On Saturday, March 19, 2015, the Department of Environment and Climate Change Canada (“ECCC“) published its proposed methodology for estimating the upstream greenhouse gas (“GHG“) emissions associated with “major oil and gas projects” undergoing federal environmental assessments (“proposed methodology“) in the Canada Gazette.

The Government of Canada (“GOC“) announced in late January that it intended to “restore confidence in Canada’s environmental assessment processes”. Dentons’ commentary on that announcement can be found here. As part of that announcement, the GOC articulated five principles for how it would exercise its discretionary decision making authority for projects undergoing federal environmental assessments. Among the five principles was a commitment to assess “upstream greenhouse gas emissions linked to projects under review”. The proposed methodology published in the Canada Gazette has not yet been finalized. Interested parties, including industry stakeholders, have 30 days from the publication date (until April 18) to comment on the proposed methodology.

The proposed methodology begins by providing a definition of what ECCC considers “upstream” for the purposes of its estimating GHGs associated with a project. It then sets out two parts of its proposed approach to assessing upstream GHG emissions.

Defining “upstream”

The proposed methodology defines “upstream” to be all industrial activities from the point of resource extraction to the project under review. Apparently anticipating questions on what this definition means for crude oil pipeline projects, ECCC gives several examples of “upstream” activities for such projects:

  • Extraction – crude oil and gas wells and oil sands mining and in situ facilities;
  • Processing – field processing and upgrading, if occurring;
  • Handling – products transfer at terminals; and
  • Transportation – any pipeline operation in advance of the project.

The activities considered “upstream” would depend on the project under review.

The Proposed Methodology

We are told that the assessment of upstream GHGs will consist of two parts. The first part is a relatively straight forward quantitative estimation of emissions released from upstream production associated with the project. The second part is a more opaque “discussion” of the project’s potential impact on Canadian and global GHG emissions.

The quantitative component of the assessment will focus on emissions from upstream activities “exclusively linked” to the project being assessed. How ECCC will decide whether something is “exclusively linked” to a project is unclear. The quantitative assessment will not include “indirect emissions” which, for the purposes of the proposed methodology, would include matters such as manufacture of equipment and fuels “produced elsewhere”.

The quantitative assessment begins by determining expected throughput of each “component” (e.g. heavy oil and diluent as separate components) in the product stream. ECCC will rely on project proponent data for this information. Though not expressly stated, information contained in a publicly available application, such as one filed with the National Energy Board would likely be considered.

Next, each product component will be assigned an emission factor using ECCC emissions data, among other information sources. Because different product components will involve different extraction, processing, handling and transportation activities, the emissions factors applied in a given assessment would reflect those differences.

Multiplying the emissions factor for a given component by the throughput of that component (taking into account a vaguely defined “adjustment”) provides the upstream emission for a given component. Upstream emissions for each component would then be totaled to provide the upstream emissions for the entire project.

The second stage to the proposed methodology is a “discussion” that is intended to accomplish two objectives. First, the discussion will assess conditions under which the upstream emissions associated with the project could be expected to occur even without the project. Second, the discussion will consider the potential impact of the project’s emissions on overall Canadian GHG emissions and on Global GHG emissions.

To inform the discussion, ECCC will examine current production levels, the trajectory of future production with and without the project, as well as potential markets for future resource production.

The next stage of the “discussion” is to evaluate “technical and economic potential” for alternatives to be used in absence of the proposed project. The proposed methodology then considers the various alternatives and “discusses the potential implications for Canadian and Global upstream GHG emissions”.

The outstanding issues

When the GOC first articulated the five principles, including the commitment to assess direct and upstream greenhouse gas emissions, its stated intention was to provide greater certainty on how it would exercise its discretion on projects undergoing a federal environmental assessment. This proposed methodology, once finalized, will give proponents some understanding of how ECCC will assess upstream emissions. However, proponents are arguably no closer to understanding how the GOC will exercise its discretion on individual projects.

The proposed methodology gives only a high level overview of how upstream GHGs will be assessed and is vague in a number of respects. For instance, it is not clear how “the technical and economic potential for alternative modes of transportation” will be evaluated. If a proposed pipeline has more “economic potential” or is considered safer than the hypothetical rail alternative, will that tilt the scale in favour of the proposed project for the purposes of an upstream GHG assessment? The proposed methodology also includes a fleeting reference to comparing emissions intensity between Canadian and non-Canadian crude oil sources. What crude oil sources will be used as the comparator or how “upstream emissions” from those non-Canadian-sources will be quantified is anyone’s guess.

The most significant issue outstanding from the perspective of a project proponent is the lack of guidance on how the National Energy Board, ECCC, or the Governor in Council, as the case may be, will exercise its discretion to approve or recommend approval of a project based on its GHG emissions. Will projects be given a green light regardless of the upstream GHGs they facilitate? At the other end of the spectrum, will any increase in Canadian or global GHG emissions from a project be enough to delay or halt a proposed project? The true answer presumably lies somewhere in the middle. The problem from the prospective of a proponent contemplating a substantial investment is that there is no way to assess this potential roadblock.