Federal guidance for best-in-class -Alberta’s carbon pipeline-Pathways “plan”

Several announcements from Ottawa, Edmonton and Calgary took place last week.  We unpack these announcements for their significance.

Guilbeault takes centre stage

On Wednesday 12 October 2022 Environment and Climate Change Canada released “draft guidance” on “best- in- class” GHG emissions for oil and gas projects. The National Observer regarded the guidance as a surrender to Big Oil, particularly the oilsands industry. I will examine some of the interesting aspects of draft guidance. Most important is the “draft” adjective used. Clearly Minister Guilbeault does not see the guidance as the final word.  The question for industry and environmentalists will be where the red line will be drawn over future oilsands growth and the emissions cap. 

According to Cloe Logan of the National Observer critics charge that Canada’s industry ranks “worst-in-class.” The loophole is if proponents can’t fulfill the best-in-class (BIC) criteria they “must explain why it will not be possible to achieve best-in-class emissions performance.” A chief complaint is that according to a report to the International Institute for Sustainable Development argues that high 

income countries should not approve any new fossil fuel projects and stop production by 2034. Despite this recommendation, this past April environment minister Stephen Guilbeault approved the Bay du Nord offshore project to howls of protest in western Canada.  However approval came with 137 conditions. And there lies the rub- approval in Canada does not appear to be actual approval (e.g. move the machines in and gather the requisite funds). While energy development approval in Alberta before 2015 was guaranteed by a Tory government and a complacent regulator, under the “Notley-Trudeau alliance,” the implicit guarantee was no longer there. The big companies though bought into Notley’s green initiative. 

Current lack of industry investment was not due entirely to the political  “alliance.” Depressed oil and natural gas prices and renewed government seriousness about climate change were the main reasons for this caution.  The sole exception was for the TMX purchase facilitated by both Ottawa’s Liberals and Notley’s NDP government. (The Coastal GasLink project has been approved by the British Columbia government but remains contentious.)

Draft Guidance

The draft guidance has an number of interesting twists that will stress the industry’s management to satisfy federal regulators while hold some potential for other uses of the oilsands. There are several references to oil sands: “a proposed oil sands mining project would be compared with the emissions intensity of other onshore oil production projects both in Canada and internationally.”   Secondly, “if the project will continue beyond 2050, submit a credible net-zero plan that will describe how it will achieve net-zero emissions by 2050 (emphasis in original).  This means that a “plan to plan” will not be acceptable. Thirdly, contractors’ emissions are caught as part of the project’s emissions. Fourthly, “projects should not rely on technologies that lock in capital stock for a period that is incompatible with net-zero by 2050.” Fifth, a key part of planning will be emissions reductions arising from collaboration (e.g. Pathways Alliance). Sixth, proponents can make the case for replacing high emissions fossil fuels (e.g. coal) by lower emissions fuel (e.g. natural gas). Seven, and especially notable:

proponents should avoid supporting activities and assets that could be at risk of becoming stranded from declining demand for the project’s products. However, there is likely to be a need for products that come from traditionally emissions-intensive sources, including non-combustion products such as asphalt

This applies specifically to oilsands operations. An article in The Conversation speaks to this possibility. The key is that oil sands production would be used in road-building and therefore not generate additional emissions  the transportation sector. A critical question for the industry would be the economics of selling unrefined bitumen such as asphalt.

For projects “which cannot or will not achieve best-in-class emissions performance,” the proponent must provide an explanation about why it will not. Proponents also must make their project design “sufficiently flexible” to incorporate new technologies and practices over the lifetime of the project. The integration of CCUS or carbon capture and storage (CCS) is one means of achieving the best in class designation. This is what both the province and the Pathways Alliance are hoping to get approvals for.

The guidance also suggests that  “energy security” for oil sands expansion and “displacement of high-emitting energy abroad with lower-emitting energy produced in Canada ” (e.g. LNG development) is an “appropriate justification” to carry out a project.

Oilsands Growth or production to 2050 is the Elephant in the Room

It is the “conditions” which is most troublesome to the industry, including financial backers. More conditions mean more money which makes the economies less viable. For the Pathways Alliance which represents all the major players in the oilsands industry, the key is how will carbon capture be regulated by the Impact Assessment Agency. Carbon capture is now seen as the sine qua non to continue operations over the long-term.

The Pathways Alliance released a “plan” to achieve net-zero by 2050 late last week. (14 October news release on Pathways “advances net zero emissions plan.“)  This plan is an “ambitious” effort to “to reduce annual emissions from oil sands operations by 22 million tonnes by 2030 and achieve a goal of net-zero emissions by 2050.”  At present about 70 million tonnes are emitted from the oilsands annually. Such a plan has been endorsed by Premier Danielle Smith. Given the Big Four’s financial and economic power, it is not a surprise the incoming premier is onside.

This plan costs approximately $16.5 billion by 2030 on the Alliance’s “foundational CCS”
project and $7.6 billion on other emissions reductions projects, This amount would then represent $2-$5-billion each year. While these numbers sound large, the numbers are significantly less than the provincial government’s capital spending of around $7-billion each year for roads, dams, educational and health care institutions. 

