How oil lobbyists persuaded Alberta to weaken rules for dirty facilities

Some of the oldest and dirtiest oil and gas facilities in Alberta are exempt from tough climate change rules adopted when former premier Rachel Notley’s NDP government was in power.

The loophole is due to a successful 11th-hour lobbying campaign by the fossil fuel industry that persuaded the provincial government to delay and then weaken the rules, internal emails and memos reviewed by The Narwhal have revealed.

The rules, first adopted in December 2018, are designed to crack down on methane pollution — a major contributor to global heating and the climate crisis — from heavy oil production.

The provincial energy watchdog, the Alberta Energy Regulator, says the global warming potential of methane is significant — estimated to be 25 times greater than that of carbon dioxide over a 100-year period. Federal scientists also estimate that methane is responsible for a quarter of all global warming caused by humans and about 14 per cent of Canada’s total greenhouse gas emissions in 2020.

In 2017, officials at the Alberta Energy Regulator had drawn up plans for aggressive rules to crack down on methane. The goal was to reduce emissions by 45 per cent from 2014 levels by 2025, in line with national targets in Canada. While the target remained the same, the regulator’s proposal on how to achieve it was revised after the office of then-energy minister Marg McCuaig-Boyd was directly lobbied by one of the country’s largest oil and gas companies, Canadian Natural Resources Limited.

As a result, the province, with the blessing of Prime Minister Justin Trudeau’s federal government, implemented rules that weren’t as aggressive in requiring upgrades to aging facilities to reduce their heat-trapping pollution.

Months before the watered-down rules were adopted, provincial officials noted in internal correspondence that they were bracing for Alberta cabinet ministers to support an industry-backed proposal that regulatory officials believed would be difficult to enforce.

“Industry has lobbied hard for this,” wrote an official from the provincial regulator in an email that preceded a March 1, 2018, meeting with provincial NDP ministers.

This observation was among a series of blunt messages exchanged in internal correspondence between the regulator, industry and the provincial government over a number of months. The emails and memos show how broad consultations on the climate rules were derailed.

The internal records also provide a glimpse into how major oil and gas companies in Alberta have thwarted tougher rules to tackle the climate crisis, regardless of the political leanings of the party in power.

Canadian Natural Resources appeared to do an end run around the regulator, persuading the minister to support a plan to modify the rules in a manner that would benefit heavy oil production, documents reviewed by The Narwhal show.

The changes pre-empted the possibility of strict limits on pollution from some of the industry’s aging facilities that belch out large quantities of methane. Instead, companies were allowed to meet targets based on the average emission levels of a group of their facilities.

This made compliance easier and cheaper for big oil companies. But it also opened the door to bad actors gaming the system, an official at the regulator said.

The government ignored the regulator’s repeated advice to reject the proposal from Canadian Natural Resources — a company that has consistently ranked as venting the most methane gas among comparable operators in the province.

Oil and gas producers are breaking Alberta’s methane rules

Pegging reduction to a group of facilities versus each specific one makes the rules “hard to enforce,” said Jan Gorski, director of the Pembina Institute’s oil and gas program.

One source close to the regulatory development process at the time was more blunt.

Canadian Natural Resources “wanted weak enough regulations that tomorrow it would be really hard to inspect or check compliance,” said the source, who asked not to be identified out of concern they would face repercussions for speaking out.

“They got it.”

Canadian Natural Resources did not respond to repeated requests for comment on this story.

Slashing methane would be cheaper than carbon capture and storage

Launched in the 1980s, Canadian Natural Resources has built an empire out of heavy oil, helping its Canadian founder and executive chairman, N. Murray Edwards, become a billionaire.

Edwards is also a major shareholder in Imperial Metals, the company that owns the Mount Polley mine where 25 billion litres of toxic mining waste spilled into waterways in 2014.

Canadian Natural Resources reported paying $1.8 billion to its shareholders in the first quarter of 2022, including about $700 million in dividends and nearly $1.1 billion in share repurchases.

A few years ago, while it was lobbying McCuaig-Boyd’s office, the oil giant presented material to the government that argued the province’s revenues would be hit hard and the company’s ability to finance more oil and gas activity would be restricted.

