This article originally appeared on the Institute for Research on Public Policy website. It is republished here with permission.

There is one person to blame for the fact that Canada, to date, does not have greenhouse gas policy for the oilsands: Prime Minister Stephen Harper.

Since 2007, when what was then known as Canada’s New Government introduced the Regulatory Framework for Air Emissions, the conservative government has had a fairly consistent approach to greenhouse gas emissions policy — they’ve relied on regulations, in some cases combined with carbon pricing, as part of a sector-by-sector regulatory approach. Or rather, they’ve relied on some regulations, with the ever-present promise of more regulations to come.

Eight years after this initial plan, we seem no closer today to seeing federal policy cover the growing emissions of the oilsands, the natural gas and refining industries, or the large and growing source of greenhouse gases known as “emissions-intensive and trade-exposed sectors.”

As the prime minister’s former Director of Communications Andrew MacDougall wrote in a column about the Mike Duffy trial, “if something is essential to the government’s agenda and losing isn’t an option, the entire team puts its shoulder to the wheel until victory is achieved. If a policy isn’t critical, it can be abandoned if the going gets too tough.” Had greenhouse gas policy for the oilsands and other major emitters been seen as critical to the government’s agenda, they’d be implemented today.

As it happens, they’re not.

To understand how we got to this point, it’s worth looking back at where we’ve been.

Imagine, if you will, a policy which would, for oilsands plants starting operations in or after 2012, “effectively require putting into place new carbon capture and storage technologies to prevent the release of greenhouse gases into the atmosphere.” Zero emissions oilsands. This was not the policy of a fringe, left-wing party. This was part of the Turning the Corner Plan (PDF) published in early 2008 by the government of, well, you know who.

But, that’s not all.

The same policy would have also required a 33 per cent reduction in GHG emissions-intensity relative to 2006 levels by 2020. The proposed policy would have initially allowed firms to comply by paying into a fund, as is now the case in Alberta, but this option would have been removed after 2017. The Turning the Corner Plan (PDF) would have been the Alberta system, with teeth, and it would have imposed compliance costs on oilsands producers far beyond the realm of anything being talked about today. But those were the times in 2007 and 2008.

Later that spring, the prime minister gave a speech in London, UK, and his words, read today, are almost shocking. Midway through the speech, he turned to the question of climate change. “Despite the commitments our predecessors in government made under the Kyoto Protocol, Canada’s greenhouse gas emissions continued to rise completely unrestrained from the early 1990s onward,” Harper noted. His government would not “repeat our previous error.” Canada would, “set targets that are achievable.”

At the time of his London speech, the prime minister was aware the road would not be easy. “Our targets are ambitious, but they are realistic,” he said, before committing to, “in a relatively short period of time restrain and reverse the growth of GHG emissions…and lower Canada’s emissions 20 per cent below 2006 levels by 2020 and aim for a reduction of 60 to 70 per cent by 2050.“  

The government backed down a bit from these commitments years later, at Copenhagen, in pledging to reduce emissions to 17 per cent below 2005 levels by 2020, a target we are not on track to meet. But let’s leave that one alone for now.

The government’s bold words and ambitions were never matched with proportional actions. Despite a short foray to examine a North American cap-and-trade system, the Conservatives have not strayed too far from their earliest policies in their efforts to bring greenhouse gas policies to major industrial emissions. As promised, renewable fuel content standards and vehicle emissions performance standards harmonized with the U.S. have been imposed and a ban on incandescent light bulbs, while delayed, is slowly but surely removing these from our shelves.

The government also delivered promised regulations which have effectively made coal-fired power plants financially infeasible to build. All of these were elements of the Turning the Corner Plan. The key elements missing from that 2007 plan are a framework for emissions for oil and gas, as well as emissions regulations for the so-called “emissions-intensive and trade-exposed sectors” which together have emissions larger than oilsands today and these emissions are projected to grow without new policies.

In 2012 and 2013, the Conservative government seemed poised to bring in regulations on the oil sector which would likely have included a pricing component similar to that proposed in Turning the Corner and to the regulations implemented in Alberta in 2007. (I worked on these regulations as a Visiting Scholar at Environment Canada from July, 2012 to June, 2013).

