The last few months have been marked by some massive shifts in the oilsands.

In December, there was the $830 million Statoil sale to Athabasca Oil, followed in January and February by the writing down of billions of barrels of reserves by Imperial Oil, ConocoPhillips and ExxonMobil.

On March 9, Shell sold a majority of its oilsands assets to Canadian Natural Resources Limited (CNRL) in a huge $7.25 billion sale, while Marathon Oil split its Canadian subsidiary between Shell and CNRL for a total of $2.5 billion.

The question is: why are all of these companies selling their oilsands assets? While some celebrate the moves as successes for the climate movement, others blame the Alberta NDP for the exodus of internationals.

But experts say the reality has more to do with a broader economic shift that’s made oilsands uneconomical — for the time being at least.

“The reason that Shell, Total and Statoil are pulling out, and the reason that Exxon has had to write down much of its Kearl Lake reserves, isn’t because of the emissions profile of the oilsands bitumen,” Jeff Rubin, senior fellow of Centre for International Governance Innovation, told DeSmog Canada. “It’s rather because it doesn’t make any economic sense, before we even look at emissions pricing.”

Canadian Companies Have ‘Bullish Long-Run View’ on Oilsands

Global oil prices have been extremely low for years. West Texas Intermediate is selling under $50/barrel. Meanwhile, Western Canadian Select — the benchmark for Alberta’s heavy oil — is currently priced at $35/barrel, about half of what’s required to build new “greenfield” production.

Such prices certainly are largely the result of the U.S. being flooded with oil thanks to the “shale revolution” that’s taken place in North Dakota’s Bakken Formation and Texas’ Permian Basin and Eagle Ford Group in recent years.

Of course, no company with oilsands assets likes the situation or prices. But some — especially those that have long specialized in heavy oil production, such as Suncor and Cenovus — have more of what energy economist Andrew Leach describes as a “bullish long-run view on oilsands” compared to international companies.

He says that their buying up of other companies and projects means they see some compatibility with existing assets, allowing for reduced costs in the long run by combining operations and maximizing economies of scale.

In addition, it’s far cheaper to acquire existing projects in the current market context than building new projects; Rubin says the likes of CNRL would argue the economics of oilsands projects span decades and that business-as-usual growth will eventually bring them online, even if they don’t look particularly viable at the moment.

“If you look at it from the buyers’ perspective, these are companies that see more value in the assets than the sellers do. It’s basic sales dynamics,” Leach, who teaches at the University of Alberta and chaired Alberta’s climate advisory team, told DeSmog Canada.

Shale Oil Increasing in Prominence for International Companies

After all, the oilsands still has the capacity to produce more than two million barrels per day of oil, even if production doesn’t grow in the next few years.

ARC Financial’s Peter Tertzakian recently told a Vancouver audience that the oilsands are “going to supply three per cent of the world’s oil needs over the next many decades, but that’s not where the growth is.” He emphasized the potential of the Montney Formation in northeast B.C. and northwest Alberta.

Mark Oberstoetter, lead analyst at the consultancy firm Wood Mackenzie, told DeSmog Canada in an interview: “It’s not so much that companies are exiting the oilsands, it’s the Canadians looking to take an opportunistic strategy on low oil prices and acquiring some pretty rare assets that you couldn’t normally get in normal times. You could almost say its aggressiveness from the Canadians.”

Take Shell for example. The Dutch company has played an increasingly prominent role in the oilsands in recent years, including publicly backing Alberta’s climate plan, constructing the Scotford upgrader and building the Quest carbon capture and storage (CCS) project.

But Oberstoetter says that Shell is now focusing on assets such as integrated gas, liquified natural gas, pre-salt Brazil, Gulf of Mexico deepwater and Permian tight oil assets. It’s about “shifting their portfolio down the cost curve into the assets they’re good at.”

And the oilsands just don’t make the cut for them.

“Tight oil has increased in importance for a lot of these companies,” Oberstoetter says. “They’re just refocusing their portfolios, at the end of the day. I don’t think they would have made these exits if they didn’t get a price that was attractive to them.”

What The #Oilsands Sell-Off Actually Means https://t.co/rsqhzHD6Xm @james_m_wilt #cdnpoli #ableg #bcpoli #ClimateChange #FossilFuels pic.twitter.com/nW1xLFnG3d

— DeSmog Canada (@DeSmogCanada) March 22, 2017

Some Companies Reference ‘Decarbonization’ While Still Focusing on Fossil Fuels

To be fair, some such companies have predicted “peak oil demand” arriving earlier than other major companies, as well as received what Leach calls “significant shareholder pressure relating to their oilsands holdings.”

“The interesting thing is if you look at Shell, Statoil and Total, who have all exited the tarsands, they’re the three companies that are saying, ‘we think a peak in oil demand is going to come in the next 10 to 15 years,’ ” says Keith Stewart, climate and energy campaigner at Greenpeace Canada. “It’s the Exxons of the world who are saying ‘oil demand will continue to grow for at least another 40 years’ who are doubling down on the oilsands.”

Recently, Shell announced it was tying executive packages to decarbonization. Leach notes the company has long had lower greenhouse gas emissions as a corporate priority, and has specifically carved out oilsands emissions in its annual sustainability report.

In addition, the company’s scrapping of the 80,000 bpd Carmon Creek project in October 2015 was reportedly tied to concerns about pipeline access, a problem arguably tied to activism by environmental groups. But it’s not like Shell is divesting from fossil fuels anytime soon.