This was despite the fact the Alberta government was offering $3 billion in tax breaks meant to free up money for oil and gas producers to invest in methane reductions.

The methane loophole that Canadian Natural Resources lobbied for has to do with a technique the company uses for extracting heavy oil that’s particularly common near where the city of Lloyminister straddles the border between Alberta and Saskatchewan.

The technique is called “cold heavy oil production with sand.” Industry insiders usually refer to it by its acronym, CHOPS. It involves pumping a low-grade petroleum substance called crude bitumen to the surface, often with large amounts of sand, and then directing the thick fluid into storage tanks, where the materials are separated out before the resulting substance is shipped off for processing into products like oil. The word “cold” is in the name because, unlike other oil production techniques, the process doesn’t use hot steam injected into the ground to soften up oil deposits.

While cold heavy oil production isn’t as commonplace as other techniques, there are more than 2,600 facilities in Alberta, representing 12 per cent of total oil production in the province, according to the regulator.

As of April 2022, Canadian Natural Resources accounts for 54 per cent of all cold heavy oil production facilities in Alberta. Out of 125 different operators, it’s the top operator of these kinds of facilities, according to provincial statistics.

Cold heavy oil production is an emissions problem. As the fluid sits in the storage tanks, it releases methane gas. In many cases, companies have found it too unprofitable to bother trying to capture the methane. Instead, they let it escape into the air, a process known as venting.

In a summer 2016 report from the Alberta Energy Regulator’s climate policy team, methane venting from cold heavy oil production was described as a “common practice” in the industry and “characteristic” of those kinds of oil wells.

The industry practice was also seen as opaque. The storage tanks do not release methane steadily, making it difficult to measure. The report described a “concern about significant measurement errors” from these kinds of operations and “overall uncertainties in data.”

The oil and gas sector is the largest source of industrial methane emissions, in part due to practices like venting. These kinds of human-caused methane emissions are jeopardizing the world’s climate goals.

Although some oil and gas companies have asked for billions of dollars in subsidies to help them deploy technologies such as carbon capture and storage on a large scale to slash carbon pollution, a number of government reports have noted how it would be easier and cheaper for companies to reduce their climate-warming emissions by tackling methane.

For example, the International Energy Agency says banning non-emergency methane venting, as well as putting in tougher leak detection standards, could help drive a 45 per cent drop in methane emissions from oil and gas operations with “no net cost.”

A March 2022 federal discussion paper says the methane regulations that Canada published in 2018 were “estimated to reduce methane emissions at an average cost of $17 per tonne” of carbon dioxide equivalent, compared to estimates of at least $30 to $40 per tonne for carbon capture in a 2021 Public Policy Forum report, citing International Energy Agency data. Other organizations have calculated even lower values for methane mitigation, from $11 per tonne to under $5 per tonne.

Great to be part of rally for our energy sector in Grimshaw. The world needs more Canadian energy – and more Peace Country energy! #abenergy #peacecountry #ableg pic.twitter.com/ycSfPR5w3E

— Marg McCuaig-Boyd🇨🇦🇺🇦 (@MargMcCuaigBoyd) January 12, 2019

Former Alberta minister Marg McCuaig-Boyd said she wanted methane rules to be ‘fair for everyone’

In an interview this June, McCuaig-Boyd, who now runs a consulting company, told The Narwhal that as energy minister she wanted to adopt a plan that would work for companies over the long term.

But she thought the Alberta Energy Regulator was being “overly prescriptive” in its approach by focusing on enforcement instead of allowing industry to decide how to achieve the desired outcome.

“I think that was always why they wanted [to regulate] certain equipment, rather than letting the companies decide, because it maybe was difficult for them,” she said.

“But at the same time, I personally felt strongly that the companies knew — if there was a cheaper technology that was going to get them to the same benchmark, why not let them use it?”

McCuaig-Boyd added that she can’t recall specific advice from the regulator. But she said she recalled “a lot of input from a lot of industry on methane.”

Asked if she takes credit for adding more flexibility into the rules, as requested by Canadian Natural Resources, she said “I don’t know if I do or not.”

