Misconceptions, Fears, Myths

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Misconceptions, Fears, Myths
RealitiesregardingCanadas Climate Change
Policies

• APEGGA Conference
• November 13, 2007
• Pierre Alvarez

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Outline

• Misconceptions
• Canadas oil sands development is a major factor
  in global GHG emissions
• Canada is a major player in addressing the global
  climate change challenge
• Fears
• Because of Kyoto, Canadian GHG policy will get
  seriously out of line with our trade competitors
  and undermine the competitive position of
  industry
• The federal government will discriminate against
  the oil and gas sector and penalize it because of
  its growth
• Myths
• Canadian policy for industry GHG emissions is not
  serious because it is based on intensity targets
  instead of absolute caps
• Canada is a laggard in addressing industry GHG
  emissions relative to Europe
• Realities
• Alberta moving ahead with industry support
• Federal policy is almost right, but undermined by
  Tech Fund limit and phase out
• Proposed federal air pollutant regulation
• New challenge,
• Considerable time and effort required to get it
  right

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Global Energy-Related Emissions 2005
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Canadas GHG Emissions 2005
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Global Coal Oil Sands CO2 Emissions 2005Total
11,387 m tonnes CO2
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CO2 Emissions Electricity from coal versusWells
to vehicle transport fuel from Oil Sands
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What does the world have to do?

• Low CO2 emission energy supply
• Low CO2 hydrocarbons
• coal ? natural gas
• CO2 capture storage
• More renewable energy
• Hydro, Wind, Solar, Geothermal, Wave, Tidal,
  Biomass
• Nuclear
• Fission, Fusion
• Reduce process emissions
• Agriculture
• Industry

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What does the world have to do?

• Slower growth in energy demand
• Efficiency conservation
• Change in lifestyles
• Reduce population growth
• Biological sinks
• Forests
• Agriculture soils

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Fear Kyoto Canadian policy

• Fear Kyoto ratification
• Canadian GHG policy will get seriously out of
  line with our trade competitors and undermine the
  competitive position of industry
• September 2002 PM Chrétien announced that Canada
  would ratify the Kyoto Protocol
• Industry financial community feared the
  government would implement policies to drive a
  35 reduction from trend emissions to meet the
  target
• Estimates of major costs on oil sands projects
• Costs to oil sands could reach 5/bbl (50/tonne
  on 100 kg/bbl)

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Fear government would not consult would
discriminate against the oil and gas sector

• Fear The federal government would design policy
  without consulting industry
• The government ignored industrys warnings that
  Canadas Kyoto target was unachievable without
  major economic damage
• Fear the federal government would discriminate
  against oil and gas because of its high growth
  rate

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Realities

• Federal government never proposed industry GHG
  policy based on the Kyoto target
• Large industry GHG targets reflect reasonable
  principles
• Designed to avoid undermining of competitive
  position
• No discrimination among industry sectors
• Recognize the contribution from efficient new
  facilities
• Focus on continuous improvement and investment in
  advancing technology but limited amount and time
  is a serious flaw in current federal proposal
  discussed below

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Myth Intensity targets arent serious

• Myth
• Canadian policy for industry GHG emissions is not
  serious because it is based on intensity targets
  instead of absolute caps
• Canada is a laggard in addressing industry GHG
  emissions relative to Europe

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Reality

• World Resources Institute (WRI.ORG) has pointed
  out that the correct distinction is between
  effective and ineffective policies, not intensity
  and absolute targets
• EU ETS allocations for 2005-07 required no
  reductions in most cases allocations exceeded
  industry emissions
• It appears the policy achieved few or no
  reductions in emissions, but did allow
  electricity companies to make large profits
• UK allocation for 2008-12 for trade-exposed
  sectors less demanding than Canadian targets
• Free allowances equivalent to target under
  Canadian policy based on 93 of projected output
  and business as usual intensity for each sector
  7 of allowances to be auctioned
• Facility allocations in absolute terms are based
  on shares of projected intensity-derived sector
  target, with allowances for new entrants and
  facility expansions

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Canadian policy Alberta

• Alberta targets took effect July 1, 2007
• Facility-specific, emission intensity improvement
  targets
• Existing facilities 12 improvement relative to
  each facilitys 2003-05 average intensity
• New facilities 3 years for start up, then 2 per
  year improvement up to 12 over 6 years, relative
  to 3rd year intensity
• 12 improvement rate greater than companies are
  generally expected to achieve at a reasonable
  cost for the initial stage so alternative
  compliance mechanism is central to design

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Canadian policy Alberta

• Compliance
• Improvement in facility emission performance
• Payment into Technology Fund _at_ 15/tonne to cover
  emissions-target gap
• Acquire credits for offset reductions in Alberta
  emissions outside target coverage
• 12 and 15
• chosen to avoid undermining competitive position
  as Alberta moves in advance of US and other trade
  competitors

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Alberta Policy Strategy for Oil Sands and
Coal-fired Power

• Technology Fund
• At arms length to government
• First full year contributions up to 150 million
• Invest in advancing technology for larger, lower
  cost, future reductions
• Payments into Tech Fund primary compliance
  mechanism
• First payments March 31, 2008 for 2nd half 2007
  emissions
• Provide revenue to fund vanguard carbon
  management projects, e.g. CO2 capture storage
• Early projects cost per tonne significantly
  greater than 15 compliance price
• As in other countries, government may still need
  to support in addition to Tech fund

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Federal industry targets2010 - 2020

• Same structure as Alberta targets, with higher
  improvement rates and rising compliance price
• Annual cost to all industry sectors _at_15/tonne up
  to 700 m with up to 500 into the Tech Fund

Targets of Base-period Intensity
Tech Fund Compliance Price
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Federal industry targets fundamental flaw in
current proposal

• Phase out of Tech Fund compliance is a
  fundamental flaw in the policy

Maximum Tech Fund Compliance as Percentage of
Targeted Reduction
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Offset credit compliance

• Intensity improvement targets beyond what
  industry can do at a reasonable cost
• Phase-out of Tech Fund forces industry into
  offset credit compliance
• Based on an inappropriate view of addressing the
  climate change challenge
• Purchase of credits instead of contributing to
  the Technology Fund to support advancement in
  technology development, deployment and
  infrastructure

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Closing GHG emissions will be addressed by
technology

• The effort to address this challenge must be
  policy driven, with a major focus on technology
  advancement
• Industry needs a framework of good, certain
  policies
• If Canada is going to move to high cost actions,
  industry needs to be able to recover costs in
  competitive markets
• Canadian industry can only be an international
  leader if competitiveness is addressed
  addressing trade issues will become the key
  policy question as countries move from low cost
  actions to higher cost actions
• Emission trading is a distraction
• Domestic offsets are an administratively costly
  way to address domestic emissions
• International emissions trading is a wealth
  transfer mechanism
• There are better means to help poor countries
  develop cleanly
• There is no reason for Canadian industry to pay
  for other developed countries reductions we
  should devote our effort to our own emissions
• Policy should focus on continuous improvement and
  investment in technology

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Proposed federal air pollutant regulation

• Well intentioned goal of benchmarking Canadian
  regulation to best in the world, but
• Proposal rushed
• Numbers flawed
• Policy not designed to fit with major provincial
  role in air pollutant regulation
• Need to take the time to
• gather good data
• evaluate current systems, plan for complementary
  federal and provincial roles
• design and assess options that fit with diversity
  across the country and are aligned with current
  federal provincial approaches that are effective