While it has announced plans to increase annual spending on renewables up to $1 billion, there’s another $25 billion or so that will go to other non-renewable investments. Same goes for Statoil: while it operates in Norway, a country that’s had carbon pricing since 1991, and has indicated a desire to increase investments in renewables up to 20 per cent by 2030, the company’s speciality is still very much in offshore and deepwater oil extraction.

Writing Down Reserves Merely Reflects Last Year’s Prices

The writing down of reserves in filings to the Securities and Exchange Commission (SEC) simply indicates that oil prices were especially low, and that they wouldn’t be commercially viable if oil markets continue to look like they did on average last year.

If prices rebound, those reserves can and very likely will be added back.

What’s effectively happened over the last few months is the rearranging of corporate portfolios to get costs down and maximize strategic focuses, combined with some obligatory filings under SEC formulas.

Millions of barrels per day will continue to be pumped from Alberta’s oilsands. It will just be by different companies.

Photo: Syncrude Canada via Flickr

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

As of January 1, 2017, Alberta’s carbon tax has officially arrived.

And, as expected, there’s plenty of misinformation swirling around about what the tax will mean for Alberta citizens and businesses.

Ultimately, the idea behind the carbon tax is to put a price on polluting the atmosphere. It sends a market signal to encourage the economic activities we do want (investment and innovation), while reducing those we don’t want (greenhouse gas emissions).

Doesn’t sound totally outlandish, right? But what will a price of $20 per tonne of carbon emissions really mean for Albertans?

DeSmog Canada did some digging to find out. Here are five handy facts to help you get clear on what the new tax means for you.

Fact #1: Two-Thirds of Albertans Will Receive a Rebate*

Let’s start with the most obvious place Albertans will  notice a difference: the gas station. The carbon tax translates to an increase of 4.49 cents per litre. For a 50-litre tank, that means it’ll cost an extra $2.25 to fill up. While you’d likely rather spend that on a double-double, it’s probably not going to break the bank.

What about the much feared knock-on effects of the price on carbon? It’s estimated the tax will increase the indirect costs of consumer goods by about $50 to $70 per person in 2017.

But before you start reaching for your piggy bank: 66 per cent of Albertans will receive a full or partial rebate for the carbon tax (all single households with a net income under $47,500 and all couples or families with a net income under $95,000).

The rebates are tied to income level, not the amount of energy one actually uses, meaning that Albertans can effectively make money from the carbon tax if they use a lower-than-average amount of energy  — which is kind of the point. Similarly, households with higher energy use than average, will end up paying more tax (even though the rebate will cover some of their expenses).

Two-thirds of households will receive money back and the first cheques will be in the mail this month. There’s no need to apply. Albertans will automatically receive a rebate if they submitted a 2015 tax return and are under the cutoff.

What about the upper third of income earners in Alberta? They will have to pay the full cost of the tax — however, they also have the option to do things like make their homes more energy efficient or choose a more fuel efficient vehicle to reduce the cost. Rebates and incentives will be available for purchasing and installing new energy-efficient appliances, products and systems.

And investments enabled by the revenue generated by the tax — in renewable energy, public transit and energy efficiency — will make it easier for everyone to reduce their emissions.

Fact #2: All of the Money Raised by the Carbon Tax Will Stay in Alberta

This is a biggie.

The $9.6 billion of revenue gathered over five years from the carbon tax will be kept in Alberta and reinvested in the economy.

None of it will end up in Ottawa. None of it will go into Alberta’s general revenue pool, despite the province’s urgent need to plug its $10-billion deficit.

Here’s how the spending breaks down:

$6.2 billion will help diversify Alberta’s energy industry and create new jobs:

• $3.4 billion for large-scale renewable energy, bioenergy and technology

• $2.2 billion for green infrastructure like public transit

• $645 million for Energy Efficiency Alberta, a new provincial agency that will support energy efficiency programs and services for homes and businesses

$3.4 billion will help households, businesses and communities adjust to the carbon levy:

• $2.3 billion for the above-mentioned carbon rebates to help low- and middle-income families

• $865 million to pay for a cut in the small business tax rate from three per cent to two per cent

• $195 million to assist coal communities, Indigenous communities and others transition to a cleaner economy

While it’s fair game to critique the way government decides to use revenue, it’s a fundamental misunderstanding of the policy to suggest that this is equivalent to a sales tax.

It’s simply a reallocation of capital. Instead of letting pollution enter the atmosphere free of charge, the carbon tax will price emissions and use the revenue to carve a new direction for the province.

That’s a homegrown solution that has nothing to do with the feds.

5 Facts About Alberta’s New Carbon Tax #ableg #abclimate #cdnpoli https://t.co/KeJykmuNmL @james_m_wilt

— DeSmog Canada (@DeSmogCanada) January 3, 2017

Fact #3: Taxing Carbon is Not a New-Fangled Idea

Some people have criticized the carbon tax because it wasn’t explicitly referenced in the NDP’s platform during the last provincial election.

That’s true – but it’s also because the work to craft the policy hadn’t been done yet.

After being elected, the NDP appointed the Climate Change Advisory Panel, chaired by the University of Alberta’s Andrew Leach, to investigate options. It spent five months holding engagement sessions, open houses and sifting through more than 500 submissions from stakeholders. It took another six months for the government to introduce the Climate Leadership Implementation Act, which included the carbon tax.

Everyone from oilsands companies to environmental organizations have expressed support for the plan.

Here’s why: Carbon pricing is one of the most popular mechanisms and is recommended by energy economists around the world. It’s transparent, easily adjustable and doesn’t arbitrarily pick winners and losers. Put simply, carbon pricing is the most market-friendly solution.