“The [regulator] led the process and reported back to us. And I do remember sending them back a couple times and saying, ‘make sure this is fair for everyone,’ ” she said.

At the time, the industry was “suffering” from lower oil prices, she said, “so we were really cognizant of not making it worse.”

Oil industry loophole seen as blowing up climate goals: ‘We will way overshoot the 45 per cent limit’

The documents reviewed by The Narwhal show the industry started lobbying for weaker rules not long after the Alberta NDP government first told the regulator to develop its methane regulations.

As the draft rules moved closer to being finalized, industry began a renewed push to scale them back.

By March of 2017, an oversight committee made up of stakeholders from industry, environmental groups and provincial officials was also providing feedback, one of the final steps before draft plans would be released for public comment.

Companies, including Canadian Natural Resources, had raised “concerns” with Alberta’s energy ministry over some of the stringent measures proposed by the province, describing some proposed limits on pollution as “too low,” according to a March 31, 2017, briefing note to McCuaig-Boyd and then-environment minister Shannon Phillips.

Canadian Natural Resources wanted “flexibility for companies” to allow them to focus on reductions across their portfolio instead of individual facilities, the briefing note indicated. It stated there had been “good information exchange” between the committee and the lobby group.

Senior officials at the regulator also indicated they felt the proposed process was fair to industry, despite the concerns raised by the companies.

For example, an April 16 email from Mark Taylor, then the executive vice president in the Alberta Energy Regulator’s operations division, noted that the government was foregoing about $400 million per year in carbon levy revenues through 2023, seeing it as a “trade off” with industry for imposing methane regulations.

One month later, Canadian Natural Resources revealed in a company presentation how an industry lobby group, the Canadian Association of Petroleum Producers, had also sent the government a proposal with less stringent regulations.

For example, the lobby group suggested the rules should not have forced companies to carry out comprehensive leak detection and repair surveys at most facilities. It also suggested the government should not ban venting of methane at new cold heavy oil facilities.

Days after the lobby group shared its preferences, officials at the regulator sensed meaningful change was becoming less likely. The Narwhal reviewed an email circulated by the Alberta Energy Regulator’s internal climate policy team that summarized a May 24 meeting.

The meeting summary indicated that staff at the regulator believed Alberta’s climate goal of cutting methane would be jeopardized if new cold heavy oil facilities weren’t banned from venting methane.

If new cold heavy oil facilities weren’t banned from venting methane, one official wrote, “we will way overshoot the 45 per cent limit and there will be a point in the future where new policy must be developed.”

The industry association did not respond to questions from The Narwhal about its lobbying efforts or its assessment of the regulations.

After Canadian Natural Resources document passed from minister’s office to regulator, public comment delayed for months

By the end of that month, McCuaig-Boyd indicated in a letter that the Alberta government was moving ahead with its plans to publish draft regulations on methane for public comment “later this summer.” The letter appeared to be addressed to all industry and environmental stakeholders.

The federal government had just announced its own proposed methane regulations, and the minister wanted to get a “made-in-Alberta solution” up and running so that the federal rules wouldn’t be imposed on the province.

On May 30, 2017, Canadian Natural Resources’s internal presentation that shared the industry association’s proposals for less stringent methane regulations landed in the hands of McCuaig-Boyd’s chief of staff, Marcella Munro, a former lobbyist with Earnscliffe Strategy Group.

According to filings with the B.C. lobbying registry, Munro lobbied on behalf of two natural gas companies in 2012 and 2013 before taking her job in the minister’s office. She is now head of government and regulatory affairs for Teck Resources. Munro told The Narwhal she wouldn’t be able to comment on the story.

The presentation from Canadian Natural Resources was critical of the regulator’s approach, suggesting the proposed rules would “result in reductions that far exceed targets.”

The company framed the situation as resulting in “lost jobs and royalties” as well as fewer wells drilled, which would “eliminate 1,900 person-years of employment.”

As the world’s demand for energy increases, significant oil and natural gas resources will need to be developed. #Canada, and Canadian Natural are well positioned to be a global leader in supplying crude oil and natural gas in a lower carbon emissions future. #oilandgas #energy https://t.co/9Ao9ZgG4Fo

— Canadian Natural (@CanadianNatural) December 12, 2019

“Incremental compliance costs in excess of the industry proposal will reduce capital available for new activity by $750 million,” it added. “This could have created 5,400 person-years of employment.”

