Strong oil and gas regulations can get Canada on track to 2020 target

Let’s say you’re a government with a bit of a green image problem. You also happen to have an oilsands sector that’s facing challenges on environmental grounds everywhere you turn.

You’ve already tried giving speeches. Sending minister after minister to the U.S. doesn’t seem to have convinced your critics. So what’s left?

Maybe it’s time to try an effective regulation on the oil and gas sector’s greenhouse gas pollution.

In a new report released today, the Pembina Institute laid out a set of recommendations to do exactly that.

Our analysis is built on two premises.

First, our recommendations fit within the government’s framework of curtailing greenhouse gas pollution from industry through sector-by-sector regulations. That’s definitely not our preference: we continue to believe that an economy-wide price on carbon is a better policy tool on both environmental and economic grounds. But because the Harper government has made a different choice, we assessed what a strong sectoral regulation for oil and gas would look like in Canada.

Second, we think the regulations should be strong enough to get Canada on track to hit its national greenhouse gas emission reduction target for 2020. The government adopted that target back in 2010 to match the U.S., and often says that Canada is aligned with the U.S. as a result.

It might sound uncontroversial to say we should hit our target, but in fact it’s a big commitment. That’s because the government projects that Canada’s total emissions will grow from now to 2020, putting us on track to miss its 2020 target by over 100 million tonnes. That’s more than the current emissions of Saskatchewan, Manitoba and New Brunswick combined.

The federal government has rules on the books already for greenhouse gas pollution from coal power and vehicles, and their effects are already accounted for in the government’s projections of the gap left to close by 2020.

There are also several sectors of the economy that, like oil and gas, have yet to be regulated under Ottawa’s approach, including manufacturing and natural gas-fired electricity.

But oil and gas is the biggest “piece of the pie” left to regulate, accounting for nearly a quarter of Canada’s current emissions. So it falls to that sector to close most of the gap to our 2020 target.

To get Canada on track, we found that the oil and gas sector needs to take responsibility for reducing its emissions by 42 per cent from the level they’re projected to reach in 2020. That’s also a significant (23 per cent) drop from today’s emission levels.

We understand that the federal government is taking a close look at Alberta’s intensity-based approach to regulating greenhouse gas pollution from heavy industry, with an eye to using it as a model for its oil and gas regulations. But if Ottawa builds on Alberta’s foundation, the federal construction is going to need to be much stronger to help close the 2020 target gap.

Right now, Alberta’s approach sets a 12 per cent intensity target, charges a price of $15 per tonne through its technology fund, and offers companies unlimited access to “offsets,” which are credits from emission reduction projects outside of the regulated sectors.

Getting on track to hit Canada’s target with Alberta’s architecture would mean:

• Setting a sector-wide target that reaches at least a 42 per cent intensity improvement;
• Setting a price of at least $100 per tonne by 2020 for payments into the technology fund, though a price on the order of $150 per tonne would be much more likely to close the gap; and
• Limiting companies’ access to offset credits.

The approach we recommend would increase the average cost for a representative oilsands facility by less than $3 per barrel in 2020, after accounting for interactions with royalty and corporate tax rates. A barrel of oilsands bitumen regularly sells for about $70.

Our recommendations would also help the oilsands sector compete against cleaner fuels under policies like California’s Low Carbon Fuel Standard or the EU’s Fuel Quality Directive, cutting the difference between oilsands bitumen and conventional crude in half (or better).

Without a strong regulation, the oilsands are on track for a massive increase in greenhouse gas pollution. In fact, Environment Canada’s modelling found that the growth in oilsands emissions from 2010 to 2020 will more than cancel out the reductions that all the rest of Canada’s economy are expected to make over the same period.

Environment Minister Peter Kent has committed to publishing information about the regulations in the first half of 2013 — although he has made similar commitments before, and Canadians have yet to see a proposal. With decisions pending on a pair of high-profile pipeline proposals, Canada’s climate track record is under heightened scrutiny right now.

The government has all the regulatory authority it needs to act. Federal officials have been consulting with industry and provinces since the fall of 2011 so they’re not lacking information.

In short, there is nothing stopping the Harper government from adopting an oil and gas sector regulation that demonstrably gets Canada on track towards its 2020 target.

That would be a huge step forward. Unfortunately, the converse is also true: if the government adopts weak oil and gas regulations but maintains its sector-by-sector approach, the remaining gap to our 2020 target becomes extremely difficult to close.

So these regulations are a make-or-break moment for Canada’s climate credibility. We’ll be watching very closely over the coming weeks, hoping to see Canada surprise its critics by getting this one right.

 Clare Demerse is a co-author of Getting Track for 2020: Recommendations for Greenhouse Gas Regulations in Canada’s Oil and Gas Sector.