This ‘phase one” of the plan includes:

• Early engagement with more than 20 Indigenous communities along the proposed CO₂ transportation and storage network corridor
• exploratory work on the Alliance’s ambitious CCS hub to safely and permanently store CO₂ captured from 20 or more oil sands facilities and other interested industries in northern Alberta. 
• Conducting engineering studies for the phase 1 CO₂ capture facilities.
• Nine carbon capture feasibility studies involving member companies have been completed on oil sands sites, with engineering work advancing.
• Completed pre-engineering work on the 400-kilometre pipeline that will carry captured CO₂ to the storage hub; more detailed engineering work is about to begin.
• Environmental field programs are underway to support regulatory application submissions for the proposed CO₂ transportation line and storage network. The Alliance is planning to submit those applications in late Q4 of 2023.

Noteworthy in the announcement was the inclusion of boilerplate legal language known as an “advisory.” This is required by securities regulators when companies are making statements about future events.  The wide ranging cautionary against relying on statements about future events, including investments. 

In particular:

Forward-looking statements in this press release include, but are not limited to, references to the viability, timing and impact of the net zero plan and the development of pathways in support of a net-zero future; support for the pathways from the Government of Alberta and the Government of Canada; the ability to enable net zero emissions from oil production and preserve economic contribution from the industry; the deployment  of technologies to reduce GHG emissions; the ability to create jobs, accelerate development of the clean tech sector, provide benefits for other sectors and help maintain Canadians’ quality of life; and making economic investments to ensure a successful transition to a net zero world and delivering long term value to shareholders. All net-zero references in this announcement apply to emissions from oil sands operations (defined as scope 1 and scope 2 emissions).

Alberta’s selection process

The Pathways announcement followed both the federal announcement and the 4 October 2022 announcement by Sonya Savage of the selection of 19 CCUS sites by the energy department . According to this release,  the “competitive” process took into account “location, Indigenous benefits, open access to regional emitters, an understanding of potential interplay with other resource development activities and the readiness to move forward quickly.”  Readiness to move forward of course is what the industry wants. Given the worry over energy security and federal regulatory overreach, oilsands investors would like a guarantee that their assets will not be stranded.

According to the release there were another six projects selected in March in the Industrial Heartland. The rationale for this new sequestration tenure management system is to “diversify” the energy sector defined as a shift to hydrogen and a “net-zero electricity grid,” not a zero emissions energy grid.

Selected proponents are directed to sign a “generic carbon capture and storage evaluation agreement to evaluate the suitability of their pore space.” By doing so, the province has “occupied the field” of  regulating sequestration of  carbon dioxide. There is no mention that the federal government has any role to play in this affair although all Canadian taxpayers will be footing about half the cost of CCUS.

Is CCUS safe?

According to the quick facts of the press release, captured carbon dioxide is stored in porous

 underground geological formations “deep below the Earth’s surface.” This statement is supposed to allay fears. The Quick Facts goes on to say “research demonstrates that various geological trapping mechanisms prevent the carbon dioxide from having any impact on water, plants or the soil.” There is no reference to the specific research being cited. Elsewhere on Alberta Energy’s website Carbon Sequestration Tenure Management is an “Energy Fact sheet”- really a frequently asked questions- for more information “on the safety of carbon capture and storage.” The fact sheet states that CCUS is a “proven technology.” It also states that the International Energy Agency “and other sources” say “without substantial support to further develop and employ this technology, it will be difficult for Canada to meet its emission reduction targets.” To the question of safe water the reply reads “Research demonstrates that various geological trapping mechanisms will contain the carbon dioxide deep underground. Careful site selection and rigorous monitoring serve to ensure the injected carbon dioxide remains sequestered and does not have any impact on fresh water, plants or the soil.”  The fact sheet contains no links to outside independent sources. The FAQ also assures its readers that storage hubs are “good for the environment.” The successes of previous projects such as Shell’s Quest site are touted. 

Opinion

At some point in the very near future the federal guidance and other policy and regulatory instruments governing Canada’s international environmental obligations and Alberta’s sequestration tenure management system will collide.  This collision could be soon, possibly even before the provincial election, since the province is encouraging and signaling the desire to approve these projects quickly. But given the Impact Assessment Agency’s regulatory process there may not be a federal decision that would be magnified in a charged political context. 

Many Albertans are rightly fearful about their jobs. And they should be because if the oilsands are not phased out well before 2050, more evidence will accumulate that carbon emissions are warming the climate quickly and Canada is not doing enough to transition to a renewable electricity grid. Perhaps more than 50 per cent of Albertans understand this- young Albertans particularly get this. 

Politicians should be preparing the general public for a different future, not necessarily a “worse” future.  The transition doesn’t mean producing more fossil fuels to be burned while “neutralizing” the emissions used in production.  It means either using bitumen for asphalt or shutting it down well before 2050.  One of the main ironies of Alberta’s transition is going to be the thousands of jobs spawned by cleaning up the industry’s mess. Not a better future, but a different one.

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