Facts matter

The Canadian Energy Centre (if you’re wondering who that is, it’s a pro-energy corporation funded by the Alberta government) apparently take their responsibility to tell Canada’s energy story very seriously.

After seeing Bill McKibben’s op-ed in the Globe and Mail on Saturday, I waited anxiously for the response from our vaunted war room.  It finally came.  You can imagine my surprise when, under the heading A Matter of Fact, they put forward what seems to be misinformation.  Given their dedication to true facts, I felt it was important to set the record straight for them, in hopes that their future posts can more effectively raise understanding of the Canadian energy sector.

Perhaps they’ll be willing to publish it as an op-ed. My open letter follows below.

Dear Canadian Energy Centre,

I read with interest your response to Bill McKibben’s op-ed in the Globe and Mail on Saturday. The piece makes some important points, and I’m far from agreeing with McKibben, but I’m also a firm believer that you don’t push back with falsehood, even if you think you’re pushing in the right direction.  As such, this paragraph just didn’t sit right with me.  I’m sure you’ll agree that we must not stoop to the level of our opponents and resort to lies and myths to advance our interests.

While the heading on this paragraph suggests that facts will follow, that’s not what we find.  Words are important, and it seems that perhaps they were not chosen carefully enough.  I’m sure it could not have been intentionally done to mislead, and I expect you’ll want to correct the record.

There are two claims in this paragraph which, when subjected to scrutiny, do not pass muster.

Claim #1: The carbon footprint of Canada’s crude oil is steadily decreasing

The paragraph claims that the carbon footprint of Canada’s crude oil is steadily decreasing.  A helpful link is provided, but when you click on the link, things go a bit sideways.  It turns out that the carbon footprint of Canada’s crude oil has not been decreasing. It’s been increasing, rapidly. For your reference, I’ve included a graphic showing this information, sourced from Canada’s national emissions inventory.

No doubt there has been substantial innovation in the industry, but that has enabled production to grow rapidly over time, which has increased industry’s carbon footprint substantially and steadily since 1990.

Now, before we leave this claim, it will be tempting for many to say that I’m taking false issue and that, clearly, what the Canadian Energy Centre intended to convey was that the emissions intensity of Canadian crude oil had been steadily decreasing.  Sadly, that’s wrong too. I wish I had better news.

Canadian oil production has increased rapidly since 1990, and that growth has been largely driven by oil sands, and since oil sands were initially very high emissions intensity barrels, they drove up the average Canadian barrel’s emissions intensity. That’s leveled off as oil sands emissions intensities have decreased, but it’s not at all fair to say that the emissions intensity of Canadian crude oil production has been steadily decreasing, as the graph below shows.  Our emissions intensity today is above what it was in 2005 and well above 1990 levels.Now, perhaps what you intended to claim in referencing the decreasing carbon footprint of Canadian crude oil was that the emissions intensity of the average oil sands barrel has decreased continuously over time? It has, or at least it had. In the most recent data we have, helpfully shown in the link to NRCan you provided, it had been decreasing but it is increasing.

Source: NRCan (https://www.nrcan.gc.ca/science-data/data-analysis/energy-data-analysis/energy-facts/energy-and-greenhouse-gas-emissions-ghgs/20063)

I hope you find this helpful in correcting the record.

Claim #2: Oil produced from many of the newest oil sands facilities have (sic) per-barrel emissions levels that are at or below the average global barrel.

This claim is one that I see a lot: that the most emissions-efficient oil sands sites are producing barrels that are close to or below the emissions-intensity of the global average barrel. While that would be a great result, it’s not something we’ve seen so far, nor is it what is claimed in the link you provided. In that link, Suncor makes a slightly different claim: that the average barrel extracted at Fort Hills is on par with the average crude refined in the United States on a full life cycle basis for which they cite an IHS study from 2014.  That’s a really good report, and worth reading, but they’re comparing to an average barrel refined in the US in 2012, so it might be time to update those figures. (You can download this study, as well as more recent work from the Canadian Oil Sands Dialogue project here. An earlier version of this post had erroneously linked to their 2010 report, which used 2005 data.)

