oilsands

Time for an audit?

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Along with Dan Woynillowicz of Pembina (Twitter @danwoy), I had a very interesting discussion/debate with David Sands, (Twitter, @DSandsGovAb) on the new reclamation standards proposed by the Government of Alberta. Now, I think David has just about the worst job in the world (although he seems to enjoy it most days) because he has to argue with people like me all day long, and not just about energy policy, but about health, education, and everything else the Alberta Government is perceived to have done badly in the eyes of someone in the Twitter-sphere.  I do not envy him, but I think he does a very good job and does the Province a wonderful service.

The exchange began as David suggested that he had been working on sourcing a reply to some comments I had made in this space last night in my admittedly wonkish blog entry on the reclamation protocols, which I greatly appreciate. “FYI, trying to find an answer for you for a comment (on your blog). Interesting post, but I think you put too much in the royalty/fiscal angle. Motivation to change on both sides was increasing reclamation, not dealing with who holds the buck$.”  I replied that I was also sourcing additional info, and that I agreed that the royalty angle was likely over-played in last night’s post and that the new system was indeed an improvement in terms of the total expected reclamation payments.  We then got on to the question of risk aversion, where I asked David, “do you agree that value of asset is exposed to commodity (and regulatory) risk while the value of the liability is not?”

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New Reclamation Guidelines (wonkish)

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Today, the Alberta Government announced new reclamation guidelines for oil sands mining operations and for coal mines. Reclamation liabilities associated with the activities from the oil sands should be front-of-mind for the Government, and with activity growing all the time, the liability held by the Province in excess of escrow holdings is also growing.  Pembina’s figures for the scale of the current un-funded liabilities are $15 billion (full Pembina report here), and I have to agree with them that to shift further into the future the collection of payments sufficient to provide full financial security for the Province is simply not an acceptable solution.  At first blush, it appears that this continues a disturbing trend of the Government implicitly subsidizing activity in the oilsands through either under-valued resources or through risks and liabilities borne by those who own the resource and on whose behalf our Government is supposed to be acting.  It turns out, on further investigation, that we might be better off fiscally collecting the costs later since we will end up paying for less of them in gifted bitumen through the royalty regime. However, I believe that the costs of deferring the liabilities, in terms of both the incurred risk and the signal it sends to companies doing business here, is much higher than the potential savings on royalties or the potential increase in investment.

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Reflections of an oil sands visionary

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Last night, I was given a wonderful opportunity by some of our students to present my views on the oil sands in front of an interested and engaged audience here at the University of Alberta as part of the Oil Sands Visionaries speaker series.  Given the flack I have taken from some of my colleagues for being labeled as such, I best stop using the title after this post.

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Globally credible GHG policy would help, not hurt, the oilsands

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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.

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What can green energy advocates learn from the oilsands?

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I think that if you asked most oilsands opponents to categorize their objections to the industry, their responses could be classified under one of three headings. First, they might cite the lack of appropriate planning, monitoring, and mitigation of local environmental impacts (see the RSC report executive summary here). Second, they might cite a failure to consider global implications of oil sands extraction, specifically as they relate to climate change. Third, there would likely be many who would cite the fact that Albertans are simply not getting their fair share of the benefits from the expansion of activity in Northern Alberta despite owning the resource.  In general, I think most opponents would agree (and please correct me if I am wrong) that most of these problems boil down to a government policy that focused on ramping production up as quickly as possible, and where the primary measures of success were investment dollars coming into the province and barrels per day of production.  The government was unwilling to “touch the brake” on the industry that its own policies had created.  I think that the Government of Alberta is now learning some hard lessons and finding that their approach to oilsands development has significantly eroded the social license of the industry both at home and abroad. To their credit the Government has shown signs of turning the tide on this.  I believe the government could and should go further, but at least we no longer have our Premier talking about the myth of environmental damage from the oilsands.  In the meantime, I believe there is a lot that advocates who would grant a free pass to poorly designed green energy policy can lean from the errors of the past in Alberta.

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The strange relationship between environmentalists and the oil price

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Environmentalists have a very strange relationship with the price of oil.  I asked around among friends, students, and online acquaintances and every one replied without question that high oil prices were a good thing if you care about the environment.  Why?  Well, high prices discourage consumption they said.  Not only that, high prices enable alternative energy sources.  Of course, both of these statements are correct, but if you look deeper into the economics of oil and gas, it is not so easy to say that you should pray for high oil prices if you care about the environment.

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When it comes to carbon pricing, you have to take the good with the oil sands.

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Carbon pricing is hard, and not just because you need to know a lot of terminology or because it’s a political minefield. Supporting carbon pricing means that you hand control of who wins, who loses, and where emissions come from in the economy to the market.  True carbon pricing also likely means, sin of sins, that environmentalists might have to give the oil sands a pass.

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