While the federal government never publicly released a proposed framework, details obtained through access to information requests show an Alberta proposal to require a 40 per cent reduction in emissions intensity and a Canadian Association of Petroleum Producers counter-proposal for a required 20 per cent reduction — right in the neighbourhood of what would have been required of these facilities under the Turning the Corner Plan (ignoring the bit about carbon capture and storage).

For facilities which could not accomplish these reductions, there would be the opportunity to pay a fee which would go to support deployment of new technologies, and that fee would have been $20 — $40 per tonne in 2020 — again, similar to what would have been required under the Turning the Corner Plan, although this financial compliance option was to have expired by 2017 under that original plan.  

It’s fair to say that this new approach was weaker than, although not particularly different in design from, the Harper plan of 2007, which itself was not really that different from the Martin/Dion plan of 2005.

The plans for this new (or not-so-new), regulatory approach seem to have died on the drawing board sometime after I left Environment Canada in 2013. The clearest sign was a purported letter from the Prime Minister to the Obama administration stating that Canada would not act alone, but would act jointly with the U.S. — a line which had become the go-to excuse for government inaction on oilsands GHGs until oil prices crashed.

Now, we’ve seen another dimension added. According to the prime minister, low prices make it “crazy” to impose regulations on our oil and gas sector without U.S. action.

Over the course of the prime minister’s time in office, oil prices have gone from the $50s to the $140s, down to the $30s, back above $100, back to the $40s and sit around $50 today. We’ve had proposals for regulations, cap-and-trade, and regulations again, but it seems that no policy which would restrict GHG emissions from the oilsands can get to the finish line.

Why? It’s not prices, and it’s not the oil and gas lobby.

It’s one thing — a prime minister who, to use MacDougall’s words, hasn’t seen fit to instruct, “the entire team (to put) its shoulder to the wheel until victory is achieved,” and a policy is imposed.

Stephen Harper is happy to see these difficult policy choices pushed to a later date and, in so doing, will have us make exactly the mistakes he said we wouldn’t make again — promising aggressive action and not delivering it. When the world meets in Paris in late 2015, Canada will still likely not have policies imposed on its oilsands sector and, despite the oil price crash, will still expect emissions to increase far beyond our Copenhagen commitment.

Will the world, again, be willing to take the word of a prime minister, whoever it may be, who says we won’t make the same mistake three times?

The good news is that the speech is already mostly written, and recycling is always a good thing, right?

Image Credit: Prime Minister's Photo Gallery

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This post originally appeared in Maclean's magazine and is republished here with permission.

There’s no shortage of blame being passed around in the wake of another delay in the U.S. regulatory approval process with respect to TransCanada’s Keystone XL pipeline which, it was announced recently, will now drag on for at least another six months.

Among other reasons cited for the decision, the Calgary Herald’s Deborah Yedlin and others have cited a lack of greenhouse gas policies applied to Canada’s oil sands. Yedlin is direct, saying that, “the evidence to date suggests (that the Harper government hasn’t listened to what is being said in Washington) because the Harper government has not moved on anything resembling a policy on greenhouse gas emissions.”

I think she’s right, to a point, but I think the problem is not that we haven’t been listening, but that our governments, both in Edmonton and in Ottawa, have yet to establish a coherent vision on anything which includes the words climate change and oil sands.

From the moment President Obama delivered his climate change speech in June 2013, stating that the Keystone XL pipeline would only be approved if it does not, “significantly exacerbate the problem of climate change,” pipeline proponents have spun 180° from arguing that the Keystone XL pipeline would change everything to trying to argue that, for the most part, it would change nothing.

We frequently hear now that the oil sands will still be produced, and will still get to market, no matter what. This, of course, might motivate people to ask why we are building the pipeline in the first place, and the Prime Minister’s Office is there for you with an answer: “this project will create tens of thousands of jobs on both sides of the border…”

So, the pipeline is now a make-work project in an industry in which we hear about labour shortages every day? Proponents of the pipeline can no longer talk about the pipeline on its actual merits because that would involve talking about improving the economics of oil sands production which we can’t talk about because someone might link that to an increase in emissions.

