Misconceptions, Fears, Myths & Realities

regardingCanada’s Climate Change Policies

APEGGA ConferenceNovember 13, 2007

Pierre Alvarez

Outline

• Misconceptions Canada’s 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

Global Energy-Related Emissions 2005

United States, 5957, 22%

China, 5609, 20%

Europe, 4675, 17%

Eurasia, 2578, 9%

Japan, 1230, 4%

India, 1166, 4%

Canada, 631, 2%

Australia, 407, 1%

Other, 5940, 21%

Canada’s GHG Emissions 2005

Oil & Gas ex OS, 134,200, 19%

Electricity and Heat Generation, 129,000, 18%

Other industry, 103,160, 14%

Transportation, 189,900, 27%

Agriculture, 57,000, 8%

Buildings, 42,000, 6%

Solvent & Waste, 28,180, 4%

Oil Sands, 29,500, 4%

Global Coal + Oil Sands CO2 Emissions 2005Total 11,387 m tonnes CO2

China, 4341

United States, 2142

Europe, 1356

Eurasia, 694

India, 791

Canada Oil Sands, 30

Canada Coal, 153

Japan, 417

Australia, 232

Rest of World, 1233

CO2 Emissions: Electricity from coal versusWells to vehicle transport fuel from Oil Sands

Annual Emissions from 1m MWh or 93 m litres of transport fuel

0200400600800

1000

Electricity fromcoal

Transport fuel fromoil sands

Annual k t

onnes

CO

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Production End Use

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

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

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)

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 industry’s warnings that Canada’s Kyoto target was unachievable without major economic damage

• Fear: the federal government would discriminate against oil and gas because of its high growth rate

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]

Myth: Intensity targets aren’t 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

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

Canadian policy: Alberta

• Alberta targets took effect July 1, 2007

• Facility-specific, emission intensity improvement targets: Existing facilities: 12% improvement relative to each

facility’s 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

Canadian policy: Alberta

• Compliance Improvement in facility emission performance Payment into Technology Fund @ $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

Alberta Policy & Strategy for Oil Sands and Coal-fired Power

• Technology Fund At arm’s 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

Federal industry targets:2010 - 2020

• Same structure as Alberta targets, with higher % improvement rates and rising compliance price

• Annual cost to all industry sectors @$15/tonne up to $700 m with up to $500 into the Tech Fund

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AB Target Existing Facility Federal existing

Targets % ofBase-period Intensity

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Tech Fund Compliance Price

Federal industry targets: fundamental flaw in current proposal

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

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Maximum Tech Fund Compliance as Percentage of Targeted Reduction

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

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

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