Alberta will protect energy-intensive, trade-exposed industries in implementing climate plan: environment minister

Author: Mark Lowey


Publish Date: Thursday, July 21, 2016

Large photo, which appeared in the Calgary Herald, is of Shannon Phillips.


The Alberta government will ensure energy-intensive, trade-exposed industries – including the oilsands – remain competitive as the province’s climate plan is rolled out, Environment and Parks Minister Shannon Phillips told an international conference in Calgary.

“Things have shifted here in Alberta,” she said in a keynote talk at the Pacific NorthWest Economic Region (PNWER) 26th Annual Summit on Monday, July 18. “This province has stepped up to face one of the world’s biggest problems” – climate change.

Phillips said the issue of Alberta’s energy-intensive industries, including the oil and gas sector, being able to compete nationally and internationally with jurisdictions that haven’t put a price on carbon emissions was addressed by the Alberta Climate Leadership Panel.

About 18 per cent of Alberta’s economy is energy intensive and trade exposed, compared with, for example, three per cent in British Columbia, she noted.

The Alberta Climate Leadership Panel advised the government to improve the mechanism by which trade-exposed industries are protected to ensure their competitiveness while encouraging and rewarding top performance.” Specifically, the panel recommended that “sector-specific, output-based allocations of emissions rights should be used to mitigate competitiveness and employment impacts in trade-exposed sectors and to protect electricity consumers from significant and unnecessary rate increases” as coal-fired power is phased out in the province.

Phillips indicated that the government will follow the panel’s recommendation. If so, all facilities with emissions over 100,000 tonnes per year – including oilsands in situ and mining operations – will be subject to the carbon price but facilities will be allocated emissions rights in proportion to “output or value added.”

In other words, best performers at reducing their emissions intensity (tonnes of CO2e emitted per barrel of oil produced, for the petroleum industry) will receive a greater share of emissions allocations, on an annual basis, than poorer performers. These output-based allocations would reflect top-quartile performance or better, and would decrease over time at one to two per cent per year, to reflect expected energy efficiency improvements, the panel recommended.

“Firms will thus face a lower average cost of emissions than they would without the output-based allocation, but will still have an incentive to reduce emissions, either to avoid paying a carbon levy, or to profit from the sale of unused emissions allocations,” the panel said in its report.

Alberta’s approach will ensure that greenhouse gas (GHG) emissions reduced by the province’s energy-intensive industries are not simply shifted to the same industries in another jurisdiction that has no price on carbon, Phillips told the PNWER Summit.


‘Carbon emissions leakage’ a major concern

In moving forward with carbon pricing to reduce GHG emissions, this “carbon emissions leakage” issue is a major concern for Canada’s oil and gas, cement manufacturing and other energy-intensive industries, as well as for provinces that don’t want to see their industries simply relocate and invest in a different jurisdiction.

Some critics have complained that the approach planned for Alberta essentially gives ‘special treatment’ to large emitters.

But Chris Ragan, who moderated a panel session on “Competitiveness in the age of carbon pricing,” pointed out that British Columbia and Quebec have similar provisions to ensure their energy-intensive, trade-exposed industries remain competitive.  Quebec is planning to give some emissions allocation permits for free to its affected industries, said Ragan, chair of Canada’s EcoFiscal Commission and associate professor of economics at McGill University.

British Columbia – the first jurisdiction in North America with a carbon tax – last year offered “transitional incentives” of $22 million over three years to the cement industry in the province, to adopt cleaner fuels and further lower emissions intensities, and to “assist the current inequity the industry faces as a result of imports coming from the U.S. and Asia into B.C. with no carbon tax applied to those imported cements.”

Michael McSweeney, president and CEO of the Cement Association of Canada, said his industry group supports a well-designed Canadian carbon pricing system that protects the industry’s competitiveness and treats the entire industry across the country the same, which he noted isn’t the case now since provinces have different carbon-pricing regimes.

Al Reid, executive vice-president of environment, corporate affairs & legal for oilsands producer Cenovus Energy, said it is “realistic” to provide such transitional measures so industry can adapt to carbon pricing while jurisdictions with a carbon price can maintain a strong economy. At an international level, the United Nations’ future climate change conferences also need to deal with this issue, he said.

The oilsands industry needs to be both cost-competitive and carbon-competitive and must be innovative to achieve that, Reid told PNWER Summit delegates. He said that Cenovus has reduced its GHG emissions intensity by about one-third while increasing oilsands crude production [although overall total GHGs have still increased]. The company also has geologically sequestered 27 million tonnes of carbon at its Weyburn, Saskatchewan field, which uses carbon dioxide in enhanced oil-recovery operations – yet has received no carbon offset credits or financial incentives to do so.

Adam Auer, director of sustainability for the Cement Association of Canada, also supported protective measures for energy-intensive, trade-exposed industries. “It’s ultimately about protecting provincial interests, protecting jobs,” he said.