Thankfully, there’s a study for that.  Mohammad Masnadi and several co-authors including the University of Calgary’s Joule Bergerson have looked at the carbon intensity of global crude supply in work recently published in the journal Science (Publishing in Science is kind of a big deal to us academics, by the way). They find that the global volume-weighted-average upstream carbon intensity of crude production is 10.3 grams of CO2 equivalent greenhouse gases per megajoule of energy produced. They don’t assess Fort Hills (we’ll come to that), but they do assess the similar Kearl Project and it comes in at 13.3 grams,  29% above the global average. Christina Lake, one of our top-performing in situ sites gets a similar score. Now, they’re using 2015 data which is not ideal, but I think we can agree it’s better than 2005 data and we can also agree that it’s unlikely that we’re below the global average, unless Fort Hills sits about 30% below Kearl.

There’s also reason to believe that the claim with respect to US barrels doesn’t hold.  Here’s a quick reason why.  We know that California refines some of the heaviest barrels in the US (the average PADD 5 input has an API gravity of 28.7 while the US average is 33.3), so you’re going to find a larger proportion of thermal heavy oil barrels in that market than anywhere else.  Because they have aLow Carbon Fuel Standard, they study and publish the upstream carbon intensity of any barrels refined in California, along with all their methodology. Just before Christmas, they finalized their 2018 data and it’s now posted here. Fort Hills is there, certified at a relatively low value of 11.78g/MJ while Kearl is 12.89g/MJ (note that Fort Hills is about 9% below Kearl, which is great but not enough to bring it down to the global average cited above).  The 2018 average in California was 12.35 g/MJ, and a WTI barrel is 11.93g/MJ, so our best barrels are a bit better than WTI and a bit better than the average barrel refined in California, although the average Canadian barrel refined in California is well-above their average.

Based on the most recent data available, there is no evidence that “many of the newest oil sands facilities have per-barrel emissions levels that are at or below the average global barrel.”  There is evidence that at least one oil sands facility has per-barrel emissions below the average barrel refined in California, so that’s something. They’re just not the same thing.

One more thing

Now, before I leave you, one more thing which you might wish to consider.

In your post, you include the following:

It’s interesting to me when you choose to provide specific numbers and when you don’t.  Now, I am sure you don’t wish to provide a false impression, so may I humbly suggest that many of your readers will not know what current global oil demand is, and so they might find the 67 million barrel per day figure to be a bit out of context. 67 million barrels per day sounds like a lot. It isn’t. It’s a big problem if you’re a supplier of relatively high cost crude oil.

Now, just to be clear, I do note you provided the link to the IEA’s Oil 2019 Report to help, however most of your readers are unlikely to click on it and, by the way, this isn’t the IEA’s latest forecast: a more recent version is in the World Energy Outlook, but they’re not substantially different.

Okay, so on to my key point.  You tell your readers that world demand for oil and gas continues to grow, which is true. It has grown steadily through to our most recent data, but here’s where context is important.  While I’m sure it’s not your intention, readers might read your post to suggest that even in a world acting on climate change, there is robust oil demand and Alberta can carry on as before. But here’s what the World Energy Outlook abstract says about their three forecasts: “In the Stated Policies Scenario, demand growth is robust to 2025, but growth slows to a crawl thereafter and demand reaches 106 mb/d in 2040. In the Sustainable Development Scenario, the unprecedented scale, scope and speed of changes in the energy landscape paints a very different picture: demand soon peaks and drops to under 67 mb/d in 2040.”

Importantly for the prospects for Alberta’s oil sands, while the IEA projects that prices will increase at rates above inflation to sustain demand in the scenarios where the world fails to act on climate change, they project flat real dollar prices in the Sustainable Development scenario you cite.  I do worry that, perhaps, you’re inadvertently suggesting that action on climate change will not have material impacts on the world oil market, which no credible entity is suggesting. I offer this only as a helpful suggestion.

I do hope you find these suggestions helpful and I wish you well in your mission.

To whom is Jason Kenney selling a bill of goods on Energy East?

