On April 26, 2007, the Government of Canada released a action plan to regulate greenhouse gas emissions and air pollutants from industrial emitters. As outlined in Turning the Corner: An Action Plan to Reduce Greenhouse Gases and Air Pollution, 9 the Government is committed to achieving an economy-wide greenhouse gas reduction target of 20 percent below 2006 levels by 2020.

The Canadian Energy Research Institute ("CERI") has recently examined expected changes to Canada’s regulatory regime relating to the costs associated with emitting greenhouse gases (GHGs) from the oil sands. This study focuses on nuclear energy, gasification, and carbon capture and storage as the most likely methods to reduce emissions10.

Background

The oil sands industry consumes substantial amounts of natural gas during production and upgrading activities. In 2006, the oil sands industry accounted for more than 40 percent of Alberta’s total natural gas demand. As production levels increase, natural gas consumption by the oil sands industry will increase, which means that unless GHG reduction technologies are implemented, GHG emissions will also increase significantly.

Alternative Fuels and CCS

Nuclear Energy

According to the CERI study, the supply cost for nuclear facilities (e.g., ACR-1000 and EPR-1600) is approximately C$67/MWh. The ability of nuclear energy to produce electricity (or thermal energy) with zero emissions can act as a long-term hedge against uncertain emissions compliance costs. This hedging opportunity is likely to make nuclear energy an attractive option for oil sands operators.11

Gasification

Gasification is a process that does not burn the feedstock (i.e., coal) but gasifies the feedstock. In this process, the impurities in coal are almost entirely filtered out when coal is gasified. The CERI study determined costs of over C$80/MWh, which is more than nuclear energy. However, the long lead time for nuclear energy will likely result in increased use of gasification facilities.

CCS

Carbon capture is the process of capturing CO2from gas streams, which are usually emitted by large industrial sources. Subsequently, captured CO2 is compressed and transported for injection into geologic storage for long-term storage and management.

The estimated cost for post-combustion capture of CO2 ranges from $50 to $70/tonne of CO2 – with a representative value of $55/tonne. The representative value can be viewed as the point at which it makes sense to start capturing emissions from an oil sands project or other industrial facilities. For any emissions compliance cost below this value, it makes more economic sense for projects to pay the compliance cost and allow the emission.

Conclusion

A world where the oil sands is not viewed as dirty (from an emissions perspective) will require the reduction of GHGs, so that the oil sands are on par with conventional oil. This is an attainable goal. With carbon capture and storage and/or nuclear energy, the oil sands can produce fewer emissions on a per barrel basis than conventional crude oil in Canada.

This conclusion is supported by the Alberta Energy Research Institute (AERI), which has released a pair of reports on the Life Cycle Analysis of North American and Imported Crude Oils. The studies found that direct GHG emissions from the oil sands are generally about 10 percent higher than direct emissions from other heavy oil crudes in the US. If cogeneration is taken into consideration, oil sands crudes would be similar to conventional crudes in terms of GHG emissions.12