Keystone XL went from the magical pipeline which will change everything to the non-essential pipeline which changes nothing, because we don’t know how to respond to one presidential speech.

It’s unlikely that an updated climate change policy in Alberta or any new initiative at the federal level alone will solve the problem because our ambition for setting policies does not match our ambition for making promises or setting targets.

Failed ambitions

For example, when Alberta released its Climate Change Strategy in 2008, it committed to a set of targets which were based, although not publicly, on a policy—there was even a wedge diagram of what that policy would achieve. That policy included, “an escalating economy-wide carbon charge increasing from $15/tonne in 2008, to $30/tonne in 2020, $60/tonne in 2030, and $100/tonne in 2050 and a strict regulation that all large, new industrial facilities are required to incorporate carbon capture and storage by 2015 wherever possible.”

Don’t believe me? See the Report of the Alberta Auditor General (PDF, p. 99) on the subject.

Unfortunately, what Alberta had the political will to implement was a $15/tonne charge on large industrial facilities which applies only if they exceed their allowable emissions intensities. The ambition of their targets was an order of magnitude above the ambition of their policies.  

The same is true at the federal government level. Modelling work consistently concludes that, in order to reach the targets to which the current government committed at Copenhagen (a 17 per cent reduction in emissions relative to 2005 levels by 2020), policies equivalent to an economy-wide carbon tax of $100/tonne or more would be required—ambitious targets, indeed.

Again, the government in Ottawa has shown nowhere near the same ambition when it comes to setting policies. Some meaningful policies including an effective ban on new coal plants and stringent regulations on new cars and trucks have been implemented, but the government’s own modelling clearly shows that we will fall far short of our commitments unless aggressive new policies are implemented across the economy in short order.

Talk the talk

As an antidote to our lack of ambition on policies, our governments both in Edmonton and in Ottawa have decided to work on an ambitious program of wordsmithing.

We talk about emissions reductions, when what we really mean are reductions in the rate of growth of emissions. Our government representatives tell us that they are still committed to their targets, when their own modelling tells them that their policies won’t even get them close. When our government talks about growing oil demand, they cite scenarios for fossil fuel consumption consistent with global emissions growing far beyond the levels to which they committed jointly with other countries in international climate change negotiations.  

A new policy for oil sands emissions at the Alberta or Federal level is not going to solve any of these problems, because the ambition simply isn’t there.

Realistic targets

How could Canada solve this problem? As I wrote when the Harper government elected to withdraw from the Kyoto Protocol, if we were really listening to what the decision-makers were saying in Washington, we’d be looking at how we could offer a climate change approach with three elements.

First, we’d need a clear national goal. Second, we’d need a set of policies which, when applied in Canada, would have a reasonable chance of achieving that goal. Third, and most importantly, we’d need to show how these policies, if applied elsewhere in the world in addition to here, would translate to meaningful mitigation of climate change.

These are the same criteria once laid out by our Prime Minister who said that, “Canada does have a duty to act,…(that)…we cannot repeat our previous error (of committing to targets we are not prepared to meet and)…we must set targets that are achievable.”

We should complete what the Prime Minister said we should do at that point: start, “by asking ourselves some hard-headed questions, like what are realistic emissions reductions targets for Canada and how exactly will we achieve them.”

If Canada can demonstrate that there is a role for oil sands expansion under national and global energy policies consistent with the 2°C climate change mitigation goal to which our government has signed-on, it would be much more difficult for opponents to block infrastructure such as Keystone XL for which a strong economic case exists. If our governments are unprepared, unwilling, or unable to do so, they’ll make rejection of this and future pipelines much easier.

As Ms. Yedlin suggests, perhaps it is time to listen to the decision-makers.

Image credit: 350.org via Flickr

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This article originally appeared in Maclean's magazine and is republished here with permission.

It was reported recently that Exxon-Mobil will begin disclosing the degree to which its assets are exposed to future greenhouse gas policies. This risk is at the heart of what has become known as the carbon bubble, a term advanced by UK group Carbon Tracker, which suggests that assets may be over-valued as a result of not accounting for potential future limits on fossil fuel extraction imposed to fight climate change.

