This article, by Jason Fekete and Darcy Henton, discusses the Alberta Government’s growing anxiety with respect to the coming Federal GHG regulations for the oil and gas sector. Premier Stelmach and the Alberta Government may be late to the game, but they have moved quickly in the past to head off federal action with regulatory changes in the province.
As I wrote during the election, the Conservatives have committed to a regulatory model, which could be similar to the EPA approach in the US, although details for Canadian regulations have yet to be released. If you want to know what source performance standards will look like in the oil and gas sector in the US, look here.
What should concern Alberta is the fact that regulatory approaches generally look at each facility and ask what that facility can afford to pay. Alberta has some of the highest value uses of carbon emissions in the country – you don’t have to look far to see a story about how profitable the big oil companies are today. Under a regulatory approach, oil and gas facilities can afford to pay a great deal more than, for example, steel mills in Eastern Canada. I wrote then, and I still believe it to be the case now, that we should not be too quick to assume that the oil sands will be the first to get special treatment.
You should also note some important aspects of our royalty framework, which states that the government will,”recognize any new environmental fees or levies as an eligible cost of doing business, and therefore deductible in determining royalties on oil sands projects.” In addition, the costs of building and operating a project, were they to be increased by adding GHG emissions control technologies such as CCS, would lead to a longer period before project payout, and thus a longer period at lower pre-payout royalty rates.
Translation -any increased costs brought about by GHG regulations will be paid for, in part, by Albertans via the deduction of increased costs from royalty payments.
Sure, cap-and-trade could have been bad for Alberta, but a regulatory approach could (don’t quote me as saying “will”) also be bad news, regardless of whether or not it allows Minister Kent to meet his 178-million-ton challenge. Premier Stelmach is right to be engaged on this issue, but simply telling Ottawa to keep its hands off the golden goose is not likely to be enough. We need to get off the defensive and on to the offensive (and I don’t mean more billboards), and start leading the discourse on GHG emissions policy instead of running from it. There is no question we have both the most to gain and the most to lose.