Alberta law to cap oil sands emissions

The Alberta government has introduced Bill 25: Oil Sands Emissions Limit Act into the legislature. If enacted, Alberta will have an annual legislated 100 megatonne cap on greenhouse gas (GHG) emissions from oil sands projects, including mining, in situ and upgrading projects. The government hopes the cap will spur more innovation in emission reduction technology, move Alberta's overall GHG emissions profile downward and strengthen Alberta's environmental credibility nationally and internationally, although many questions remain about when the cap will be reached, how it will actually operate and what its impacts will be on the economy.

Alberta's oil sands GHG emissions were about 66 megatonnes in 2014, the most recent data, which is about 24 percent of Alberta's emissions and 9 percent of Canada's emissions. In 1990, the oil sands industry's emissions were only 15.3 megatonnes. The oil sands have been Canada's fastest-growing source of emissions since 2005.

The cap will apply to GHG emissions from all buildings, equipment, structures, machinery and vehicles that are integral to the operation of an oil sands site.

Exceptions to emissions cap

Bill 25 contemplates three exceptions to the cap. New or expanded on-site upgraders, being facilities that upgrade extra-heavy oil such as oil sands into synthetic crude oil, will have their own 10 megatonne cap. Cogeneration projects, which simultaneously generate heat and electricity from the same fuel source, will fall under another exemption and a third exemption will exist for small experimental projects.

The government believes the cap will not be reached until 2030, but other analysts think the cap could be reached in the mid-2020s, depending on oil prices, technological change and other factors. There is no certainty in the date the cap will be hit, as accurately predicting emissions profiles is very difficult.

Bill 25 does not include all of the rules about how the cap will actually work in practice, as it is largely enabling legislation that authorizes the government to issue regulations in the future. Interestingly, Bill 25 authorizes cabinet to make regulations to establish mechanisms to keep GHG emissions from oil sands projects within the 100 megatonne cap by using GHG emission allowances and the auction, trading and retirement of those allowances. This clearly suggests that Oil Sands Emissions Limit Act is a building block to establishing a cap-and-trade system for oil sands producers.

Remaining questions

Further, with existing emissions at about 66 megatonnes, it is not yet clear how the remaining 34 megatonnes will be allocated among future oil sands projects or how the Alberta Energy Regulator, being the body that approves and regulates oil sands projects, will consider the cap in considering applications for new oil sands projects or expansions of existing projects. It is also not clear what happens if the cap is exceeded in a year and if the industry as a whole, or only specific projects, will be punished.

The impacts of the cap on the economy are not known. One think tank, the Fraser Institute, suggests that using current emission intensity levels (i.e., the current amount of emissions per barrel of oil), Alberta will cumulatively reduce oil sands production from what it otherwise would have been in the absence of the cap by 3.34 billion barrels between 2025 and 2040, which it calculates has a lost production value of $254.74 billion in 2015 dollars. Clearly the government must hope that by imposing the cap innovation reduces the emissions intensity of oil sands production and the lost production and lost value will not be as large.