The so-called carbon bubble should be a concern to investors in oil sands stocks, and you only need to consider two numbers to understand why: 80 and 320. First, the number 80: oil sands producers and the Alberta government are quick to tell you that up to 80 per cent of the life-cycle emissions from oil sands occur from refining and combustion, not from extraction and upgrading.

That’s comforting, until you consider that this means that most of the carbon policy exposure for these projects comes from emissions-control policies and innovations far beyond the jurisdictions and markets in which oil sands companies operate.

Second, the number 320: when it was leaked that the Alberta government was considering a 40-40 approach (a requirement to reduce emissions intensity by 40 per cent, with a penalty for exceeding this limit of $40/tonne), the oil industry responded that governments acting this aggressively would create significant competitiveness concerns. Shell’s CEO Lorraine Mitchelmore, long a champion for carbon pricing policy, was quoted as saying that, “Alberta needs to be sure that it keeps the industry competitive,” while former Suncor CEO Rick George stated that, “it’s a bad idea to make companies uncompetitive.” 

Here’s the kicker: if an average cost of carbon of $16/tonne on 20 per cent of your emissions raises competitive concerns, it seems that investors should worry a great deal about risks to future returns from oil sands assets. Such a policy boils down to 320 pennies per tonne of life-cycle carbon emissions, hardly aggressive given the magnitude of global emissions reductions which will be required to meet Prime Minister Harper’s commitment to policies which keep global climate change below 2 degrees Celsius.

Reports by Carbon Tracker and others were part of what led me and my colleague Branko Boskovic to ask whether stringent carbon policies, if applied to all emissions associated with oil sands, would render new oil sands investments uneconomic. We started out with a model of an oil sands mine, tabulated the life-cycle emissions (for a mine, production emissions are about 36kg per barrel of bitumen produced, while total, life-cycle emissions are about 535kg per barrel as estimated by Jacobs and others), and applied carbon taxes first to production emissions, and then to the full emissions impact of the oil produced.

Sensitivity of oil sands mine rates of return to upstream and downstream carbon prices.

In the figure above, you can see some of the preliminary results of our analysis. Our base case is a mine with financial attributes similar to Suncor’s recently-approved Fort Hills mine. This project has a rate of return of 12.5 per cent assuming WTI prices of $90, a Canadian dollar exchange rate of 94 US cents, and a $15 differential between light and heavy oil at Edmonton, with Alberta’s existing policy in place.

In the top row of the figure above, you see what happens to those returns on investment as carbon prices on production increase—not so scary, even as carbon prices climb to $100/tonne of CO2. However, it’s when the number 80 starts to play a role that you really see where the risk comes from. Reading down every column, you see what happens to project returns as a greater share of the downstream (combustion and refining) carbon liability is paid for by the producer, most likely indirectly through lower oil prices resulting from demand-side carbon policy.

Even a $50/tonne carbon price presents a serious risk to the economic viability of this investment if, as will have to be the case if global emissions are to be reduced, these policies are applied to combustion emissions and consumers aren’t willing to simply pay the tax. The more consumers react to increased prices with reduced demand, the more detrimental carbon policies become for oil sands investments.

So, if you want to know where the risks to oil sand projects lie, they aren’t from the policies which are being considered for production emissions in Canada. They come from two numbers—the 80 per cent of emissions that occur once the oil is burned, and the concerns that executives appear to have with carbon emissions costs of as little as 320 pennies per tonne.

Image Credit: Alex MacLean via @grossmanmedia, used with permisson

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This is a guest post by energy economist Andrew Leach.

Neil Young and the Honour the Treaties Tour is crossing the country in support of the Athabasca Chipewyan First Nation’s court challenge against Shell’s proposal to expand its mining operations north of Fort McMurray.

The biggest risk I see from this tour is not that Neil Young says things which are wrong (there have been a few), that he blames Prime Minister Harper for promoting an industry that has played an important role in the policies of pretty well every Prime Minister to precede him in the past four decades (that part was pretty clear), or, least of all, that he’s a famous musician who hasn’t spent his life working on energy policy.