That’s why carbon pricing has been endorsed by the likes of former Reform leader Preston Manning, Conservative Party candidate Michael Chong, the International Monetary Fund and renowned Harvard economist Gregory Mankiw.

B.C. has had a carbon tax since 2008. Thanks to the carbon tax, British Columbia residents enjoy the lowest income tax in the country and use the least amount of fuel per person.

A report released in 2013 — five years into B.C.’s carbon tax — showed the policy had been a resounding success: within four years, B.C.’s per person fuel consumption had dropped 17.4 per cent while in the rest of Canada that number grew by 1.5 per cent.

Meantime, the B.C. economy continued strong. And, amazingly, the carbon pricing mechanism is B.C.’s most popular tax. Who knew there was such a thing?

Fact #4: There’s No Time Like the Present

It’s doubtful that there will ever be a “right time” to implement a carbon tax for critics. If it’s put in place during a downturn, Alberta is being “kicked while it’s down.” If it’s put in place during an uptick, the province wouldn’t want to “deter future investments.”

Many oil and gas companies are leveraging the downturn to rejig forecasts and priorities. Additionally, Alberta’s inaction on the environment has created enormous hurdles to attaining social licence for its chief export: the oilsands. The time to start down the right path and to diversify the economy is now.

Fact #5: The Carbon Tax Will Not Unfairly Harm Industry

The carbon tax will cost oilsands producers about $2.25 per barrel (or about four per cent of the price of oil as of today) — but given that oilsands projects qualify as an “energy-intensive, trade-exposed” sector, the government will use subsidies to keep Albertan oil competitive on international markets.

Under the subsidy — called “output-based allocations” — the top 25 per cent of companies that extract bitumen with the lowest per-barrel intensity relative to their peers will receive a subsidy as a reward, mostly outweighing the costs of their carbon tax; Leach recently noted the carbon tax will only cost 20 cents per barrel for the most efficient producers.

It’s a slightly convoluted way of ensuring that extremely energy-intensive operations, such as Nexen’s Long Lake, are punished, while producers with much lower emissions, such as Cenovus’ Foster Creek, are rewarded (the difference between the two is roughly five times, according to calculations by the University of Calgary’s Trevor Tombe).

These subsidies will be reduced by a few percentage points per year to ensure continued efficiency. This regime will apply to all large industrial emitters, but will vary in specifics by sector.

And there are benefits for smaller companies as well. The NDP cut the small business tax rate from three to two per cent in an attempt to help alleviate concerns about disproportionate effects. Many exemptions were also handed out, including “marked fuel” for agriculture and any natural gas produced and consumed on site by conventional oil and gas producers.

At this point, it would be pretty disingenuous to suggest the carbon tax is anti-industry. Some have still tried. However, as economists have pointed out, the impacts of the carbon tax on commodity prices are miniscule compared to other factors.

Which brings us to our last point: to have the intended effect, does the carbon tax need to be higher? Absolutely. But we’ve all got to start somewhere. And it’s best to move ahead in a way that gets Albertans onside, rather than leaves them behind.

*Fact #1 previously read “60% of Albertans Will Pay Nothing At All.” While 60 per cent of Albertans will receive a “full rebate” from the Alberta government, whether their net cost is more than zero will depend on each family’s energy usage. Families who qualify for the rebate and have average energy use will pay nothing at all. Families who use less than average energy will actually make money. Families with higher than average energy use will end up paying some carbon tax. You can read more about the details on the Alberta government’s website.

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

The days of infinite growth in Alberta’s oilsands are over with the Alberta government’s blockbuster climate change announcement on Sunday, which attracted broad support from industry and civil society.

“This is the day that we start to mobilize capital and resources to create green jobs, green energy, green infrastructure and a strong, environmentally responsible, sustainable and visionary Alberta energy industry with a great future,” Premier Rachel Notley said. “This is the day we stop denying there is an issue, and this is the day we do our part.”

Notley and Environment & Parks Minister Shannon Phillips released a 97-page climate change policy plan, which includes five key pillars.

1) Carbon will be priced economy-wide at $30/tonne by 2018.

2) Coal-fired power plants will be phased out by 2030.

3) Oilsands emissions will be capped at 100 megatonnes (Mt) per year (recent Environment Canada figures predicted a 2020 output of 103 Mt from the sector), which amounts to allowing current construction to go ahead, but that’s it. That means to expand production beyond current projects, per barrel emissions will need to be reduced.

4) Methane emissions from oil and gas operations will be cut by 45 per cent in 2025.

5) 30 per cent of all electricity will be generated by renewables by 2030.

It is a staggeringly significant proposal, one that far surpasses anything the former Progressive Conservative government imagined in the course of its 43-year reign. The announcement — delivered at Edmonton’s Telus World of Science — was benefitted by appearances from CEOs of Suncor, Canadian Natural Resource Ltd. (CNRL), Shell and Cenovus, something far-right activist Ezra Levant dismissed by alleging the massive energy companies “don't represent the industry.”

Environmental groups such as the Pembina Institute and Clean Energy Canada were also on stage. Getting all of those players in support of one climate strategy is a huge testament to the leadership of University of Alberta energy economist Andrew Leach, who chaired the climate change panel.

Climate Change Policy Plan Garners Broad Support

With the exception of the rabidly conservative Wildrose Party and former deputy premier Thomas Lukaszuk, it seemed every serious player in politics and industry celebrated the announcement. The NDP-affiliated Broadbent Institute, headquartered in Toronto, concluded: “On a public policy Richter scale, Alberta’s new Climate Leadership Plan is an 11.”