Jason Kenney is, ahem, bending the truth, for someone on Energy East. The questions we should be asking are whether he knows that he is and, if his Energy East fantasies were to come true, to whom would he have been selling a bill of goods.

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Senate Testimony on Bill c-48

Bill C-48, An Act respecting the regulation of vessels that transport crude oil or persistent oil to or from ports or marine installations located along British Columbia’s north coast, has passed third reading in the House of Commons and is now at the Senate committee stage.  I’ve been invited to appear before Senate Committee on Transport and Communications on Tuesday, April 30th.  I’ve slightly adapted my opening statement from an appearance before the House Transport committee last year. My opening statement to the committee is as follows:

Thank you for inviting me to appear today. In my remarks which follow, I will focus on those areas most relevant to my expertise – the impact of the proposed tanker ban on Canada’s ability to realize maximum value for its resources and for products derived from Canadian processing of those resources.

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My thoughts on the UCP Climate Change Plan

Jason Kenney formalized the United Conservative Party’s climate change and energy plans on the weekend. There’s more to Kenney’s platform than the headlines about scrapping the carbon tax – the platform is a systematic walk-back of some of the most important climate change initiatives in Alberta, an effort to perpetuate myths about other initiatives and, I believe, a gift to those opposed to Alberta’s energy sector.

In case you’re not aware, I have a personal tie to many of these policies: in 2015, I chaired Premier Notley’s Climate Leadership Panel that recommended many of them. I’ve also worked on policies federally under Prime Ministers Harper and Trudeau and provincially under Premiers Stelmach, Redford, Hancock, Prentice and Notley. I’ve written on these topics since before Alberta had its first carbon price introduced in 2007. So, if you want to take this as sour grapes about an opposition party proposing to unwind a policy I recommended, go ahead. But, before you do that, I hope you’ll take time to consider the arguments below.

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The price of gas and the taste of crow

Over the past few days, I’ve been involved in a lot of discussion on Twitter and in other fora about the distribution of transportation fuel expenditures across Canadian households.  The purpose of this post is two-fold: first, to eat a little crow for an error of my own, and then to provide some additional data with more explanation and reconciliation.

First, let’s get to the crow eating.  During my discussion with Dan McTeague (@gasbuddydan), I made a significant tabulation mistake.  The conversation related to expenditure on gasoline by Canadian households, and Dan had put forward a figure of 70 litres per week.  I challenged that, since 70 litres per week is well above any number I’ve seen for a Canadian household average, but in doing so I made an error of my own.  I sent a tweet as follows:

The tabulation I ran before sending this tweet was a quick StatsCan pull which turned out to be commodity expense alone, which ignored taxes including federal and provincial fuels taxes and carbon taxes which apply on fuel purchased.  That’s why, as Carnegie Mellon PhD student Arthur Yip pointed out, while Dan’s numbers were high, mine were low.  The Statistics Canada Survey of Household Spending actually puts the total expenditure at an average of $2142 per year for 2017.  We pay a lot in fuel taxes, so my omission was clearly material.  And, just as Dan should have realized that his number was high, I should have realized that my number was too low and gone back to check my data.  I didn’t – and so now I’m going to eat a bit of crow.

Since I’m eating crow, I might as well turn it into a valuable learning experience.  I went back to my SPSD model runs and corrected the error and added a few more details which address some of the questions that have come up in the ensuing conversation.  First, I’ve tabulated provincial fuel and fuel tax expenditure by income deciles (the income deciles are national, not provincial).  As you can see, there’s a consistent pattern across almost all the data, although there are some outliers: higher income households use, on average, more fuel. Note that because I’m using national income deciles, there will be some small-sample issues in some provinces where significantly more or less than 10% of the provincial population will be in certain income brackets.  Importantly, none of the estimates reported below include the new federal carbon charges, since the backstop regulation was not in place by the time this version was completed, and so a full analysis would add that to the values in Saskatchewan, Manitoba, Ontario, and New Brunswick.  This analysis is exactly what was prepared by Finance Canada for this report in the Fall 2018 fiscal update, and hopefully we’ll see that update soon in SPSDM.