As a result, Canadian Natural Resources proposed in the internal presentation to work “collaboratively” with the regulator “to align on meeting the target with the least job losses and impact to (Government of Alberta) revenue.”

It is unclear how Munro obtained the company’s document, but the same day that she did, she emailed her counterpart in the office of the regulator’s chief executive.

Munro wanted to know the regulator’s response to industry concerns around venting, emails from the regulator show. Her outreach echoed the contents of the Canadian Natural Resources document, as well as another from the oil and gas lobby group.

As a result of Munro’s outreach, the Canadian Natural Resources presentation also ended up in the hands of senior officials at the Alberta Energy Regulator.

After Munro received and forwarded the presentation, there was a phone call between Taylor, of the regulator’s operations division, Munro and McCuaig-Boyd on June 1.

The purpose of the call was for the minister and her chief of staff to “relay” the “concerns” raised by the company over the new rules impacting their cold heavy oil facilities, according to a June 5 email from Taylor.

At this point, the regulator had already decided to recommend that the eventual rules disallow methane venting for new cold heavy oil facilities, according to a June 1 briefing note prepared for Taylor and his executive advisor.

One of the reasons was the desire to follow the “worst first principle”: since cold heavy oil production facilities “have the highest venting per source” they should be prioritized in reduction strategies.

An engineer by trade, Taylor joined the regulator in 2014 after working in the oil and gas industry, with 10 years spent at Encana Corporation (which has since rebranded as Ovintiv and relocated to the U.S.), as well as briefer stints at other energy firms. He was one of three executives let go by the regulator in 2019 and is now principal at Taylor Energy Advisors.

The Narwhal reached out to Taylor for comment. “That was a long time ago, so I doubt I could add any details,” he wrote in an email.

After that June meeting, the draft regulations weren’t released for public comment as expected that summer, or into the fall.

On Nov. 2, an email from the regulator shows the internal climate policy team had “received ministerial direction to pause publishing the draft requirements for methane emissions reduction.”

A week later, McCuaig-Boyd wrote a letter to the provincial methane oversight committee that said she was “re-establishing” control, and would be seeking “as much stakeholder alignment as possible.”

The government and the regulator, she added, had “agreed” to invite representatives from Canadian Natural Resources and the Canadian Association of Petroleum Producers to join the committee.

A committee meeting summary from Nov. 16, 2017, shows representatives from both were in attendance. The issues raised by the company were specifically addressed during the meeting, the summary showed, including industry’s desire for “flexibility” in the regulations.

Alberta Energy Regulator anticipated being ‘asked, not given the option’ to endorse industry-backed proposal

By February 2018, the company’s proposal to group facility emissions was being seriously considered in government circles, emails show, despite the regulator’s earlier objections. At one point, the regulator reached out to Environment and Climate Change Canada to verify the federal department was prepared to deal with averaged emissions data. The department replied that it was.

The regulator would try again to convince the Alberta government to reject industry lobbying at a meeting with government ministers on March 1, 2018, according to briefing notes prepared for Taylor.

During the meeting, the regulator reviewed four separate scenarios with the government. It had a preferred scenario, which the briefing note described as “more balanced as compared to other options” with “flexibility where possible,” while still able to achieve the government’s methane reduction target.

This option was “easier to enforce” than the industry proposal, the briefing note indicated. But it acknowledged industry would likely not support it.

An email from one of Taylor’s colleagues that contained the briefing shows the regulator anticipated the government would reject its recommendation.

The staffer suggested in the email that they believed the minister wasn’t actually giving them an option. Instead, they were prepared to be “asked (not given the option) to support a scenario” that was friendly to industry.

But, the official warned, the alternative scenario had “challenges on the enforcement front.” That was why, the official underlined, “we were not recommending it in the first place.”

The regulator finally made its draft methane emissions regulations public on April 24, 2018.

A month later, 13 Alberta organizations, including wilderness associations, conservancies, climate action and social justice groups, wrote to the provincial government and the regulator criticizing the proposal, saying the draft rules “do not compel the oil and gas industry to measure or report their methane emissions accurately.”