Shell Canada announced that “these measures provide predictability and certainty and will help ensure that producers can responsibly develop and grow this significant Canadian resource while also addressing global concerns about climate change.”

Prime Minister Justin Trudeau congratulated Notley in a tweet now favourited over 1,300 times as “a very positive step in the fight against climate change.”  Political blogger Dave Cournoyer accurately dubbed it a “pigs fly” situation.

All of this means a whole lot given the impending Paris Climate Change Conference (COP 21).

Canada ranks 15th out of 17th countries for greenhouse gas emissions according to the Conference Board of Canada, with Alberta contributing 36 per cent of national emissions in 2013 despite only accounting for 11 per cent of the country’s population.

The expected spike in oilsands expansion was widely expected to nullify all other sources of emissions reductions in the Canada. The fact that Alberta, and by extension Canada, is now going into COP 21 with a detailed plan to address the province’s largest source of emissions – oilsands development and coal-fired power plants – speaks volumes about the desire to be taken seriously on the world stage.

Climate Plan May Increase Social Licence for Oilsands Operations

Another component that ostensibly drove oil execs to hop on the green bandwagon was the need to accrue “social licence,” or the support required to build pipelines to export its products. The veto of TransCanada’s Keystone XL pipeline represents what happens when such social licence isn’t secured.

By addressing runaway emissions, Alberta-based companies might actually stand a chance to build infrastructure like the Energy East pipeline, which would transport 1.1 million barrels of diluted bitumen from Alberta to Quebec and New Brunswick every day.

“The province’s climate strategy may allow our sector to invest more aggressively in technologies to further reduce per barrel emissions in our sector and do our part to tackle climate change,” said Tim McMillan, Canadian Association of Petroleum Producers’ president and chief executive officer, in a statement.

“We encourage the province to follow a balanced approach, recognizing that our sector can only become a global supplier of responsibly produced oil and natural gas if we are competitive on the world stage.”

The fight over pipelines is unlikely to dissipate. While Sunday’s announcement was a giant step in the right direction, it’s still not enough to avoid catastrophic global warming, according to a statement from Greenpeace.

“These policies are important first steps, but much bigger emission reductions will be needed for Alberta to do its part to keep global warming below 2 degrees Celsius,” Alberta climate and energy campaigner Mike Hudema said.

Hudema also noted that the province still has no short or long-term emission reduction targets.

“Targets give an important signal to business, let the world know where Alberta is headed, and help ensure that direction leads to the reductions that science and equity demand,” he said.

The Pembina Institute has historically supported a higher carbon tax than what was proposed on Sunday – with $40/tonne in 2016, $50/tonne in 2017 and $60/tonne in 2018 — but the plan is an indisputably major upgrade from the Specified Gas Emitters Regulation (SGER), which taxed Alberta’s largest emitters (103 at last count) at the equivalent of $1.80/tonne.

George Hoberg, professor in the forest department at the University of British Columbia, notes there’s still plenty of work to be done but that: “Today is a day for celebration. Alberta has bent its carbon emissions curve, and provided a lever to Canada to show real climate leadership.”

Ultimately, the future of Canada’s environmental reputation may rely on the work that Trudeau and Environment and Climate Change Minister Catherine McKenna complete during and after the Paris conference. But Sunday’s announcement out of Alberta sets quite the standard.

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

Much of the country is understandably pre-occupied with Monday’s federal election. But while we have all been watching the national drama unfold, something monumental happened in Alberta.

In a nutshell: big coal is pushing for renewable energy and big oil is re-iterating its push for a carbon tax.

Close to 500 individuals (including at least one alien — more on that to come), companies and NGOs submitted proposals to Alberta’s Climate Change Advisory Panel (chaired by University of Alberta economics prof Andrew Leach) about the kind of policies they think the new government should introduce to address spiking greenhouse gas emissions.

The significance of this for Alberta’s climate politics cannot be overstated. After years of stalling or stifling meaningful conversations, the province has now pulled off one of the country’s most important and interesting climate consultation processes.

The submissions, now accessible online, largely consist of the classic combo of recommendations from the usual suspects: phasing out coal-fired power plants, incentivizing renewable energy sources and introducing a proper carbon tax.

But there were also some fairly surprising sources of support for such recommendations.

Major electricity providers TransAlta and ATCO backed immediate caps on coal-fired electricity and energy companies like Suncor and Shell reiterated calls for an economy-wide carbon tax (CNRL, on the other hand, issued an ostensibly veiled threat: “If we make investment in our province un-economic, the jobs and investment dollars will go elsewhere”).

Premier Rachel Notley seemed thrilled with the responses, saying to reporters: “The quality of the conversation has just improved so dramatically in just such a short time.”

It’s true. The conversation about climate change solutions has come a long way in Alberta in the past six months.

But looking through the comments posted online, there were some pretty far-out ideas coming courtesy of private citizens. Many such comments may in fact offer an intriguing window into how and what Albertans think about the issues of climate change.

Such esoteric suggestions arrived in three distinct forms: hyper-paranoid forecasting, well-meaning but unpopular social changes and outright climate change denial (we’ll let you decide which one is the more concerning of the bunch).

Aliens, Famines and Predictions of Apocalypse

The most overtly out-there suggestions of the bunch were the two that addressed aliens. Yeah, you read that correctly.

