Government plans to curb emissions have come fast and furious in 2008. How can producers navigate the years ahead? Gray Taylor and Duncan McPherson size up the legislation maze.

Compliance with federal climate change regulations – and, to a lesser extent, Alberta’s own program – will soon become a material cost driver for Alberta’s energy industry.

In March 2008, Ottawa announced new details in its evolving plan to reduce emissions of greenhouse gases (GHGs). The government set a national target of an absolute 20 percent reduction in GHGs from 2006 levels by 2020 – a reduction of 330 megatonnes from projected levels – and a 60 to 70 percent reduction in national emissions by 2050. Further details of the federal strategy are to be released as draft regulations in the fall of 2008, with final regulations to be in force from the start of 2010.

There will be significant domestic and international pressure for Canada to meet or exceed this 2020 target, which is already a strategic retreat from Canada’s original Kyoto Protocol commitment of reducing emissions by 6 percent below 1990 levels by 2012.

Oil and gas, and especially oilsands, are squarely targeted for major reduction obligations under Ottawa’s new plan. Although important details remain to be worked out, the Government has stated that conventional oil and gas and oilsands facilities in operation before 2004 will be required to reduce their emissions intensity (GHG emissions per unit of output) by 18 percent from 2006 levels by 2010, with 2 percent continuous improvement every year after that to 2020. “New facilities” – defined as those commencing operation after 2003 – will be given a target-free three-year commissioning period, but thereafter will be required to make annual 2 percent emissions intensity reductions, calculated on the assumption that fuel-burning facilities will use a designated clean fuel (creating an incentive for post-2003 facilities to avoid GHG-emission-intense fuel). In the case of oilsands, the cleaner fuel standard will be process-specific, with a specific natural-gas-based standard for each of mining, in situ and upgrading.

Crucially – in a bid to decouple oilsands growth from ever-greater GHG emissions – Ottawa’s plan further requires that all oilsands upgraders and in situ plants that come into operation after 2011 must meet, by 2018, a stringent GHG emissions target based on the use of carbon capture and storage (CCS) technology. CCS allows emitters to direct their GHGs to underground sequestration. The Government has yet to refine this target, but states that post-2011 in situ and upgrader projects will “effectively” require CCS. As an incentive to implement CCS, new facilities built carbon capture-ready will escape the cleaner fuel standard until 2018.

The March 2008 federal plan provides several mechanisms for industry to comply: in-facility emission reductions; emissions trading between regulated industrial emitters; purchases of “offset” credits from reductions achieved in non-regulated activities; limited purchases of Kyoto Protocol Clean Development Mechanism emission reduction credits; possible credits from firms’ “early actions” (between 1992 and 2006) to reduce GHGs; and contributions of money to a public technology fund or into emission reduction projects (which will include CCS), effectively granting emissions permits for a fee.

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