“Without accurate measurement and reporting by industry, how can the Government of Alberta state with certainty that emissions are being reduced? The sad reality is that we will not be able to know,” they wrote in the May 28, 2018, letter.

The Government of Canada is re-launching the third intake of the #EmissionsReductionFund Onshore Program.

The Program will be refocused to support its ambitious climate change goals & reflect the changing economic situation in the sector.

More: https://t.co/cyV6tR1nm4 pic.twitter.com/FegbCxjCl1

— Natural Resources (@NRCan) December 21, 2021

Federal government admits Alberta has weaker methane rules

Premier Jason Kenney’s UCP government directed the regulator to update the methane rules in May 2020, tightening some venting limits and other restrictions.

But the changes did not remove the industry loophole. They continue to allow the dirtiest facilities to spew out methane pollution as long as they are part of a company fleet that can meet an average rate.

The federal government, which developed national standards to slash methane pollution, accepted the rules developed in Alberta as being “equivalent” to the federal standards in October 2020 — even though the regulatory impact statement at the time acknowledged the provincial rules contained “less stringent” venting requirements, as well as less frequent leak detection at some facilities, than the federal rules. This information was also included in a 2021 federal review.

Asked what confidence it had that the province would be able to enforce its methane regulations effectively with the industry proposal still in place, a spokesperson for Environment and Climate Change Canada said the equivalency agreement with Alberta includes “extensive information-sharing requirements” so that Canada can assess the “efficacy of the arrangements” with the province on an ongoing basis. The agreement has a maximum term of five years, unless either party pulls out first.

“The Government of Canada is working with the energy sector, provinces, territories, Indigenous peoples and other stakeholders in developing our approach to address harmful methane emissions on an economy-wide basis,” the spokesperson wrote in an email.

In 2020 the federal government created a $675 million “emissions reduction fund” to help oil and gas companies reduce methane emissions. Last November, that program came under fire in a report released by the auditor general: since companies were not required to account for how this funding is being used to reduce emissions, the audit found the program was not resulting in “credible” reductions or good value for money. In December 2021 the government “refocused” the program to reflect “lessons learned” including those from the audit.

What’s next for methane pollution regulations?

Last year, Canada pledged to achieve a much steeper methane reduction target of 75 per cent below 2012 levels by 2030 for the oil and gas sector.

“The Government of Canada calls on other oil-producing nations to join Canada in adopting this target,” the federal environment ministry said.

Cold heavy oil production facilities are still emitting methane all over Alberta. As of April 2022, the Alberta Energy Regulator says there was 3.6 million cubic metres of gas vented from these facilities per month, which is about 95 per cent methane by volume, meaning there is about 41 million cubic metres of methane vented per year.

The Alberta Energy Regulator now says that other provincial government programs — like the emissions trading system and a $25 million grant covering rebates for emissions reduction equipment — as well as lower production, have helped to lower methane gas levels vented from heavy oil facilities in recent years.

Canadian Natural Resources also says it implements methane “conservation programs,” detailing in a financial filing how over the past five years it conserved the equivalent of over 11.4 million tonnes of carbon dioxide equivalent, in part from its heavy oil operations.

The regulator has reported that the company’s methane pollution from venting at its cold heavy oil operations decreased by 38 per cent between 2017 and 2020.

But each year the company remained the number one polluter in this category, consistently more than double its next largest competitor.

When the federal government consulted with the public on tougher methane regulations this spring, environmental groups once again called for rules against venting to be strengthened.

Kathleen Ganley, the Alberta NDP’s energy critic, wrote in an email that it was “too early to tell what the new federal regulations will look like,” when asked if the party would commit to coming up with tougher methane rules to align with the new federal ambition if it wins the 2023 provincial election.

Ganley said during the NDP’s time in government, “we set continent-leading methane reduction targets that were adopted across North America, and Alberta is now on track to meet these goals.”

The regulator has said most of the methane reductions between 2014 and 2020 occurred before the methane rules came into effect.

An Alberta NDP government, Ganley said, “would be committed to working with industry and other levels of government in achieving net-zero by 2050.”