While there are many environmental concerns with the oil sands, the issue of greenhouse gas emissions (GHG) has the most potential to prevent Albertans from realizing the true value of the resource. The term dirty oil has clearly resonated with environmental groups both in the US and in Europe and will continue to be used by those who seek to limit our access to important markets. Our governments, both federal and provincial, seem to think that we face a dichotomy – either we can have an oil sands industry or we can have a globally credible GHG policy. Industry, with a few notable exceptions, has done little to alter this perception. I disagree entirely. I believe that a globally credible GHG policy is the only way to ensure the continued success of the oil sands industry, but I believe that we must build the policy on our own terms, not using reference points which were chosen for the benefit of other regions. An Albertan or Canadian policy, based on 5 modifications of the current Alberta GHG regulations, would send a signal to the rest of the world that Alberta and Canada are prepared to be part of a global effort but that we are not prepared to be taken for a ride.
The David Suzuki Foundation and the Pembina Institute describe the emissions reduction goals put forward by the Canadian government as modest in their Climate Leadership, Economic Prosperity report, and the David Suzuki Foundation has called Alberta’s Climate Change Strategy weak (see p. 18-19). Modeling work done for the report by Mark Jaccard and Associates showed that Canada would need a carbon price of at least $100/ton by 2020 to meet our modest targets. Similar work suggests that meeting Alberta’s weak targets would require measures equivalent to a provincial carbon price of $150/ton by 2020. In contrast, the EU’s carbon targets, which Dr. Suzuki’s autobiography describes as aggressive, are likely to produce carbon prices of less than $40/ton by 2020. If we implemented policies to meet our goals, a refinery in Canada would face a tradeoff between GHG emissions and a $100/ton carbon price while the climate leaders in the EU would demand a payment of less than $40 from the same facility. Nature, Dr. Suzuki tells us, always bats last. Dr. Suzuki should also tell us that nature does not discriminate on the basis of where GHGs come from, but that his standards for measuring effort to reduce GHGs clearly do.
Our goals appear modest when measured in terms of reductions relative to 1990 emissions levels, the favorite standard of the EU and Canadian NGOs. From an environmental perspective, the 1990 standard is the anti-thesis of the polluter pays principle as it capitalizes historic pollution into a valuable emissions right. This measure of effort also skews the playing field in favour of any region which includes post-communist economies which collapsed after 1990, regions with low population growth rates, and/or regions with stagnant economies. The EU is proud to trumpet their goal of a 20% reduction below 1990 levels by 2020, which NGOs compare to Canada’s paltry 3% relative to the same baseline year. Relative to 2005 emissions levels, Canada’s goal is a 17% reduction, while the EU goal amounts to an aggressive 13%. If you account for population growth, our modest goals see a reduction in per-capita emissions of over 30% from 2005 levels while the EU goals seek an aggressive 17% reduction. Canada’s governments have been willing to play the climate change policy game on the edges of the un-level playing field created by the 1990 standard for far too long. We need to change the game or we risk implementing very aggressive climate policies to accomplish what the world sees as modest goals. Our oil sands industry is likely to bear the brunt of the world’s efforts to close this perceived gap in our contribution.
Alberta’s way out of this mess is through carbon pricing, which would clearly benchmark the tradeoffs our firms, including those in the oil sands, are being asked to make against those made by firms in other jurisdictions. I propose that a price on carbon be applied through a fee-bate regime which would benefit top-performing firms at the expense of those who under-perform. Implementing this proposal would require 5 changes to Alberta’s existing Specified Gas Emitters Regulation. The first change would see the government commit to an increasing emissions price over time. I would suggest beginning at $20/ton and increasing at 4.5% per year, reaching $30/ton by 2020, based on the prices predicted to prevail in the EU’s emissions trading system. Second, performance benchmarks should be set at the sector level. For example, the performance benchmark for in situ bitumen production could be set at 20% below the current CO2 emissions average of 0.1t/barrel. Third, the government would require firms whose emissions intensity exceeds the benchmark to pay into a fund, while firms who outperform the benchmark would be able to extract from the fund at the current price per ton of emissions. Any net revenue in the Fund would be allocated to research and development. Firms in Alberta would therefore know with certainty the value of reducing emissions, and that value would apply for any emissions reductions achieved, all the way to zero. Fourth, the government should increase coverage to facilities with greater than 50,000 tons of annual GHG emissions so that 80% of all emissions in the province would be covered by the policy. Finally, the government should commit to adjust the price schedule if the prices faced by Alberta firms are lower than those faced by firms in both the US and the EU.
This policy represents a clear way for Alberta (or Canada) to throw the climate change gauntlet back to the European Union. The EU has positioned itself as a global leader on climate change but has thus far been unwilling to impose significant costs of carbon on its firms. Meanwhile, NGOs use EU targets to demand stronger action here in Alberta and to vilify the oil sands for preventing Canada from doing its fair share. The policy approach proposed above would make clear that we are willing to impose a globally credible carbon price so that firms in Alberta see gains from the elimination of any low-value uses of carbon in our economy and can effectively capitalize on low-carbon innovation. It would also send a strong signal to firms operating in all of our industrial sectors including the oil sands that those firms which generate the highest value per unit of carbon will win, and thus create an energy industry in Alberta which is prepared to withstand the carbon constrained world in which we are likely to find ourselves for the foreseeable future. Most importantly, it would change the tone of the dirty oil debate. The costs of all of this would likely amount to, at most, 50 cents per barrel.