In one case, a person only referenced as “Aaron” announced that humans can’t possibly understand “broader thermodynamic processes” and the “offspring of the few humans who do miraculously survive extinction, despite failing to comprehend these limits, will nicely make pets for my offspring.” He later signed off as “the ancestor of the future benevolent overlords of your few surviving offspring.”

There was also “Michael,” who suggested there’s “UFO technology that would eradicate all pollution relating to energy production and general transportation worldwide” (linking to a radio show on the subject which has been listened to over 400,000 times).

Many other suggestions took a less extraterrestrial approach but exemplified an equal level of paranoia: someone identified only as “a terrified and terrorized citizen” warned of coming famines and suggested that Canada starts to ration food and incentivize the rapid construction of windmills by exchanging “work for full meals.” Some writers appeared to fall asleep on their keyboards, way overusing exclamation points (“Albertans should be outraged!!!!!!”). A dozen consecutive commas were issued in one bizarre entry, which also featured vaguely Biblical references and all-caps sentences like “THEIR [sic] WILL BE EMPTY (GAS_TANKS _ ).”

Keep in mind that someone had to sort through all of these. The real kicker is that the posts came with a disclaimer that “submissions will be reviewed for appropriateness before posting to the library.” It’s certainly an interesting thought experiment to imagine what kind of entries didn’t make it past such gatekeepers.

Dramatic Social Changes Proposed

Then there was the class of loftier, more cerebral pitches.

Take, for example, the notion of “Enviro-Wednesday,” which would “close” the province once a week with the exception of essential services such as hospitals and police. Only emergency services would be permitted to drive vehicles, with a “fleet of hybrid taxis” available to transport sick people to hospitals. “Enviro-Wednesday” would allow us to “relax and catch our breath in the midst of all of life’s crazy hustle and bustle and to reawaken ourselves to the priorities in life” by effectively trapping us all at home.

Another entry suggested alterations in societal values, with significant reductions in airline travel and bans on lawn-mowing and recreational road trips. A prohibition on driving trucks was also recommended.

The issue of “unchecked population growth” inevitably reared its head, as did banning GMOs. Which, of course, are legitimate concerns, but perhaps a tad beyond the powers of the Alberta panel.

Climate Change Deniers Arrive in Full Force

Rounding out the pack of entries from private citizens were those who simply don’t buy into the scientific consensus on anthropogenic global warming. There was a staggering number of those. Many seemed convinced that climate change is being harnessed by politicians to generate more revenue for government coffers via mechanisms like carbon taxes and cap-and-trade arrangements.

“Catastrophic Anthropogenic Global Warming has been a solidly falsified theory by now,” one person wrote with impressive confidence. Another contended that “CO2 is not a problem as anyone who has studied the real science knows.”

One Albertan dubbed wind farms “bird slicers” and photovoltaic panels “solar cookers.” The phrase “social engineers” was slung around a few times, usually accompanying the volcanoes-produce-emissions-therefore-human-action-is-irrelevant refrain.

Friends of Science, the controversial Calgary-based organization that suggests climate change is being caused by the sun, made five submissions. The most intensely worded of the climate-denying bunch proclaimed: “Time will come you and your panel of shills shall be exposed. Treachery as this carries massive consequences.”

Climate Change Panel Report Coming Soon

All strangeness aside, hundreds of Albertans did what no one 12 months ago would have believed: that is, have a meaningful engagement with the issue of climate change and what the province can do to reduce its greenhouse gas emissions.

Hats off to you, Alberta.

The hundreds of submissions received by the panel supplement the two public open houses that were hosted in early September: the government reports that close to 1,000 people showed up to those.

Next up is the actual formation of the climate action plan, which will be presented to cabinet prior to the upcoming United Nations Climate Change Conference in Paris, France. It’s unknown how many of the submissions will be seriously considered by the panel.

Image: Premier of Alberta

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

It’s finally happening: after years of stalling by the Progressive Conservatives, Alberta’s new NDP government announced Thursday it will double the province’s meager carbon levy on large emitters by 2017.

Industry and environmentalists alike welcomed the decision, while also saying it doesn’t go far enough. 

Currently, any facility that emits more than 100,000 tonnes of greenhouse gases per year must reduce its emissions by 12 per cent below typical performance or pay $15 per tonne for emissions over the baseline. By 2017, the new framework will require companies to lower emissions by 20 per cent below typical performance, with a $30-per-tonne levy for emissions above that target.

“It’s not going to drive the meaningful reductions or give the market incentives that we need,” said Ed Whittingham, executive director of the Pembina Institute.

Pembina advocates for a $40-per-tonne levy with a 40 per cent emissions reduction target. Whittingham said the NDP had three options given the circumstances: let the regulation expire at the end of the month, kick the can down the road by renewing the current framework (as previous governments often did) or actually make some changes.

Dan Woynillowicz, director of policy at Clean Energy Canada, said the most impressive element of the announcement was its decisiveness.

“The previous government has been talking about changing the SGER, or changing the price, or changing the coverage for several years,” he said. “Within a matter of weeks, this government has come in and said: ‘We’re going to do that, we’re going to make that change.’ ”

Cenovus Wants Economy-Wide Carbon Price

Brett Harris, media lead at Cenovus Energy — which has historically supported a price on carbon — says the company is pleased the government has provided clarity on the issue. However, he says “in an ideal world” the company would like to see a pan-Canadian or pan-North American carbon pricing regime to create a “level playing field.”

Shell Canada also welcomed the new rules.

Despite support from energy companies, the concept of a carbon tax has consistently been ridiculed by Canada’s federal government.

Dale Beugin, director of research at Canada’s Ecofiscal Commission, acknowledges a national or international carbon tax should be the end goal, but notes it’s a difficult thing to achieve and that reform must happen incrementally.

