On June 16, 2017, the Government of Alberta released the Recommendations on Implementation of the Oil Sands Emissions Limit (Report) prepared by the Oil Sands Advisory Group (OSAG). The OSAG was established by Alberta's Minister of Environment and Parks in July 2016 to advise the Alberta Government on implementation of the Climate Leadership Plan (CLP) as it relates to the oil sands. The CLP was released in November 2015 and incorporated several components that potentially impact the oil sands including an "economy wide" price on greenhouse gas (GHG) emissions, reducing methane emissions from oil and gas operations, and a legislated 100 MT cap on annual emissions from oil sands operations (Emissions Limit).

In a mandate letter from Alberta's Premier, the OSAG was asked to advise the Government of Alberta on how to implement the Emissions Limit established by the Oil Sands Emissions Limit Act. The mandate letter directed the OSAG to address the list of facilities that should be subject to the Emissions Limit, the most effective mechanism for implementing the Emissions Limit, and changes required to the current system of reviewing and approving applications for oil sands development, among other things. This Bulletin provides an overview of the core recommendations included in the Report and identifies some outstanding issues.

Emissions forecasting

The OSAG recommends that the Emissions Limit be implemented primarily by creating the Oil Sands Emissions Limit Implementation Regulation (OSELIR). A key feature of that proposed regulation would be the imposition GHG forecasting requirements. The OSAG recommends that each oil sands facility (including existing oil sands facilities and those under construction that are planning to be operational in the following calendar year) should be required to prepare a forecast of GHG emissions for the upcoming year. The OSAG recommends that those facility level forecasts be submitted to the appropriate Regulator (suggested to be either the Alberta Energy Regulator or the Alberta Climate Change Office). The Regulator would rely on those forecasts to prepare a long-term (minimum 10-year) aggregate GHG emissions forecast for the oil sands industry. The Regulator would also be responsible for publishing an annual report of the actual GHG emissions for each oil sands facility and for the industry as a whole.

As discussed further below, the long-term forecast prepared by the Regulator is a critical component of the proposed OSELIR, and would inform when actions must be taken to avoid exceeding the Emissions Limit.

Allocating emissions

The OSAG recommends that the proposed OSELIR authorize the Regulator to issue GHG emissions authorizations to each oil sands facility specifying the maximum allowable quantity of GHG emissions for that facility in a given year. The Regulator would not be allowed to issue GHG emissions authorizations above the Emissions Limit.

The allocation of emissions authorizations would depend on the results of the Regulator's long-term emissions forecast. Specifically, the allocation of emissions authorizations would depend on whether the oil sands industry is in a state of "Emissions Scarcity". The OSAG states that, where the Regulator's long-term GHG emissions forecast for the oil sands industry predicts that industry-wide emissions will exceed the Emissions Limit within five years, the oil sands industry would be in a state of "Emissions Scarcity".

Where there is no Emissions Scarcity, allocating GHG emissions authorizations is straightforward – each facility is allocated GHG emissions authorizations equal to its actual emissions for that year. Where Emissions Scarcity exists, the proposed OSLIER would incorporate mechanisms to prevent the Emissions Limit from actually being exceeded. First, the OSAG recommends that in any calendar year where there is Emissions Scarcity, projects that have received regulatory approval but have not yet commenced construction would be prohibited from commencing construction without authorization from the Regulator. The Minister of Environment and Parks would also be empowered to direct the Regulator not to authorize commencement of construction for the remainder of that year.

In addition, or as an alternative to restricting the commencement of construction of approved projects, the OSAG recommends that the proposed OSELIR incorporate a formula for allocating GHG emissions authorizations among facilities when Emissions Scarcity exists. The proposed formula would reward facilities with the lowest emissions intensities while forcing facilities with higher emissions intensities to improve their performance or reduce output in order to ensure the Emissions Limit is not exceeded.

