On June 16, 2017, the Alberta Oil Sands Advisory Group (OSAG) released its report, Recommendations on Implementation of the Oil Sands Emissions Limit Established by the Alberta Climate Leadership Plan, which sets out recommendations for implementing and remaining within the 100 megatonne (MT) per year greenhouse gas (GHG) emissions limit for the oil sands sector (Emissions Limit) articulated in Alberta’s Climate Leadership Plan (Plan). For more details about the Plan, please see our April 2016 Blakes Bulletin: Alberta Budget 2016: Climate Leadership Plan Implementation and our November 2015 Blakes Bulletin: Just Like Any Good Recipe, Alberta’s Climate Leadership Plan Has a Little Bit of Everything.

The Report recommends the introduction of a regulatory regime that places a continued emphasis on emissions intensity as GHG emissions approach the Emissions Limit. The new regime includes forecasting requirements and the issuance of annual authorizations for GHG emissions by oil sands facilities. Through the allocation of these authorizations and other mechanisms, the regime seeks to encourage innovation and ensure that the Emissions Limit is not exceeded.

OIL SANDS ADVISORY GROUP

The OSAG was established by Alberta’s Minister of Environment and Parks in July 2016 to advise the Alberta government on the implementation of the Plan as it relates to the oil sands. Pursuant to its mandate letter, the OSAG was specifically tasked with advising on the implementation of the Emissions Limit. Its membership for the purposes of the preparation of the Report included a cross-section of representatives, including environmental, aboriginal and industry leaders.

EMISSIONS LIMIT AND REPORT RECOMMENDATIONS

The Emissions Limit is legislated in the Oil Sands Emissions Limit Act (Act). As defined in the Act, the Emissions Limit excludes GHG emissions associated with primary production, enhanced recovery, experimental schemes, co-generation, and up to 10MT for new upgrading capacity or expansion of existing upgrading capacity.

The concept of emissions scarcity is a central feature of the OSAG’s recommended approach to implementing the Emissions Limit. This is a condition in which the Emissions Limit is projected to be exceeded within the first five years of a long-term forecast prepared by the Alberta Energy Regulator or the Alberta Climate Change Office (Regulator).

The Report also includes the following points:

  • A new regulation called the Oil Sands Emissions Limit Implementation Regulation or OSELIR should be created.
  • As required by the OSELIR, oil sands operators will prepare annual facility-level forecasts of GHG emissions for the following calendar year. These forecasts will be submitted to the Regulator.
  • The Regulator will use annual facility-level forecasts to prepare a long-term (minimum 10 year) aggregate GHG emissions forecast for the oil sands industry as a whole.
  • Each year, the Regulator will issue GHG emissions authorizations to each oil sands facility, the sum of which shall not exceed the Emissions Limit.
  • The allocation of authorizations will depend on emissions scarcity. In the absence of emissions scarcity, each facility will receive authorizations to cover its actual emissions. In times of emissions scarcity, the allocation of authorizations will favour facilities with lower forecasted GHG emission intensities. Facilities with higher forecasted intensities (third and fourth quartile facilities) will not receive enough authorizations to cover all of their forecasted emissions.
  • Also in times of emissions scarcity, the OSELIR shall restrict the construction of new facilities or the expansion of existing facilities such that neither can occur without an authorization from the Regulator.
  • A sliding scale of Regulator action, depending on the actual emission levels, which demonstrates a reward and penalty approach:
    • 80MT: When actual GHG emissions from the oil sands sector reach 80MT, the Regulator will undertake a formal assessment of the development and implementation of carbon reduction technologies employed by oil sands facilities and determine if there should be any change in focus or priorities (which determination will likely be enforceable through the requirements to be included in OSELIR).
    • 95MT: When actual GHG emissions reach 95MT, the Regulator must evaluate the broader context in which the oil sands industry is operating and “initiate actions necessary to be prepared to respond in a timely manner” if aggregate annual facility level emissions reach the Emissions Limit. Those actions will include specifically forewarning approved projects not yet under construction that their final construction authorization may not be forthcoming and/or forewarning both operating projects and those under construction of the potential for emissions constraints.
    • 100MT or greater: If aggregate annual GHG emissions for any given year are forecasted at greater than 100MT, the Regulator must reduce the annual authorizations for facilities with higher forecasted GHG emission intensities (i.e., third and fourth quartile facilities) by an amount sufficient to remain within the Emissions Limit. Facilities that are in the third quartile would share one-third of the reduction requirement and facilities in the fourth quartile would share two-thirds of the reduction requirement.

