What will it cost for a greener energy industry?
Hindsight — like the oil industry’s presumed negotiating position in developing the next generation of greenhouse gas emissions regulations in Alberta — is 20/20.
In retrospect, allowing the presumptive negotiating positions of the industry and the federal and Alberta governments to get into the media even as the three groups continue to negotiate the regulatory infrastructure to meet Canada’s CO2 emission targets may have been a major miscalculation.
At stake are billions of dollars and Canada’s international reputation. Regardless of who provided the information — and it’s open to speculation and conspiracy theories from Edmonton to Ottawa — the job of developing the new standards got much tougher and a lot more public for the parties involved now that it’s out in the open.
Premier Alison Redford is in Washington this week to seek support for the Keystone XL pipeline, but much of her time has been spent downplaying reports Alberta wants to hike its current levy on carbon dioxide emissions to $40 per tonne and mandate a 40 per cent improvement in emissions per barrel.
She’s repeatedly denied Alberta’s seeking a 40/40 solution.
There’s no “magic number,” Redford said Wednesday.
On her trip, the premier has highlighted Alberta’s $15-per-tonne levy on large industrial emitters that do not meet a 12 per cent intensity reduction target. But her government is also acknowledging the standards introduced five years ago may need to be raised. Governments in Canada had to let it be known they are enhancing environmental regulations to help mitigate the inevitable criticism should President Barack Obama approve the 825,000-barrela-day Keystone XL pipeline from the oilsands to the Gulf of Mexico.
It’s debatable whether stories in the Canadian media are the best way to message U.S. policy-makers but it is undeniable the status quo isn’t going to suffice for Alberta and Ottawa to meet their commitments to reduce GHG emissions by 2020.
The Canadian Association of Petroleum Producers isn’t saying anything about reports it’s put forward a 20/20 proposal. Environment Canada has also refused to comment on a reported 30/30 option from the federal government.
Industry sources — who acknowledged the reported pricing and reduction options are on the table — said it wasn’t part of CAPP’s game plan to see complex public policy discussions play out in the media. That’s hardly surprising.
If Alberta doesn’t get a 40/40 regime — regardless of Redford’s protestations — it will appear it has again relented to industry pressure.
That’s a bigger deal than it used to be.
The oilsands industry is at almost two million barrels a day of production so it isn’t seeking a social licence to operate as much as it needs a “social licence to export” carbonintense oil, said Bob Page, former chairman of the now disbanded National Roundtable of Energy and the Environment and a professor at the University of Calgary’s Haskayne School of Business.
“The social licence is being given by the country importing the oil,” Page said.
Ottawa is expected to deliver its GHG regulations for oil and gas producers this summer while Alberta’s current regime expires in 2014. The oilsands represent about 6.5 per cent of Canada’s GHGs but they’re the fastest growing source of emissions.
They’re also the backbone of the Alberta and, increasingly, Canadian economies.
The industry has seen multibillion projects cancelled this spring because of poor economics so there is bound to be opposition to plans which raise costs and put investments in jeopardy in an already high-cost basin.
Oilsands producers are not a homogeneous group and some use a $40 “shadow price” for C02 emissions so there will be divisions with CAPP’s members as it tries to put forward terms that best accommodate the majority of companies.
Meanwhile, speculation about the negotiations is public fodder.
A 40/40 scheme would add 75 to 80 cents per barrel of bitumen on a typical SAGD project, according to estimates. Given that discounts on Western Canadian heavy oil have been between $25 and $40 a barrel in recent months an added cost of less than a $1 per barrel to improve market access appears a small price to pay.
Investment firm FirstEnergy Capital said this week “we would view such a trade-off (slightly higher costs vs. much more security regarding heavy oil differentials and thus revenues in the longer term) as a net positive for oilsands producers.”
Compare that assessment with the visceral reaction to the Alberta government’s proposed — eventually rescinded — royalty increase in 2007.
The Pembina Institute just released a report that suggested something close to 40/40 as a starting point but noted that won’t get Canada to its GHG targets. The environmental group suggests that fees rise to at least $100 per tonne and calculates it would cost less $3 per barrel.
“You can clearly point to the costs associated with the loss of market access,” said Pembina’s Simon Dyer. “For a very low per-barrel cost, government and industry could make a lot of these issues go away.”
Now that numbers — accurate or not — are in the public realm, industry and governments face an issue in that the cost of doing business in a more environmentally acceptable manner doesn’t seem all that high.