“It’s great that the big industrial emitters are priced by the SGER, but that’s not the only emissions in the economy: a good carbon pricing policy is going to be broad as well as stringent, Beugin said. “You want to make sure you’re going after the small emitters, the vehicles, the buildings, the process emissions from waste and agriculture.”

How Alberta’s Carbon Levy Works

There are 103 large emitters in Alberta. While most of the sites are gas plants, a great majority of emissions come from seven coal power plants and five oilsands mines/upgraders. Such companies have three options if they exceed the target: buy carbon offsets, use Alberta Emission Performance Credits (similar to carbon offsets but rewarded based on performance) or contribute to the Climate Change and Emissions Management Fund, which funds climate change projects.

“What [this change] is going to do is drive more money into offsets in the tech fund,” Whittingham said. “There are some greenhouse gas savings or benefits to be had from that.”

Andrew Leach to Head Climate Change Panel

In addition to announcing changes to the carbon levy, Environment Minister Shannon Phillips reported the government is forming a climate change panel, chaired by Andrew Leach, the University of Alberta environmental economist.

"Andrew Leach is pretty much the first person I'd choose for that gig, so good job,” said Chris Turner, the author of The Geography of Hope and The Leap.

According to a feature Leach wrote for Maclean’s, the panel will examine a wide assortment of potential actions. It will deliver a report to the government in the fall, prior to Premier Rachel Notley’s trip to Paris in December to attend the United Nations climate change summit.

Many options will need to be considered. Whittingham says the province must find a way to phase out coal-fired electricity, ensure renewable energy fills a fair share of that void and implement energy efficiency programs, as well as deal with growing emissions from the oilsands.

Photo: Kris Krug via Flickr

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

In a stunning and historic move, Alberta elected a majority New Democrat government on Tuesday.

The Progressive Conservatives, which finished in third place, consistently mismanaged the environmental and climate change file.

Ralph Klein, controversial premier from 1992 to 2006, despised the Kyoto Protocol and infamously flipped the bird at an activist who was protesting against a new Al-Pac pulp mill. Subsequent premiers often talked about improving environmental regulations, but seldom acted on it.

It’s yet to be known how different things will be under the NDP, but their win certainly marks a significant shift in sentiment.

“Together, we need to start down the road to a diversified and resilient economy,” newly crowned Alberta Premier Rachel Notley said in her victory speech. “To end the boom-and-bust roller coaster ride we’ve been on for far too long. It won’t happen overnight. But we must start, and we will.”

Notley also noted that she looks forward to working with Prime Minister Stephen Harper and other premiers on a “national approach to the environment and to Canada's energy sector that builds bridges and opens markets.”

Notley has said she won’t continue to promote the TransCanada Keystone XL and Enbridge Northern Gateway pipelines, but is in favour of Kinder Morgan’s Trans Mountain and TransCanada’s Energy East.

“It’s unclear, so far, what the NDP will do with the oil and gas sector, particularly the oilsands which is the fastest growing source of GHGs in Canada,” said Ed Whittingham, executive director of the Alberta-based Pembina Institute. “We’re eagerly awaiting their plan for dealing with it.”

The NDP’s platform was vague when it came to greenhouse gas emissions, saying the party “will take leadership on the issue” and “first steps will include an energy efficiency strategy and a renewable energy strategy.”

Those are both crucial policy points, especially when one considers the PCs have delayed the release of their renewable energy strategy since 2008. The climate change framework — originally intended for release last October — was allegedly being released in June. It’s unclear what the change in government will mean for that, or what the NDP’s plan is for augmenting the current, esoteric carbon levy.

“What we want now is for the new government is to really show the immediacy of the problem and tell the bureaucrats that those plans have to get done,” Whittingham said regarding the framework.

The NDP also committed to phasing out coal-fired power stations (the incredibly polluting fossil fuel is currently used for 43 per cent of electricity generation in the province) and expressed an intention to implement a green retrofitting loan program to help Albertans reduce energy usage via installation of solar and new furnaces, windows and doors.

The NDP also committed to diverting remaining money allocated to carbon capture and storage — a controversial technology former premier Jim Prentice once dubbed a “science experiment” — to public transit.

A more contentious component of the NDP’s platform involves a review of non-renewable resource royalties — called the “Resource Owners’ Rights Commission” — which would examine the amount of money the province makes from its oil and gas resources. While such a review wouldn’t automatically translate to increases in royalties (which sunk former premier Ed Stelmach), it does have energy sector CEOs concerned.

Any money made from “incremental royalty revenue” would be channelled into the Heritage Savings Trust Fund, the province’s sovereign wealth fund, which would then be used to invest in renewables or diversify the economy. That particular idea was critiqued by Andrew Leach, professor of energy policy at the University of Alberta, in a detailed Maclean’s feature on the NDP’s energy policies.

“If the premise is to use resource revenues to provide low-cost capital to otherwise non-viable economic activity in the province today, I’d call that spending and dispense with the need to flow the dollars through a fund,” he wrote.

The NDP’s infatuation with refining raw bitumen is something else that Leach (as well as fellow Maclean’s columnist Colby Cosh) has critiqued. In addition to being potentially uneconomical due to sheer investment costs and lack of comparative advantage (contrasted with, say, Texas or Louisiana), refineries would only increase Alberta’s reliance on petroleum products and services, writes Leach.

