metric ton to provide an effective emissions regime that would allow Canada to meet its climate change commitments.
UBS analyst Chad Friess said that even a 40 percent GHG reduction from current levels is a “fantasy,” but doubted that a C$40 penalty would drive the oil sands out of business.
FirstEnergy Capital estimated the 40/40 plan would cost some oil sands producers about 60 cents per barrel after tax.
If that helped obtain U.S. approval for Keystone XL “we would view such a trade-off (slightly higher costs vs. much more security regarding heavy oil differentials and thus revenues in the long term) as a net positive for oil sands producers. But that small number may mask a larger impact: For some projects, it’s enough to cut the net present value by 15 percent, although most would face a more modest 2-to-3 percent reduction.”
