Climate Change Blog Series: Oil Sands Emission Limit under the Climate Change Leadership Plan

04 Jul Climate Change Blog Series: Oil Sands Emission Limit under the Climate Change Leadership Plan

Climate Change Blog Series:

The ELC releases its latest paper
in the Climate Change Legal Roadmap series:
Oil Sands Emission Limit under the Climate Change Leadership Plan

This blog is part of the Environmental Law Centre’s blog series exploring climate change law in Canada. This blog series provides updates on climate change law developments and includes insights from our related law reform research. This blog series is generously funded by the Alberta Law Foundation.

As part of its program on climate change, the ELC is publishing a series of reports – the Climate Change Legal Roadmap – outlining climate change actions taken in other jurisdictions and making recommendations for Alberta.   To date, the ELC has published two reports in this series:  A Snapshot of Alberta’s Climate Change Law & Policy  and Carbon Pricing Recommendations for Alberta: Lessons from the Latest Developments in WCI Jurisdictions.  We are pleased to announce publication of the latest report in this series:  Oil Sands Emission Limit under the Climate Change Leadership Plan.

The Alberta Climate Leadership Plan (ACLP) focuses on four key areas for further development:

• implementing a new carbon price on greenhouse gas (GHG) pollution,
• phasing out coal-generated electricity and developing more renewable energy,
• legislating an oil sands emission limit, and
• employing a new methane emission reduction plan.

Specifically, with respect to oil sands emission limits, the policy approach includes:

• An oil sands specific output-based allocation approach will replace the current approach. A $30/tonne carbon price will be applied to oil sands facilities based on results already achieved by high performing facilities.
• A legislated emissions limit on the oil sands of a maximum of 100Mt in any year with provisions for cogeneration and new upgrading capacity.

Our report provides an overview of both these aspects of the ACLP, as well as providing recommendations for the oil sands emissions limit.  Highlights from our report are below.

Oil Sands Specific Output-Based Allocation

Currently, the emissions of large industrial facilities are subject to the Specified Gas Emitters Regulation (the “SGER”) made under the Climate Change and Emissions Management Act. The SGER essentially establishes emission intensity limits for certain facilities, and creates a system for the use of emission offsets and credits.

The Advisory Panel that consulted with Albertans and made recommendations to the Government of Alberta on its climate change policy recommended that the SGER be replaced with a Carbon Competitiveness Regulation (“CCR”) in which a carbon price is applied to industrial emissions.   Rather than being compared to its baseline performance, an industrial facility will be compared to performance by similar facilities.  In other words, a facility will be required to meet the GHG emissions performance of the “best-in-class facilities” or use emission offset credits, performance credits or fund credits for excess GHG emissions.   The CCR regime is still under development and is expected to be in place by 2018.

It was further recommended that an oil sands specific output-based allocation approach will be used under the CCR regime.  Each oil sands facility will receive emissions permits that reflect the top quartile of performance in in situ and mined production of bitumen. In addition, a parallel good-as-best gas standard for electricity will apply to net sales from co-generation facilities.  These two factors will determine the output-based allocation for oil sands facilities under the CCR regime.

Legislated Emissions Limit

In December 2016, the Oil Sands Emissions Limit Act (the “OSELA”) became law.   The OSELA is a brief piece of legislation that establishes the GHG emissions limit for oil sands sites (100 Mt), provides exceptions to the emissions limit, and establishes the authority to make regulations under the act.  The OSELA does not provide a great amount of detail on actual implementation of the 100Mt emissions limit leaving much to future regulations or policy.