B.C.’s transitional financial initiative to protect its cement industry from imported cement not subject to a carbon tax represents “smart policy” that makes sense, as long as such measures are transparent and science-based, Auer said.

Dirk Forrister, president and CEO of the International Emissions Trading Association, said many jurisdictions in the world are dealing with the carbon leakage issue, including China which plans to implement a national emissions-trading program in 2017. Energy-intensive, trade-exposed industries need some flexibility in carbon trading programs to ensure they remain competitive, he said, noting that the Western Climate Initiative (WCI) has this flexibility. The WCI includes Quebec, B.C., Ontario and California.


Alberta’s plan lacks multi-jurisdictional carbon trading

Panel moderator Ragan pointed out that Alberta’s climate plan allows trading of carbon offsets only within the province, and not with other provincial or international jurisdictions. Yet to meet the Paris Agreement commitment to keep global warming to 2 degrees Celsius or less, OECD (Organization for Economic Co-operation) countries will have to cut GHG emissions by 80 per cent by 2050 with solutions that “don’t fall neatly inside borders,” he said.

Phillips acknowledged that Alberta is interconnected and a trading partner with many other jurisdictions. However, she said that the Alberta Climate Leadership Panel identified a large risk of capital investment being transferred outside of Alberta if the province engaged right now in carbon trading with other jurisdictions. “We need to keep that capital here at home,” she said, although she indicated Alberta may look at carbon trading with other jurisdictions over the longer term.

Cenovus Energy, in its discussion paper to the Alberta Climate Leadership Panel, recommend that the government explore a system which will allow for interprovincial trading of GHG offset credits. “Cenovus is encouraging the expansion of the offset market to these other provinces as a means to expand the opportunity to offset overall carbon emissions and promote interprovincial harmonization of carbon markets,” the paper said. “The key advantage to having access to interprovincial offsets is access to ingenuity and clean technology ideas nationwide, and the creation of incentives for investment.”

Ragan also asked Phillips about the Alberta government’s “blunt” instruments in its climate plan, including a 100-million-tonnes (Mt) annual carbon emissions cap on the oilsands industry. The industry’s current emissions are 70 Mt per year. That leaves room for an estimated one million barrels per day of incremental production if no new technologies and processes are developed to further reduce emissions and thereby allow for more production.

Some media columnists have criticized the NDP government for imposing the emissions cap. However, Phillips said that the idea for the cap was in fact jointly proposed to the government by the oilsands industry and environmental groups. It is a policy signal to drive technological innovation and develop Alberta’s oilsands in the most responsible way possible, she said, adding the government is committed to building a cleaner, more efficient energy system.

The NDP government also has come under fire for last week’s announcement of an 18-member panel that will advise the government on how to implement the oilsands emissions cap. The panel includes representatives from industry, environmental groups, First Nations and municipalities. A couple of the environmentalists on the panel have been outspoken critics of the oilsands and in the past have called for no more industry expansion or new bitumen export pipelines to tidewater.

Phillips defended the diversity of the panel, noting that senior officials from the oilsands were meeting regularly with some of the industry’s fiercest environmental critics prior to the NDP government’s election in May 2015. Before that, good ideas were “shouldered out of the room,” she said, adding the Rachel Notley government prefers to take a strategic, collaborative approach to finding solutions.

Jesse Row, executive director of the Alberta Energy Efficiency Alliance, told the PNWER Summit in a separate panel session that Alberta until now has been the only jurisdiction in North America that doesn’t have an energy efficiency program with a budget to support it. However, the NDP government is planning to implement a broad base of energy efficiency programs, he said.

The average cost of such an initiative in other North American jurisdictions is about $130 million per year, Row said. Based on the experience in other jurisdictions, he added, energy efficiency programs save an annual $510 million in energy costs, create 3,000 jobs, boost the GDP by $550 million, and reduce greenhouse gas emissions by the equivalent of keeping 900,000 cars off the road.

Phillips in her keynote talk pointed out that Alberta was the first jurisdiction in North America to announce a methane-reduction strategy to reduce emissions by 45 per cent from 2014 levels by 2025 – a target since jointly adopted by Canada, the United States and Mexico. “Alberta can and does lead in innovation,” she said.

Panel moderator Ragan asked Forrister from the International Emissions Trading Association whether the world has noticed the change in Alberta on climate policy and whether such a shift will result in the building of a bitumen pipeline to tidewater – as industry and government hope. “I think the world is noticing,” Forrister responded, adding that there is a “rising expectation of responsible government” and the public is looking for positive examples.

Ragan – speaking about all jurisdictions, not just Alberta – said when it comes to enacting new policy to reduce greenhouse gas emissions, such policy shouldn’t be about reducing emissions at all costs. Governments should always look to the lowest-cost ways to reduce emissions, he said. “We do have to think about the economic costs of these policies.”



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