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Tough new green plan targets oil sands

Globe and Mail: BRIAN LAGHI - March 10, 2008

Regulations, which also apply to coal-fired power plants, would force future projects to store greenhouse-gas emissions underground

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OTTAWA _ Ottawa will unveil new climate-change regulations this week that would force new oil sands projects and coal-fired electricity plants to capture and store the bulk of their greenhouse gases rather than spew them into the air.

The new rules are part of Environment Minister John Baird's plan to regulate 17 key industrial sectors, which include manufacturers of pulp and paper, cement and chemicals, as well as producers of mineral products like steel, aluminum and iron ore, among others.

"There's no doubt we're asking a lot of industry and a lot of Canadians but we believe Canadians are up to the challenge," Mr. Baird said Sunday.

Mr. Baird said Canada cannot meet its targets of reducing greenhouse gases if it does not compel capture and storage of the substances in the two key industries of coal-fired electricity and oil sands. Oil sands production alone is expected to create 25 per cent of Canada's carbon-dioxide emissions by 2020, up from the current level of about 18 per cent.

"There's just no future for dirty coal," said Mr. Baird. "... The second big issue is the oil sands and we will not be able to make our targets for 2050, let alone 2020, unless we mandate carbon capture and storage of all the oil sands projects."

Canada has set a target of reducing greenhouse-gas emissions by 20 per cent below 2006 levels by the year 2020. It aims to cut emissions by 60-70 per cent by mid-century.

Mr. Baird will also elaborate this week on a previously announced industry-wide requirement that forces companies to reduce carbon emissions by 18 per cent by 2010 for every unit of production. They would then have to reduce emissions by 2 per cent for every year thereafter until 2020, although the regime would be reviewed in 2012.

Some critics have panned the 18-per-cent reduction idea because it does not require firms to cut overall output.

For example, an oil sands plant will be forced to cut greenhouse-gas production per barrel of oil, but it will still be allowed to increase the number of barrels of oil it puts out.

But Mr. Baird said that no sector in the economy, save for the oil sands, would grow by more than 18 per cent over the next two years.

He estimated that the cost to industries to implement new measures to reach their targets will be $25 per tonne of carbon dioxide by 2010, rising to $50 by 2016 and to $65 by 2020.

Companies that fail to meet their targets would face prosecution under the Criminal Code.

In the case of oil sands and coal plants, this week's announcement would force plants that have yet to hit the drawing board to store their emissions rather than allowing them to escape and increase the amount of gases tagged as the cause of global warming.

By contrast, oil sands firms that have been in operation since before 2004 would be subject to the 18-per-cent reduction regime, while more stringent targets would be applied on firms that have been established since 2004 and on plants that are in the construction process.

The new regulations are potentially controversial, particularly in Alberta, home of the oil sands. Mr. Baird said the federal government has consulted significantly with Alberta.

The Environment Minister also said the techniques to capture carbon gases and store them underground are proven and go beyond research and development.

"It's not a pie-in-the-sky dream. It's being done here," he said. "_ It's proven technology that's being used today."

There are a number of ways in which carbon dioxide can be stored, a key one being to pump it underground.

Experts, however, say capture techniques are expensive and could drive up the cost of oil and gas.

This week's announcement will also include some form of a new carbon trading system, a plan to allow corporations to purchase so-called carbon offsets and a requirement that industries use cleaner-burning fuel to build their plants.

A warning from Ottawa

Ottawa has warned the U.S. government that a recently enacted energy bill could thwart the development of the oil sands by imposing strict greenhouse-gas emissions standards.

In a letter to U.S. Defence Secretary Robert Gates, Canadian Ambassador Michael Wilson said that an overly broad interpretation of the Energy Independence and Security Act of 2007 could prevent the U.S. from purchasing fuel from Canada's oil sands.

Mr. Wilson noted that Canada has surpassed Saudi Arabia as the United States' largest source of imported oil, and that the oil sands are the primary source of those growing volumes.

"Both President [George W.] Bush and Energy Secretary [Samuel] Bodman have publicly welcomed expanded oil sands production, given the increased contribution to U.S. energy security," the ambassador said.

Environmentalists and even some industry analysts have long warned that Canada's oil sands producers face a growing threat from the United States, where Democrats in Congress and all leading contenders for the presidential nomination have promised to impose tough new rules to combat climate change.

What the provinces are doing

British Columbia:

In 2008, Gordon Campbell's government introduced the country's first revenue-neutral carbon tax, pledging that the revenues created by the tax will be returned in the form of income and business tax cuts. The tax takes effect as of July 1, starting at a base rate of $10 a tonne for carbon emissions, rising to $30 a tonne by 2012. The province's goal is to reduce carbon emissions by 33 per cent below 2007 levels by 2020, and 80 per cent below 2007 levels by 2050.

Manitoba:

In 2008 the province, along with B.C., Ontario and Quebec announced an initiative to establish a market-based trading system to cut greenhouse-gas emissions. The cap-and-trade system would penalize companies that exceed their limits, and would pay a fee to those whose emissions are under their limit. The province, along with B.C., has already committed to the cap-and-trade system through the Western Climate Initiative pact signed by the two provinces and five U.S. states, which aims to cut emissions by 15 per cent below 2005 levels by 2020.

Ontario:

In 2007 the McGuinty government announced that the province will cut its greenhouse-gas emissions to 6 per cent below 1990 levels by 2014, 15 per cent by 2020 and 80 per cent by 2050. The government also announced it will close its four remaining coal-fired power plants. In 2008 the Premier appointed a climate czar to make sure the government's environmental plans are carried out.

Quebec:

In 2007 the Quebec government announced the first carbon tax in Canada. Oil companies in Quebec will be required to pay a new energy tax of 0.8 cents a litre for gasoline distributed in the province and 0.938 cents for diesel fuel. The province's Green Plan announced in June of 2006 calls for the province to meet the Kyoto target of reducing greenhouse-gas emissions to 6 per cent below 1990 levels by 2012.

Compiled by Rick Cash:

FACILITIES TOTAL EMISSIONS PERCENTAGE

REPORTING (kt CO2 EQ.) OF TOTAL

Alberta 101 109,323 39

Ontario 85 78,400 28

Saskatchewan 22 22,870 8

Quebec 53 22,101 8

British Columbia 37 13,902 5

New Brunswick 12 12,611 5

Nova Scotia 9 12,015 4

Newfoundland and Labrador 7 5,216 2

Manitoba 7 2,941 1

Northwest Territories 2 359 0

Prince Edward Island 1 104 0

TOTAL 336 279,842 100

NOTE: Totals may not add up due to rounding. Nunavut and Yukon had no reporting facilities.

SOURCE: ENVIRONMENT CANADA; NATIONAL INVENTORY REPORT, 1990-2005: GREENHOUSE GAS SOURCES AND SINKS IN CANADA

The industries

The 17 industries that are included in the federal government's greenhouse-gas regulations, to be announced this week, include:

Electricity generation

Oil sands

Upstream oil and gas

Pipelines

Refineries

Pulp and paper production

Iron

Iron ore pelletizing

Smelting

Aluminum

Steel

Titanium

Cement

Lime

Potash

Chemicals

Fertilizers

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