Answering the Carbon Challenge
Capping oil sands emissions can actually help the oil industry. Here's how.
A limit on oil sands emissions is not the sector’s death knell. Working within limiting regulations is always a challenge but certainly nothing new to any industry. Rather than imagining only how limiting oil sands emission will hamstring the industry, the innovative players within the sector can look forward to the benefits that come with it.
This November, Alberta Environment and Parks Minister Shannon Phillips introduced the Oil Sands Emissions Limit Act in the Alberta Legislature. It stipulates total greenhouse gas (GHG) emissions from oilsands extraction processes will not exceed 100 million tons of CO2 per year. Obviously, this could be taken as a de facto cap on production growth, but only if the oil sands industry is not able to improve its performance. For more than a decade now the industry promised Canadians that improving production efficiency and reducing emissions is one of its most important goals.
The world is entering an inevitable carbon-constrained era. Countries will have to drastically change the way they produce and use energy in order to meet international commitments to address climate change and pollution concerns, as well as protect themselves from conventional energy price volatility. To that end, governments worldwide are developing approaches to reduce GHGs. In Canada, the target is to produce 30 percent fewer GHG emissions in 2030 than we did in 2005. Alberta is critical to Canada’s success on this front, particularly because the oil and gas sector remains the largest source of GHGs in Canada, and oilsands production is one of the fastest growing sources.
Alberta’s oil sands operations currently emit 70 mega tons (Mt) of CO2 per year. An additional 30 Mt is quite a margin for growth and includes exemptions for cogeneration, new upgrading, and possibly other components of the industry. However, the 100 Mt limit could be reached long before 2030 if the oil sands kick back into high gear with rebounding oil prices or GHG emission per barrel continues to worsen. Numerous project applications are under consideration and if approved may significantly bump up GHG emissions rates in the patch. Teck’s Frontier projects alone is expected to 260,000 b/d if it receives the greenlight following a joint provincial-federal regulatory review. Data shows that despite industry claims, there has been no improvement in average GHG pollution per barrel of bitumen produced in the oil sands over the last decade. On the contrary, overall emissions intensity of the oil sands has actually increased by 25 percent between 2004 and 2014.
What industry needs to do now, and what the emissions limit gives better incentive to do than previous approaches, is to build towards a higher value, lower greenhouse intensity industry. The emissions limit provides the incentive for industry to deploy next generation technologies. Combined with the output-based allocation policy for carbon emissions currently being laid out by the Alberta Government, the emissions limit will bolster the need for breakthrough technologies. Developing those technologies will create jobs and stimulate the economy around advancing and licensing them.
Alberta’s Climate Leadership Plan acts as a framework to favor the most efficient, least carbon-intensive projects and penalize those unable to attain an appropriate level of performance. The cream of the crop among companies working in the oil sands will quickly out-compete the weaker performers, and space will be made for innovative breakthrough players to enter the field, ultimately making the industry on the whole stronger and more capable of operating in a low carbon future. Demonstrating to the world that Alberta and Canada are serious about recognizing that oil sands emissions must be part of a coherent strategy to reduce emissions is essential to achieve the social license our energy products need to remain competitive.
With this new set of policies, Alberta not only demonstrates unprecedented leadership by being the first oil and gas producing jurisdiction to deeply re-evaluate the way it manages its emissions, it also provides an opportunity to look long-term and make strategic decisions about multi-decade fossil fuel extraction projects in a rapidly decarbonizing world. The new policy offers hope for the oil sands industry to show how it can fit in the inevitable carbon-constrained future rather than operate in opposition to it.