A surprising omission in the NDP’s platform was details about oilsands monitoring and regulation, something the PCs were often criticized for. The Alberta Environmental Monitoring, Evaluation and Reporting Agency was created in 2014 as a joint agency between the federal and provincial government, with funding from the energy sector.

But in the October 2014 auditor general’s report, it was noted that the agency’s annual report for 2012-2013 was delayed 15 months, “lacked clarity and key information and contained inaccuracies.” As a result, the auditor general suggested the governments could “fail to carry out their plan for monitoring the environmental impacts of oil sands development.”

At this stage, there are more questions than answers about what the NDP will mean for Alberta on the energy and environment file — but one thing’s for sure: those concerned about climate change have more reason to hope today than they did yesterday. 

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

It was the cherry on top of the ice cream sundae of entitlement.

On Monday, the day before the Alberta election, the province’s four largest newspapers — the Edmonton Journal, Edmonton Sun, Calgary Herald and Calgary Sun — endorsed the Progressive Conservatives.

Now, newspapers endorsing parties is nothing new, but every major newspaper in Alberta being owned by one company is new. (Postmedia acquired the Calgary Sun and Edmonton Sun this March when the Competition Bureau signed off on the purchase.)

What else appears to be new is that the Edmonton Journal (which did not endorse in 2012) was asked to endorse not by local management, but by head office in Toronto, according to editor-in-chief Margo Goodhand.

Asked by Canadaland who chose to endorse the PCs, Goodhand responded: "The owners of the Journal made that call.”

It’s hard to imagine a better way for Postmedia to undermine its own credibility than by dictating editorial policy in Alberta — from Toronto of all places.

As new Premier Rachel Notley said in the last days of the campaign: “Alberta doesn’t belong to any political party. Alberta is not a PC province, it’s not a Wildrose province. Alberta belongs to Albertans.”

As a born and bred Albertan with an election-watching obsession, it’s that quote that best sums up why Alberta voters made the leap to electing a majority NDP government. Albertans like to be their own bosses.

For a long time, they thought voting PC made that so, but this time, that changed — at least for the 40 per cent of voters who selected an NDP candidate on the ballot.

“The unprecedented New Democrat surge in Alberta was certainly abetted by a Conservative regime that looked out of touch and, frankly, acted like a dysfunctional family that needed counselling,” wrote Gary Mason in the Globe and Mail on Wednesday.

The first big blunder was made by PC Leader Jim Prentice, when he said Albertans needed to “look in the mirror” when it came to the fiscal mess the province is in.  Albertans weren’t too pleased about being blamed for a problem created by decades of fiscal mismanagement.

Next up, Prentice insinuated during the televised leaders debate that Notley couldn’t do math.

That moment was the embodiment of so much that had become wrong with Alberta politics — old, white guys so entitled that they think they can treat everyone from average Albertans to smart female political leaders with condescension.

The Edmonton Journal’s editorial on Wednesday (not written by Postmedia bosses in Toronto by the look of things) hit the nail on the head:

“The one thing we know about Notley and all of these fresh new faces that now govern us is this: They will not take their victory for granted. They have never been the ruling party, and they well know that governing this province is a privilege, not an entitlement. That’s the lesson for all Alberta politicians this time around.”

More than a lesson for Alberta’s politicians, it’s a lesson for oil companies that had grown too tight with the PCs and too full of their own sense of entitlement. Aided by the government, they’d begun to lose sight of the fact the resources they are digging up actually belong to Albertans.

The NDP has promised to review the royalty system: “The resources we have in Alberta belong to all of us, and the return we get on resources needs to be discussed publicly and regularly, openly and transparently.”

Unlike much of the fear mongering coming from the oil industry today, the NDP has made no indication that it will rashly move to increase royalties in the midst of slumping oil prices.

"Business is mobile," Adam Legge, president of the Chamber of Commerce in Calgary, said before the election. "Capital, people and companies move."

Well, apparently votes move too, Mr. Legge. And unless the world’s third largest proven reserve of oil is going to migrate outside of Alberta’s borders, it’s time for politicians and companies alike to stop taking Albertans and their resources for granted.

Image Credit: Jim Prentice via Flickr 

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

Think of Norway and your mind likely conjures up a Narnia-like folklore: vikings, salmon, fjords, Svalbard reindeer.

But there’s another element — albeit slightly less fabled — that’s been added to the list recently: the Government Pension Fund Global. It’s also known as the “most successful sovereign wealth fund in the world,” according to a February 2015 report from the MacDonald-Laurier Institute.

It might not be popular enough to inspire a cable television show, but it’s prominent nonetheless.

“There’s almost this myth about Norway,” acknowledges Andrew Leach, energy policy professor at University of Alberta, referring to Norway’s sovereign wealth fund.

The investment fund, created in 1990, now houses $1 trillion (it’s not a typo) in savings from non-renewable resource revenue. As oil prices have plummeted, comparisons between the Norwegian reserve and Alberta’s Heritage Savings Trust Fund have spiked. Alberta Oil editor Max Fawcett jested that a CBC News feature from late March was “probably the 429th time in last year” that a Canadian news outlet had compared the two.

And with the increase in the number of comparisons has come a surge in the number of critiques of that comparison — complete with a new term born in the Twitterverse: "Norwailing."

On March 26, Fawcett published his piece Why we're not like Norway, which looks at the country's different tax regimes (as in, in Norway citizens pay enough taxes to cover program spending), the subsidized history of extracting oil from the oilsands and the differences between Alberta as a province and Norway as a country.

A few days later, the National Post published an argument by Stephen Gordon, an economics prof at Laval, that the proposition ignored the sheer amount of oil left in Alberta compared to Norway and oversimplified the unique fiscal responsibilities of a province (think: transfer payments to the feds).

