Rising Odds of an Oil Sands Crackdown

Rising Odds of an Oil Sands Crackdown

If Canadians learned anything from the bickering at the Copenhagen CLIMATE CHANGE summit, it's that our outsized appetite for energy and the ugly image of the Alberta oil sands (see BITUMEN) - sprawling open-pit mines, belching smokestacks, murky tailings ponds - has bestowed upon us the unfamiliar role of environmental villain. And, justified or not, the scrutiny is only going to get worse in a year when Canada will host G8 and G20 summits and the Olympics.

The federal government has so far dismissed the characterization as the work of a few fringe environmental groups, but make no mistake: the oil sands are fast becoming a political problem for Prime Minister Stephen HARPER, and one that can't be ignored indefinitely. "I think Canada is going to have to do something about the oil sands, not just because of the international pressure, but because the unconstrained growth will make it so difficult for us to reach the targets we've set for ourselves," said a member of Ottawa's climate change panel and Copenhagen conference attendee, who spoke on the condition of anonymity. (He was referring to the government's stated target of reducing emissions by 20 per cent from 2006 levels by 2020, not previous Kyoto targets.)

Ottawa's official strategy, and one that the industry supports, is to wait for Washington to figure out its own climate change legislation and then follow suit. But there's no telling how long that could take. And while there's a sound economic argument to be made for a coordinated approach - Canada is the largest exporter of oil to the U.S. - there may be a political price for a minority government. "The government is in a bind," says Dale Marshall, a climate change analyst for the David Suzuki Foundation. "It probably wants to give a break to the oil sands, but it's difficult politically to do so. And that's because a Conservative majority doesn't go through Alberta, it goes through Quebec and Ontario." Indeed, a war of words has already broken out as Ontario and Quebec criticized Ottawa for taking a weak stance at Copenhagen while Alberta spent $120,000 to defend its environmental record in national newspaper ads. Going after the oil sands would require some deft manoeuvring - any crackdown risks causing serious harm to the Canadian economy and could open deep regional rifts.

So just how far might the government go to send a message? Much of the current discussion now centres on how big a break oil sands producers might get, mainly because proponents argue similar "trade-exposed" industries, like coal-fired electricity in the U.S., are likely to be let off the hook. But it's looking increasingly likely that the oil sands industry will be asked to step up and contribute to any new climate change policy. That would likely come in the form of a national carbon tax or a cap and trade scheme, say observers. Both tools could be used to penalize oil sands firms that haven't moved quickly enough to curb fast-growing emissions (the government estimates oil sands emissions will triple between 2006 and 2020). But even more direct taxes or regulations aimed squarely at the oil sands and firms that don't hit emissions targets could still emerge as a viable option. Or the government could simply reach back to its 2007 "Turning the Corner" plan that advocated measures to limit the "intensity" of emissions in a given sector by requiring reductions on a per barrel of oil basis.

Marshall says the simplest approach would be to hash out our own climate legislation that's based on the cap and trade system now before the U.S. Senate. A cap and trade scheme could zero in on the oil sands specifically by putting a higher dollar value per tonne on their carbon emissions, forcing the industry to pay a steeper price than others for emissions credits. Likewise, a carbon tax could penalize particularly dirty industries with a higher levy.

The industry, for its part, seems confident that the economic importance of the oil sands means that the current government is unlikely to make any rash moves. "The oil sands gets far more attention than it deserves in this discussion," says David Collyer, the president of the Canadian Association of Petroleum Producers, noting that the oil sands produces just five per cent of Canada's emissions and one-tenth of one per cent of global emissions. Others warn that a policy that singles out the oil sands would make little sense. "You could close down the oil sands tomorrow but the impact on overall emissions would be minimal," says Jack Mintz, a professor of public policy at the University of Calgary. Picking on one industry doesn't solve the problem, he adds. In fact, it would only fuel regional anger. "If you want to get Alberta separatism stoked, that would be the best way to do it."

It's true that the oil sands aren't responsible for the country's high per capita emissions - cars and trucks do far more damage in Canada, and coal-fired power plants are the biggest industrial emitter - but environmental groups are quick to point out that Fort McMurray is the epicentre of the fastest growing source of emissions in the country, with production expected to nearly quadruple by 2020 to four million barrels per day. This is a distinctly Canadian problem, they say, and there are ways to mitigate the regional divisions that dealing with it might arouse. Marlo Raynolds, executive director of the Pembina Institute, says Ottawa could still implement a polluter pays policy, aimed at a region or industry, so long as in return it does things like reduce income tax or pump revenue into technology funds.

One element all agree on is that if the oil sands are targeted, the revenue needs to stay in Alberta. "You can hit the production side as long as the money is used in some way to address the problem," says Roger Gibbins, president and CEO of the Canada West Foundation. That's the approach that Alberta has taken with its climate program, which sets emissions levels and then penalizes companies who exceed them. The money is then funnelled into a technology fund to explore things like carbon capture. But critics say the penalties need to be much higher to have a meaningful impact on companies that by all appearances have been dragging their feet on the climate front. None of the big producers in Fort McMurray have committed to using carbon capture systems, apparently because of the cost and an overall lack of necessary infrastructure, such as pipelines.

Most observers say that any kind of crackdown on the oil sands will ultimately need to be part of a broader plan. There's "an expectation that a fair set of policies would target consumption as much as production," says Gibbins. That's why a carbon tax is often touted as an ideal policy tool. It could zero in on oil sands companies, but would also force everyone from motorists to other big industries to share the pain.

The industry claims it is not fundamentally opposed to cap and trade or carbon taxes (with the caveat that revenues are used to develop cleaner technologies). One oil sands industry executive, speaking on the condition of anonymity, suggested Ottawa could also choose to target the oil sands by stiffening environmental regulations and requiring that all new projects invest in carbon capture and storage technologies. One of the biggest complaints of many in the oil sands industry is simply the lack of a clear climate change plan from the government. Planning multi-decade, multi-billion-dollar projects without a clear sense of what the government has in mind has been a major challenge. "The general sentiment in the industry is optimistic in terms of global demand for what they're doing," says Gibbins. But they are hamstrung without "some relatively robust concrete framework" on climate change policy.

For the time being, however, the Copenhagen summit, for all the negative attention it heaped on the oil sands, isn't necessarily being viewed as a negative by the industry. While the petroleum producers' association maintains that the government's stated emissions target - a 20 per cent reduction from 2006 levels by 2020 - is "very ambitious," it also says the industry is pleased that the Copenhagen agreement basically allows countries to set their own targets and that it reinforced the role of technological solutions. And the best news yet for the industry: the much tougher targets of the earlier Kyoto agreement have been all but cast aside in favour of more realistic - environmentalists say less effective - goals.

Maclean's January 25, 2010