The SPSD model national average expenditure predicted for 2019 is $2308, a little higher than the 2017 figures quoted above from the survey data. The highest average fuel expenditure is in Saskatchewan, predicted at more than $500/year above the national average household expenditure level.  The lowest, by far, is in Quebec, with $1924 per household in predicted annual expenses. Note that because Quebec’s cap-and-trade is paid for by distributors, it does not appear directly as a carbon tax in these data. Both Newfoundland and New Brunswick have higher average fuel expenditures than Alberta, owing to higher fuel taxes and commodity costs, although I would have expected the income effect to dominate here and I would have thought Alberta average expenditures on fuel consumption would have been higher.  Again, remember that the backstop provinces of New Brunswick, Ontario, Manitoba and Saskatchewan will have higher expenses once the federal carbon charges are implemented.

A common thread when discussing fuel (or carbon) taxes is the urban/rural split.  I re-ran the data, at the national level, to test how total fuel expenditures change over income levels in communities of different sizes and in rural areas.  On average, rural households do spend a bit more ($2400 per year combined, vs $2308 for all households), but are only slightly behind the medium-sized urban areas.  The small cities and towns have the lowest average expenditure although that is not consistent across all income brackets.

Another issue which has been raised by many is the question of household size. We know that data for the average household isn’t going to be representative for households of different sizes, and so I’ve re-cut the data to look at that facet too.  Here you go:

The intuitive feeling that expenditures scale with both income and household size certainly comes out in the data.  The larger households are those with the highest annual expenses, in particular at higher income brackets.

So, with that, I hope you’ve learned something about how transportation fuel expenses vary across the population. I’ve certainly learned to be more careful with quick data posts to Twitter.

 

 

 

What can we learn from the church carbon tax fiasco?

Yesterday morning, United Conservative Party candidate for Brooks-Medicine Hat and well-known conservative activist Michaela Glasgo tweeted a claim, since debunked, that her church, Hillcrest Evangelical Missionary Church in Medicine Hat, would be facing a $50,000 bill from Alberta’s carbon tax next year.  The claim, and the subsequent challenges to it, were picked up by the Edmonton Journal, the Toronto Star, and other media outlets.  Through the day today, Glasgo first doubled-down on the claim and then, after her church clarified that the true impact of the carbon tax on their annual operating costs was $5400, not $50,000, backed away and recanted.  Glasgo is now being piled-on from anyone and everyone on the left. Rather than pile-on, I think there’s a lesson here that we all should learn.

One of the challenges of carbon pricing has always been that the units are abstract: tonnes of a gas? What?  I’ve had the opportunity to talk to people across Canada about carbon pricing and one thing which is near-constant is that people have little-to-no idea how their own lives translate into tonnes of emissions and then, once a carbon price is applied, how those decisions will translate into an increase in costs.  Without looking at your monthly bill, how many gigajoules of gas does your household consume each month? How many kWh of electricity? What about your employer? Your favorite store? You’d likely be lucky to guess it within an order of magnitude in some cases.  I’ve sat at boardroom tables with executives and directors of large emitters and asked them to tell me the emissions-intensity of their firm’s production.  The ranges in replies I get are often an order of magnitude wide.  You’re not alone.

How many tonnes of emissions does a church emit? It turns out that the answer in Hillcrest’s case seems to be about 180 tonnes per year.  But, was that number obvious to you or was it the size of the $50,000 number that threw you for a loop because it just seemed too high to be plausible?  For me, it was the latter. Once I’d decided that I wanted to know more, I followed the same path that others did: I boiled it down to units of average households. Given Alberta’s $1.517 per GJ carbon tax on natural gas, a $50,000 tax bill would translate to 32,960 GJ/year.  The average Alberta house uses 120 GJ/year so I figured that it was implausible that a church building would have the energy consumption of hundreds of homes.  Others went a bit further – one twitter user worked out that the average single detached home in Alberta uses 0.045GJ per square foot per year which, if you assume comparable heat loads, would imply a church about 1/8 the size of the West Edmonton mall.  Not likely.