Some of the outstanding details in the OSELA are addressed in report of the Oil Sands Advisory Group (“OSAG”) comprised of members from industry, environmental organizations and Indigenous and non-Indigenous communities.  The OSAG report, entitled Recommendations on Implementation of the Oils Sands Emissions Limit established by the Alberta Climate Leadership Plan (the “OSAG Report”),  was issued in June 2017.  The OSAG Report summarizes its recommended approach for implementing the emissions limit as follows:

1. A series of actions intended to work in concert with the carbon levy and other elements of the ACLP to deliver significant improvements in GHG efficiency in the oil sands, such that the likelihood of the emissions limit being reached is significantly diminished;
2. Ensuring that oil sands operations and production growth under the emissions limit are not constrained by the emissions limit prior to the emissions limit being reached; and,
3. Providing Alberta with the option of managing Emissions Scarcity, if and when it arises, through either delaying the commencement of construction of new projects or requiring specified reductions in the emissions of those oil sands facilities falling in the two worst performing quartiles in terms of GHG efficiency.

The OSAG recommends passage of a regulation that allows the issuance of annual authorizations allowing each oil sands facility to emit a specified amount of GHG in a calendar year which cannot be exceeded (although prior to emissions scarcity, the Regulator must issue additional authorizations to cover any overages in actual emissions).  In any year, the annual authorizations issued by the regulator cannot exceed the emissions limit.

The manner in which annual authorizations are determined will vary depending upon the room left in the 100 MT emissions limit.  Prior to emissions scarcity, each oils sands operator will be granted annual authorizations equivalent to its emissions for that year.  Once emissions scarcity is reached, any approved new project or expansion of existing facilities will require government permissions to proceed to construction.  To ensure the emissions limit is not exceeded, new projects may be restricted from commencing construction until such time as emissions scarcity no longer exists and/or the regulator may restrict the allocation of annual authorizations to oil sands facilities in the two worst performing quartiles in terms of GHG efficiency to the extent necessary.

At this stage, the recommendations made in the OSAG Report are still merely recommendations and are not yet in place.

Our Recommendations

Based upon our review of the OSELA and the OSAG Report, we make several recommendations for implementing the oil sands emissions limit.

• Clarity is required on what activities contribute to oil sands emissions for the purpose of calculating the emissions limit imposed by the OSELA. Regulations are necessary to provide definitions of experimental schemes, primary production, and enhanced recovery operations.  The ELC recommends narrow definitions of these excluded activities to ensuring most oil sands emissions form part of the emissions limit calculation.
• Clarity on the allocation of the emissions limit to existing sands facilities. The recommendation by the OSAG is to provide annual authorizations in the amount of emissions currently being emitted by each oil sands facility (leaving the time for restrictions until the emissions limit is more closely approached).  The ELC recommends that annual authorizations be issued on the basis of best-performing facilities emissions to encourage reductions in the short-term rather than allowing emissions to grow unchecked until the emissions limit is approached.  The ELC recognizes this will likely require a phase-in period to allow facilities to reach best-in-class standards prior to annual authorization restrictions being imposed.
• Clarity on allocation of the emissions limit to new facilities. The OSAG recommends that, once the emissions limit is reached, new facilities must either be postponed and/or existing facilities must be granted reduced annual authorizations.  Guiding principles must be embedded in regulation and the preferred approach must be explicitly addressed either through regulation or policy.
• The regulation must explicitly address the legal status of annual authorizations. Based on the OSAG recommendations, it seems that a revocable license is recommended (given that an annual authorization might be reduced as the emissions limit is reached).   However, it should be clarified as to exactly what rights accompany annual authorizations including the rights and restrictions to transfer, trade or sell such.
• As noted by Nigel Bankes in his ABlawg post dated November 3, 2016, consequential amendments to other legislation are required. Notably the Oil Sands Conservation Act should be amended to require annual reports on current and projected GHG emissions and to impose a requirement that a proposed project will not result in the cap being exceeded.
• There should be legislated, periodic review of the level of the cap. The review should take into account the provincial values enumerated in OSELA, Alberta’s commitments and requirements under federal legislation and policy, and  Canada’s international obligations and commitments (such as under the Paris Agreement).  The ELC does not foresee a circumstance in which the emissions limit should be increased.

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