Also hopping on the bandwagon with provocative swagger was Maclean's writer Colby Cosh, who wrote “The case for blowing Alberta’s oil riches."

What to make of all of this? Well, first off let's look at why the Alberta vs. Norway makes sense. Both are industrialized places with social-democratic values. Both rely on resource revenues for a decent chunk of revenue (22.6 per cent in 2014 for Norway, almost 18 per cent for Alberta). Comparing Alberta to Norway certainly makes mores sense than comparing Alberta to Saudi Arabia or Venezuela.

Alberta’s Heritage Savings Trust Fund was created almost 40 years ago by former premier Peter Lougheed with a one-time investment of $1.5 billion. Since then, the fund has dwindled in priority. At last count, it held $17.4 billion in oil and gas revenue. That’s less than two per cent of the amount in Norway’s savings account. (That makes 430 comparisons this year so far.)

Getting trapped in the saving vs. spending debate is a red herring, argues Mitchell Anderson for The Tyee: "What is missing from these arguments is that you can't save what you don't have. Alberta has done such a wretched job of capturing public wealth from a globally significant public resource that arguing about savings versus government spending is an exercise in red-herring hair-splitting."

He also breaks down which place is doing a better job of capturing public value from a public resource.

"Dividing resource revenues by production reveals some shocking figures. Norway realized revenues of $87.69 per barrel in 2013. Alaska managed $38.54. And Alberta? Just $4.38 — one-twentieth what our Norwegian cousins managed to rake in," Anderson writes.

Back in Alberta, that money has flowed into corporate coffers instead of into the public bank account.

“They chose, rather than putting a torch to the money, to transfer into another form of capital — from a natural resource into one that accumulates interest for them in perpetuity,” explains Greg Poelzer, professor of political studies at University of Saskatchewan and author of the MacDonald-Laurier Institute report. “Sometimes it’s seen that this is a social-democratic orientation that Norway’s taken. Quite the opposite. They’re ruthless capitalists and understand fiscal conservatism and capital finance.”

On the flip side of the coin, Leach says that the comparison to Norway just doesn’t recognize the history of the resource. Back in Lougheed’s day, Leach points out, there was an incredible amount of excess revenue due to oil embargoes. There was too much money not to invest. But then came the oil glut of 1986. Investments in the fund plummeted with the returns. But by 1999, revenues had bounced back.

“If you look at Alberta, as far back as the 2000s and such times, we’ve always had the view that our future revenues are going to be greater than our current revenues,” Leach says. “This, from an economics perspective, is not good motivation for savings: it’s the equivalent of taking someone in their first job and saying ‘you should save now so you have time to spend when you’re a well-paid executive.’ ”

As Anderson notes, the royalties game is at the heart of the issue. Remember when former premier Ed Stelmach introduced a 20 per cent hike in the royalty rate back in 2007? That didn’t even last 1,000 days. Leach emphasizes that while another royalty hike wouldn’t pressure companies out that have already enormously invested infrastructure, it certainly wouldn’t encourage future prospectors.

That said, everyone from the Fraser Institute to the Canadian Centre for Policy Alternatives can agree that Alberta shouldn't be relying on non-renewable resource revenue to fund its operating expenses, so something has got to change.

Amin Asadollahi — oilsands program director at Pembina Institute — argues that growing the savings fund would serve to protect the economy from the boom-and-bust cycles the province is currently experiencing. Eventually, those dollars could be invested in sectors that are less prone to uncertainty and high levels of emissions.

“If the capital investments are targeted appropriately, they can also support sectors that might be disadvantaged as a result of the resource boom,” he says. “There’s the focus on one sector, the governments can use these kinds of capital investments to incentivize growth in other sectors. I think you can guess which sectors I’m talking about here: renewable and low-carbon pathways.”

Poelzer defends the Norway comparison for similar reasons: namely, that the amount in the Norwegian fund extracted for general revenue serves as a buffer for supply shocks like the one Alberta is current undergoing. Added to its glory is that the principal is never touched, only the interest. Poelzer compares the outcomes — massive and predictable investments in roads, schools, welfare — as the golden eggs of a white goose, boosting competitiveness, education and well-being.

But he’s not naive about the significance of social consensus. Albertans aren’t exactly well-trained in delayed gratification. Some simply work here for a few years before moving somewhere with a better view of the ocean. Norway sports heavily regulated immigration and taxation. Most Albertans are incredibly averse to the latter, making it difficult to fill the gap that investments in the fund would require.

“The interprovincial migration in Lougheed’s day was nothing like once the expansion of the oilsands took place. Then, there were greater political values and heterogeneity and a weaker social consensus," Poelzer says. "When we ran into fiscal trouble in declining oil commodity prices during Getty and his successors, there wasn’t the political consensus to stay the course. That’s where the wheels came off. And they’re very difficult to put back on.”

In Alberta’s greatly anticipated budget, released on March 26, the provincial government committed to halving its reliance on non-renewable resource revenue for budgeting by 2020, from its current level of 100 per cent. The remainder will pay off debt and get invested in the fund.

Asadollahi says that's a good sign. But how the gap left by resource revenues will be filled is yet to be determined.

“If it’s just a question of, ‘Would you like to have a trillion dollar sovereign fund,’ the answer is, ‘Yeah, sure, I would love to,’” Leach says. “But are we prepared to reduce government expenditures and/or increase government take?”

Image Credit: Fjordtravel.no

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

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

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

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

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

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

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.