I then went in another direction – I used some new Statistics Canada data to look up total religious sector emissions in Alberta.  It turns out that annual emissions from the sector in Alberta is about 160,000 tonnes per year, assuming little has changed since 2016.  I graphed religious sector emissions by province for your enjoyment below.  For Glasgo’s church to have a $50,000 tax bill, her church would have made up about 1% of the total emissions from that sector in Alberta in a year.  Again, that seemed implausible.  But, here’s the thing – the reason her soundbite was challenged, or at least the reason I dug into it was that it conflicted with my priors. It didn’t seem right. It made me wonder how many similar estimates I’d let slide by because they didn’t conflict.

Psychology and, more recently, behavioural economics, has taught us the power of confirmation bias. If you’re a conservative today, you’re ready and willing to believe that all the ills in the world are caused by policies implemented by Justin Trudeau or Rachel Notley. Perhaps you’re even working hard to build on some of those biases in your voters. Sometimes you’re going to get caught up in your own narrative.  When Jason Kenney tweeted, in response to Glasgo’s claim, that, “we hear stories like this all the time, sadly,” he was (perhaps unintentionally) very perceptive. Yes, every day, politicians are likely to hear anecdotes which either misattribute causality or exaggerate impacts.  As we move into campaign mode federally and provincially, candidates and supporters will have a choice whether to amplify these anecdotes. Perhaps Glasgo’s tale will give everyone pause to ask, “does this really make sense, or am I only willing to believe it because it confirms my biases?”  If this causes a moment of pause before amplifying potentially false messages, then we’ll all have benefited from this episode and we’ll have better, more informed debate. Plus, more of you likely know how much energy your house uses.

Of course, maybe the idea that people are, fundamentally, looking for truth rather than partisan advantage is just me trying to confirm my academic biases.

House Standing Committee on Environment

The following is a transcript of my remarks to the House of Commons Standing Committee on Environment and Sustainable Development from Monday, January 28. 2019. Please check against delivery.

Thank you for inviting me to appear before your Standing Committee to make the case in favour of carbon pricing.

I am an Associate Professor at the University of Alberta where I teach and conduct research in our energy and environment programs.  I’ve previously served as Visiting Scholar at Environment Canada from 2012 to 2013, and as Chair of Alberta’s Climate Leadership Panel in 2015. Since 2016, I’ve contributed to some aspects of design and implementation of the federal carbon pricing program we are here to discuss today.

The fact that we find ourselves here today discussing carbon pricing is telling – despite the fact that carbon prices of one sort or another have been implemented in Canada for more than a decade, opposition and misinformation about carbon pricing policies remains rampant.

There is near-unanimity amongst economists that imposing a price on carbon emissions will deliver emissions reductions at the lowest cost to the economy.  Why? Because leveraging the market through carbon pricing allows individuals and firms – those who know best their costs of reducing emissions or the value they derive from emissions – to decide when to emit and pay the carbon price and when to choose other actions.  To derive the maximum benefit from these policies, prices should apply to as broad a set of emissions as is feasible. In what follows, I hope to address a few common questions which come up with respect to carbon pricing.

Why tax consumer emissions at all? We often see Canada’s emissions painted as a large industry issue – we’ve all heard Premier Ford’s calls to penalize polluters not commuters. Here’s the problem: nationally, almost two thirds of emissions come from small emitters: factories, cars, trucks, buildings, not from large, industrial facilities. In some provinces, that share is higher than 90%. Emissions policies which exempt these emissions or address them only partially will make meeting any emissions reduction goals much more expensive and impose punitive costs on a select few industries.Figure 1 Provincial emissions from small (<50kt CO2e/yr) and large(>50kt CO2e/yr) sources

What about impacts on low income Canadians? Or rural residents? On their own, carbon taxes may be is regressive, and we often see concerns that costs imposed on lower-income households or on those in rural regions will be prohibitive.  Assessing distributional impacts is important, but these concerns have been largely offset through the use of carbon tax revenues to provide lump-sum transfers or other fiscal benefits to affected groups where carbon prices have been imposed. But, of course, we must be careful not to claim that these rebates or transfers are sufficient to make everyone better off. They’re not.  Importantly, these solutions also do not compromise the effectiveness of the carbon price.  The price remains on emissions and that’s what will influence behaviour. I can’t help but notice, though, that some of those with concerns about regressive impacts seem to become very concerned with any redistribution of revenues deployed to address those concerns.