The biggest risk I see is that all of the heat and light around the Neil Young tour will distract you from what you should do, which is to sit down, read the mine approval, and decide for yourself what you think.

A joint review panel approved (PDF) the Jackpine Expansion in July 2013, and in December, the project received cabinet approval. The most important issue here, so far over-shadowed during Neil Young’s tour, is summarized in one line in the decision letter: “the matter of whether the significant adverse environmental effects (of the project) are justified in the circumstances.”

This decision is likely to be as important for the future of the oil sands in Canada and its so-called social license as the pipelines, rail accidents and greenhouse gas policies which have been covered to a much larger degree in the media. This is a decision where your government had spelled out clearly before it the environmental risks and uncertainties of an oil sands project, in all its gory detail, and decided it was worth it or, “justified in the circumstances.”

We’ve come a long way from the days when then-Premier Ed Stelmach declared environmental damage from the oil sands to be a myth.  Around that time, in its approval of the Kearl oil sands mine, for which Phase I started last year, a Joint Review Panel concluded that, “the project is not likely to result in significant adverse environmental effects.” But, the panel evaluating Kearl raised a flag, saying that, “with each additional oil sands project, the growing demands and the absence of sustainable long-term solutions weigh more heavily in the determination of the public interest.”

We’ve now reached the point—the panel evaluating the Jackpine Mine left no doubt—where significant environmental consequences will occur in order to not (and, I kid you not, these are the words used) sterilize bitumen. Reading the Report of the Joint Review Panel (warning, it’s a slog) will be eye opening. Let me give you a couple of excerpts, in case you can’t spare the time:

·      The Panel has concluded that the Project would provide significant economic benefits for the region, the province, and Canada

·      The Project will provide major and long-term economic opportunities to individuals in Alberta and throughout Canada, and will generate a large number of construction and operational jobs.

·      The Panel concludes that the Project would have significant adverse environmental project effects on wetlands, traditional plant potential areas, wetland-reliant species at risk, migratory birds that are wetland-reliant or species at risk, and biodiversity

·      The Panel understands that a large loss (over 10,000 hectares) of wetland would result from the Project, noting in particular that 85 per cent of those wetlands are peatlands that cannot be reclaimed.

·      The Panel finds that diversion of the Muskeg River is in the public interest, considering that approximately 23 to 65 million cubic metres of resource would be sterilized if the river is not diverted

·      The Panel recognizes that the relevant provincial agencies were not at the hearing to address questions about why the Project (which seeks to divert the Muskeg River: author’s addition) is not included in the Muskeg River Interim Management Framework for Water Quantity and Quality;

·      The Panel concludes that it could not rely on Shell’s assessment of the significance of project and cumulative effects on terrestrial resources;

·      The Panel notes that a substantial amount of habitat for migratory birds that are wetland or old-growth forest dependent will be lost entirely or lost for an extended period;

·      The Panel is concerned about the lack of mitigation measures proposed for loss of wildlife habitat…that have been shown to be effective.

Don’t stop reading before you get to the good parts:

·      Although the Panel has concluded that the Project is in the public interest, project and cumulative effects for key environmental parameters and socioeconomic impacts in the region have weighed heavily in the Panel’s assessment;

·      All of the Aboriginal groups that participated in the hearing raised concerns about the adequacy of consultation by Canada and Alberta, particularly with respect to the management of cumulative effects in the oil sands region and the impact of these effects on their Aboriginal and treaty rights.

It’s these last two that have got us to where we are today—to a First Nation challenging the government in court for a decision that it made which valued bitumen over the environment and their traditional territory and for not fulfilling its constitutional duty to consult on that decision.

The decision on this project will, in all likelihood, go all the way to the top court in the land. The decision which really matters, however, will be the one you take: is it justified, in your mind, given the circumstances?

This article originally appeared on Maclean's. Republished here with permission. Read Leach's Neil Young Fact Check, also on Maclean's, here.

Image Credit: Waging Heavy Peace book cover

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