Documents obtained by Greenpeace (using Alberta’s Freedom of Information Act) show that the oil industry has been lobbying for the weakest possible greenhouse gas regulation for their sector.

Oil companies have spent millions to flood Canada’s airwaves with ads extolling their commitment to environmental protection and responsible energy development, yet in private they are opposing any new greenhouse gas rules that would raise their costs by more than 15 cents per barrel.

The proposal from the Canadian Association of Petroleum Producers would see annual greenhouse gas (GHG) emissions from the tar sands rise from 55 million tonnes (MT) today to 98 MT in 2020. If no new rules are introduced, emissions are projected to be at 103 MT in 2020.  To put those numbers in perspective, the entire province of British Columbia emitted 59 MT of GHGs in 2011.

The federal government’s proposal is stronger than the industry proposal, but still wouldn’t put the nation on-track to meet the Harper government’s own 2020 GHG reduction target.  The federal proposal would result in an average compliance cost for the oil industry of around $9 per tonne of GHGs, which is higher than in the industry proposal ($3 per tonne) but lower than the current compliance costs of at least $24 per tonne in British Columbia and over $70 per tonne in oil-rich Norway. It would result in tar sands emissions rising from 55 MT today to at least 92 MT in 2020 (an additional  30 – 61 cents per barrel).

After considering royalty impacts and the possible recycling of technology fund revenues back to tar sands companies, every scenario (including Alberta’s now-abandoned 40/40 proposal) costs industry less than a dollar per barrel.

Keystone Consequences

These revelations may have consequences south of the border for the Keystone XL pipeline. President Obama has said that he won’t approve the pipeline if it significantly increases GHG emissions. Tar sands emissions are, of course, projected to increase dramatically but the pipeline’s backers have argued that not building Keystone won’t change this because the same amount of oil would come by rail.

Yet moving oil by rail is more expensive than pipelines – about $5/barrel more to move it from Alberta all the way to the Gulf Coast (setting aside for the moment that there is no infrastructure to do this and that post-Lac Megantic there will be broad public resistance to moving that much oil by rail).

In these documents, however, the oil industry says that even 80 cents per barrel will result in lower production as some projects won’t go ahead. According to the Canadian Association of Petroleum Producers statement of “concerns” with respect to Alberta’s proposed regulation:

“We would highlight that anything more stringent than today’s system will increase costs, possibly lowering investments and reducing production…. Will higher stringency requirements impact production and revenue? Very likely. Adding a regressive charge on the oil sands, one that bites harder at low prices than high prices, introduces additional cost and risk. This will impair recovery of marginal resource associated with existing projects. And make new projects less competitive from a portfolio perspective.”

So I guess that makes the President's decision easier. But our own federal government still has to follow up on its commitment to regulate this out-of-control sector.

The details

 The documents cover the first five months of 2013, when the federal government, the government of Alberta and the Canadian Association of Petroleum Producers (CAPP) were negotiating over proposals for a new Alberta greenhouse gas regulation. The federal government was part of those negotiations because it has committed to adopt national regulations for GHG emissions from the oil and gas sector.

 They detail the proposals for the regulations from Alberta, the federal government, and CAPP, and also provide CAPP’s comments on the proposals.  The key table, comparing the current Alberta GHG regulation with proposals by CAPP, the federal government and Alberta’s “40/40” regulation, is recreated below.

 

 

Current AB System**

CAPP proposal

Federal Proposal

Alberta 40/40

Stringency target

12% (for all large final emitters)

20% (for the entire upstream sector)

30% (for the entire upstream sector)

40% oil sands

 

12% or 20% for conventional oil and natural gas

Carbon price ceiling $/tonne

$15

$20

$30 (30% of compliance)

 

$80 (remainder)

$40 oil sands, conventional oil and natural gas

Average compliance cost ($/tonne CO2e total emissions)

$1.36 – 1.58/ tonne

$2.69 – 3.61/ tonne

$6 – 11/tonne

$11 – 14/ tonne

Total policy cost $/bbl

 

$/Mcf

 

$0.11 – 0.12/bbl

 

 

$0.01 – 0.01 mcf

$0.21 – 0.28/bbl

 

 

$0.02 – 0.02 mcf

$0.47 – 0.87/bbl

 

 

$0.03 – 0.05 mcf

$0.82 – 1.12/bbl

 

$0.01 – 0.02 mcf

 

(20%/$40)

$0.03-0.03 mcf

Royalty impact (including impact to gas processing)

$24 – 28 million

$48 – 63 million

$107 – 196 million

$184 – 246 million

Industry cost $/bbl

$0.09 – 0.10/bbl

$0.17 – 0.23/bbl

$0.39 – 0.72/bbl

$0.70 – 0.94/bbl

Fund payments from oil and gas*

$3 – 97 million

$91 – 257 million

$185 – 286 million

$317 – 983 million

Fund recycled back to oil sands

$0 – 0 million

$0 – 54 million

$0 – 122 million

$0 – 216 million

Expected oil sands direct internal reductions

3 – 5 Mt

4 – 7 Mt

9 -11 Mt

7 – 14 Mt

Total provincial reductions from policy

8 – 14 Mt

10 – 19 Mt

24-27 Mt

19 – 35 Mt

Approximate contribution to Alberta’s 2020 CC target of 260 MT or 50 Mt below business as usual (311 Mt – 50 Mt = 260 Mt)**

270 – 276 Mt

265 – 274 Mt

257 – 260 Mt

249 – 265 Mt

Gap 10 – 16 Mt

Gap 5 – 14 Mt

Surplus 3 – 0 Mt

Surplus 11 – Gap 5 Mt

Timing for implementation of targets/price

Current

Ramp up to 20% and $20/tonne by 2020 (After 2020 retain 20% and review price)

2016

Fall 2013 – Pass regulations for oil and gas and increase stringency to lineup to federal regulations to be issued in 2016 (graduated targets).

Achieving Alberta’s 2020 greenhouse gas reduction targets

No

No

Likely

Yes

Enabling path to achieving Alberta’s 2050 greenhouse gas reduction targets

No

No

No

No

Cost effectiveness through compliance flexibility

Yes

Yes

Yes

Yes

Incenting technology

$3 – 97 million

$91 – 257 million

$185 – 286 million

$317 – 983 million

Competitiveness

$0.09 – 0.10/bbl

$0.17 – 0.23/bbl

$0.39 – 0.72/bbl

$0.70 – 0.94/bbl

Benchmarking with other leading jurisdictions

No

No

Policy likely establishes Canada as a leader

Policy likely establishes Alberta as a leader

Equivalency

No

No

yes

Likely