Figure 2 Analysis of Alberta Carbon Pricing for 2019. Calculations by Andrew Leach using Statistics Canada SPSDM version 27.0

We also hear concerns about carbon pricing applied to large industries and, in particular, about the competitiveness impacts on trade-exposed sectors.  These concerns are, again, real, and particularly affect our resource-dependent provinces.  Here, economics research provides a clear solution: the allocations of emissions credits on the basis of output along with a carbon price means that the impact of carbon pricing on overall profitability is mitigated, while firms retain the incentive to reduce emissions and to innovate.  Not surprisingly, those with concerns about competitiveness also have concerns with these allocations, which the Leader of the Opposition has frequently characterized as exemptions for industry from the carbon price.  In my own research, I’ve shown that oil sands firms, for example, would capture the same value from an emissions reducing innovation under a carbon tax with or without the allocation of emissions credits, but would not capture that value if emissions were exempt from a carbon price (see below).

Figure 3 Oil sands simulations under different carbon price policies

In the New York Times in December, US Senate Environment Committee Chair argued that, “making energy as clean as we can, as fast as we can, without raising costs to consumers will be accomplished through investment, invention and innovation.” We see similar claims in Canada that rather than pricing carbon, we should rely on innovation to tackle climate change.  This is a false dichotomy.  Economists like David Popp consistently find that price-based policies provide far better incentives for innovation than regulations and without the direct expense required for subsidies.  A carbon price creates a market for low-carbon technologies and rewards those who can reduce emissions in their supply chains without relying on the government to pick specific winners and losers.

Does this mean that carbon pricing is a panacea or that it’s the only option available to us? No.  Regulations, subsidies, and other policies could have the same impacts on emissions but the evidence tells as that, insofar as we rely on those tools, we’ll reduce emissions at greater total costs to the economy. We might also suspect that some of those who are today opposed to carbon pricing might also find reasons to oppose other policies were they to be proposed and implemented.

Thank you for welcoming me here today and I look forward to your questions.

The federal output-based carbon pricing system works because it’s not an exemption

This week, the federal government announced more details of their Output Based Pricing System (OBPS) which targets greenhouse gas emissions from large, industrial facilities. These policies are complex (although perhaps not as complex as their acronyms make them sound) and build on a long line of similar policies proposed and/or implemented in Canada.  In this post, I take you through the history of these policies, discuss which facilities are covered, and explain why the system implemented in Alberta and now being implemented as part of the federal backstop is far better than other systems in preserving competitiveness and providing rewards for innovation.

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The evolution of Alberta gas prices

Today was mostly a course prep day for me and, as part of that, I was updating a graph package for my students.  I decided to pull down some longer history on Alberta natural gas prices and overlay them with settlement prices for futures contracts.  These are US-dollars-denominated contracts but for gas at the Nova Inventory Transfer (NIT, or the hub everyone still calls AECO in Alberta.

The next time someone complains about high gas prices, maybe show them this? How soon we forget the times when natural gas prices were in double-digits and expected to keep going up!

All credible agencies?

My fellow economist Jack Mintz has a piece out this morning in the Financial Post on Alberta Separatism.  By Jack’s standards, this piece leaves a lot to be desired – it makes a claim that an Alberta exit from Canada would be easier (implied) and more beneficial (explicit) to Alberta than Brexit has been for England.  Now, to be fair to Jack, given that we are mere months from an official Brexit and no one seems to have any idea how it’s going to work, it would be hard to come up with a major change in policy which would be less beneficial to the region involved than Brexit is likely to be for Britain, but let’s put that aside.  The piece struck me as being glaring in its many omissions. What of currencies? Trade deals? Border security? International relations? Family connections? Perhaps amid all of these, you’ll think that the omission which struck me the most is relatively minor, but I don’t believe it is.

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