The reward in the OSAG’s approach is that the most efficient operators can continue production without curtailment, whereas the penalty is that the least efficient operators will bear the brunt of the curtailment requirements.

  • Alberta’s resource legislation and policies including the Oil Sands Conservation Act should be reviewed and amended “so as to change the framing from one of resource conservation to one of environmental and economic efficiency, with the effect of no longer compelling Operators to extract those parts of reservoirs with higher GHG intensity.”
  • Decisions related to project approvals, renewals and extensions will be guided by considerations related to “Best Available Technology Economically Achievable.”
  • In years when actual GHG emissions for the oil sands are below the Emissions Limit, oil sands facilities will not be subject to any penalties for exceeding their forecasted GHG emissions.
  • In years when actual GHG emissions are above the Emissions Limit, oil sands operators will be subject to penalties for exceeding GHG emissions authorizations. The quantum of the penalty in these circumstances is to be established “at a level that will act as a sufficient and effective deterrent,” and its payment will not bring a facility into compliance. Penalty provisions will not apply in respect of exceedance due to variability: a) normally inherent in emissions forecasting, b) due to forecasting of start-up conditions, or c) the result of unforeseen operational interruptions and that are beyond the reasonable control of the operator.

IMPACT ON INDUSTRY AND NEXT STEPS

The government will now begin the process of reviewing the OSAG’s recommendations. In that regard, the government has said that part of its work will include stakeholder consultation on the Report and implementation measures. This will be important given that the OSAG undertook only limited informal consultation on the implementation of the Emissions Limit in the lead up to the Report. While there appears to have been relatively broad informal consultation with industry, the same cannot be said for environmental, aboriginal or community interests.

While the Report is comprehensive, there are a number of areas where further work and information will be required if the OSAG’s recommendations are accepted and the OSELIR is enacted. For example, the most immediate impact on industry appears to be the need to establish forecasting capabilities that satisfy the prescribed protocols and methodologies. Going forward, oil sands operators need information on the nature of these protocols and methodologies in order to assess whether their current forecasting capabilities are sufficient. In addition, the proposed OSELIR is confusing in that it prohibits oil sands facilities from producing GHG emissions in excess of their annual authorizations (but imposes no risk of penalty unless the overage occurs in a year where actual emissions for the oil sands exceed the Emissions Limit).

Also, as noted above, the implications of emissions scarcity on industry participants may be significant—i.e., annual authorizations will be reduced in respect of certain facilities and the construction of new facilities and expansions to existing facilities may be put on hold. Clarity is required around how the Regulator will proceed in these circumstances, and the principles and criteria that will govern the allocation of authorizations. That stated, the use of the reward and penalty approach will presumably keep the industry focused on innovation and technological advances and drive it towards increasingly efficient operations.

If the new regulatory regime as proposed by the OSAG is implemented, it represents a significant response to the criticisms levied on the oil sands in the context of GHG emissions. It also provides a roadmap to oil sands operators that is reasonably clear, with defined end-points.

The recommendations were made on the consensus of the OSAG (which includes industry representation), were supported as a package and have the benefit of relatively extensive consultation with industry, which according to the Report broadly supports measures to address GHG emissions. However, some have criticized the recommendations as being detrimental to Alberta’s economy and growth if adopted. It remains to be seen how apparently different views of parties whose interests are seemingly aligned will play into the resulting regulatory scheme, which the Alberta government has said it expects to be implemented by early 2018.