For the oil sands industry of Alberta, climate-change policy announced by a new, left-leaning government, days before international leaders meet on the subject in Paris, could have been worse. For Albertans in general, news isn't so good.
Premier Rachel Notley, whose Alberta New Democratic Party took charge of the provincial government in May, made the usual green noises in a pivotal speech Nov. 22 in Edmonton. She disparaged "mistaken policies of the past," insisted "climate change is real," and promised "to protect the health of our children." Yet she spoke protectively about the oil sands. She called US rejection of the Keystone XL pipeline border crossing this month "a kick in the teeth" and questioned the fairness of President Barack Obama's characterization of oil-sands output as "some of the 'dirtiest oil in the world.'"
Disappointing extremists
Notley's policy will disappoint extremists driving the politics of climate change, who want to prevent most future development of hydrocarbon resources, especially the oil sands. It instead allows production of bitumen and synthetic crude oil to grow. But the policy caps emissions of greenhouse gases (GHGs) associated with oil-sands development at 100 million tonnes/year (tpy) in 2030, with unspecified "provisions for cogeneration and new upgrading facilities." Current emissions, Notley said, are about 70 million tpy.
This shouldn't be as devastating to oil sands development as a halving since mid-2014 of the value of crude oil and political pressure to foreclosure market access. At midyear, the Canadian Association of Petroleum Producers projected 2030 production from the oil sands at 4 million b/d. According to Oil & Gas Journal calculations based on CAPP and government data, compliance with the new target at that production level requires a decrease in carbon dioxide-equivalent GHGs emitted from production and upgrading to 0.068 tonnes/bbl in 2030 from 0.088 tonnes/bbl in 2013. That's a 23% cut in 18 years. According to CAPP, oil sands GHG emissions fell by 30% over the 24 years ending in 2013. The lower per-barrel emissions rate is still 47% higher than the average rate for conventional oil and gas produced in Alberta in 2013.
Technological improvements that yielded past cuts in GHG emissions continue. With government help, the Athabasca Oil Sands Project, a combine led by Shell Canada, recently started commercial operations of a carbon capture and storage project known as Quest near Fort Saskatchewan. And operators of thermal projects steadily lower requirements for steam, the generation of which represents much of the energy consumption and therefore GHG output associated with bitumen production. Step-change improvements in that area are in prospect from the injection of solvents with or instead of steam and from electric heating.
The new cap won't be the only incentive oil sands producers have to develop technologies that moderate GHG emissions. Notley's plan also includes a tax on GHG emissions from all industries reaching $30/tonne of CO2-equivalent in 2018. The carbon tax will apply to 78-90% of Alberta's emissions. And it will take effect in conjunction with mandates to end coal-fired generation of electricity by 2030 and to generate 30% of power that year from renewable energy such as wind and solar.
Awaiting the costs
Those moves will be broadly painful-to businesses and to individuals. They will raise costs of electricity across Alberta. And the carbon levy will apply atop recent increases in corporate and individual income tax rates and in excises on consumer products. Alberta no longer will be an investment haven for energy and other industries. It will be more like Quebec and Ontario, struggling to keep businesses from decamping.
"Alberta is leading again!" declared Notley in Edmonton. Yes it is. A gaping question is whether Albertans will embrace that activity once the costs hit. At least their province will still have an oil sands business to anchor its economy-unless, of course, the government succumbs to its sacrificial tendencies with a royalty review still in progress.