Under the proposed allocation formula, each oil sands facility that has a GHG emissions intensity within the two best performing quartiles (determined from the annual emissions forecasts discussed above) would be allocated GHG emissions authorizations equal to the forecasted emissions from that facility for that year. Accordingly, assuming those facilities with emissions intensities in the first or second quartile emit GHG emissions at or below their forecasted amount, they would not be impacted by the Emissions Scarcity.

Facilities that submit the required annual facility level GHG emissions forecast and that have emissions intensities in the third quartile, would receive fewer GHG emissions authorizations than the amount forecasted. Each such facility would have its GHG emissions authorization reduced to help ensure that the Emissions Limit is not exceeded. Facilities with emissions intensities in the third quartile would receive emissions authorizations equal to their forecasted emissions, less a share of one-third of the amount by which the oil sands industry is expected to exceed the Emissions Limit. For example, if the Regulator's long-term forecast predicted annual GHG emissions of 103 MT in a given year, the Regulator could require all oil sands facilities with emissions intensities in the third quartile to collectively reduce their GHG emissions by 1 MT.

In the same manner, in years of Emissions Scarcity, the Regulator would be empowered to require oil sands facilities with emissions intensities in the fourth quartile to collectively reduce their emissions by two thirds of the total Emissions Limit exceedance amount.

Penalties and remedial actions

The OSAG recommends that oil sands facilities not be subject to any penalty for exceeding their forecasted GHG emissions in a given year, provided that actual industry-wide GHG emissions for the oil sands do not exceed the Emissions Limit.

Operators would generally be subject to a penalty for exceeding the GHG emissions authorizations allocated to them where actual industry-wide GHG emissions from the oil sands do exceed the Emissions Limit. However, operators would not be subject to penalty where the exceedance is a result of variability inherent in emissions forecasting or a result of unplanned operational interruptions beyond the Operator's "reasonable control". The OSAG recommended that the penalty for non-compliance be sufficiently high to ensure its effectiveness as a deterrent.

Lastly, the OSAG recommends that the Minister be given powers to order that a facility reduce its emissions intensity, its production, or both where the Regulator has reasonable grounds to believe that a facility will exceed the emissions authorizations allocated to it for that year.

Approvals, renewals and extensions

The OSAG also recommends changes that would impact the process for reviewing and issuing project approvals as well as renewals and extensions of existing approvals. These would be implemented either through amendments to existing legislation and regulations or directly through the proposed OSELIR.

The OSAG recommends that all new facilities, expansions of existing facilities, and extensions or renewals of existing regulatory approvals that are not yet under construction be subject to a Best Available Technology Economically Achievable (BATEA) determination. The Report does not conclusively define the scope of the BATEA assessment but does acknowledge that the BATEA may differ from facility to facility.

In addition to the BETEA determination, applications for new facilities, applications to renew approvals under the Environmental Protection and Enhancement Act, or applications for extensions or renewals of existing regulatory approvals for projects that have not yet commenced construction would also require submission of a forward looking GHG management plan that meets (unspecified) content requirements identified in the OSELIR or other applicable instruments. The OSAG suggests that the substance of the GHG management plan would not be subject to approval by the Regulator. Rather, the Regulator would only review GHG management plans to assess whether the content requirements are met.

Outstanding issues

The method for allocating emissions authorizations among facilities as the oil sands industry approaches the Emissions Limit is still not entirely clear. In particular, it is not clear how the reductions in GHG emissions authorizations would be distributed among facilities with emissions intensities in the third and fourth quartile.

Project proponents will also need additional clarification on potential changes to the approval process. In particular, more clarity is needed on the proposal to give the Regulator or the Minister power to direct that some approved projects not be allowed to commence construction. It is not clear, for example, how the Regulator would decide which projects should not be allowed to commence construction. If this power were to be exercised, would it be based on a "First in Time, First in Right" system such that projects approved first would be first in line to commence construction? Alternatively, would preference be given to projects with the most favorable emissions intensities, or on some other basis?

Proponents will also require more information on changes in application requirements, particularly the nature and scope of the BATEA assessment and the GHG management plans.

The OSAG website indicates that the government will now consult with key stakeholders on the recommendations set out in the Report before proceeding with policy design and implementation.