Ottawa and Alberta Head for Emissions Control Showdown

Had the policy been aimed at Newfoundland, Danny Williams would have suffered an aneurysm of unmitigated fury. But when federal Environment Minister John Baird unveiled new regulations that will eventually force Alberta's OIL SANDS developers to pump carbon dioxide emissions deep underground - at a cost of untold billions but with little indication of who will pay - Premier Ed Stelmach merely thanked Baird for his trouble. "The federal approach supports Alberta's position," he said in a dull-as-dust press release that stressed Alberta's own commitment, outlined in January, to carbon sequestration.

Not exactly a barbaric yawp. But then, little is as it seems with the latest instalment of the Tory plan, announced in broad strokes last spring, to cut Canada's greenhouse gas emissions 20 per cent below 2006 levels by 2020. Baird's complex new rules stop just short of foisting what's called carbon capture and storage on energy players. But his officials say the alternatives, which include buying expensive credits on a national emissions trading system, will be so dear that companies will have little choice but to plunge ahead with the costly new technology.

Stelmach's co-operation, meanwhile, is likely thinner than advertised. His made-in-Alberta green plan, unveiled early this year, delays any emissions reductions until 2020, then cuts them 12 per cent from 2005 levels by far-off 2050. Baird's timeline for implementing carbon capture and storage is more aggressive than many in Alberta anticipated, and will mean billions in technology and infrastructure costs. The Stelmach government, which appears ready to accept Baird's deadlines, has mused aloud how much the feds will contribute to the project.

Yet the cost of carbon capture and storage, also called sequestration, is just one problem among many in Alberta's relationship with the feds. The duelling federal-provincial emissions regulations confound energy types, who wonder whose rules will prevail. The premier also objects to a Montreal-based national carbon credits trading system, now established by the feds, through which Alberta energy firms could buy credits from companies elsewhere that manage deeper cuts. Stelmach has said he will comb through the system looking for infringements upon Alberta's constitutionally mandated jurisdiction over natural resources.

At bottom, the friction emanates from an old issue: who can regulate polluters, the feds or the provinces? "I really never thought that we might have a conflict between two governments whose approach to greenhouse gas emissions are so remarkably lax," says the University of Alberta's Ian Urquhart, a political scientist, "but it seems like we're headed for that." This week, speaking with Maclean's, Baird declined to say what penalties await firms that don't meet Ottawa's new emissions rules, due for formal release this fall, but promised they'll be harsh. "I'll be very clear," he said. "You will not be able to buy your way out of this." The basic standard for emissions cuts is certain: at the outset, major industrial polluters must be 18 per cent more efficient in their burning of greenhouse-gas-producing fossil fuels by 2010, and two per cent more efficient each year after that.

The scheme explicitly targets Alberta's oil sands projects and, country-wide, coal-fired electricity generators as major greenhouse gas culprits. Though it will ban new dirty coal generators by 2012, greenhouse gas emissions pumped out by oil sands projects will be allowed to triple by 2018, when energy players must adopt sequestration or an equivalent technology. Sequestration involves trapping, compressing and injecting CO2 emissions into old oil and gas reservoirs or sponge-like geological formations.

How effectively the plan promotes sequestration depends largely on how high the Tories price carbon, still an unknown. Alberta, for example, has since July charged large emitters who don't meet their targets a penalty of $15 a tonne, which most operations treat as a tax because it's so cheap. But officials in Baird's office predict carbon credits in the national emissions-trading market will cost a prohibitive $65 a tonne or more by 2018, making sequestration a cheaper way to comply. Baird argued such incentives will tempt companies to move quickly to sequestration and avoid buying credits or paying into a green technology fund. "If people are prepared to go the distance on full transformative change, rather than use the other compliance mechanisms," he said, "they can move straight to the greenest technology available." That means investing in capture and storage, which Ottawa's system would credit companies for, allowing them to delay reducing emissions until 2018. Baird also said opting for sequestration will prove attractive to Alberta because it will allow firms to opt out of the emissions trading system, which Stelmach wants to discourage for what he calls the "inter-regional wealth transfer" of Alberta's energy sector buying credits out-of-province.

"Carbon capture and storage is great technology," said Baird. "It needs a mandate to push it forward - it needs a regulatory mandate. It also is going to need federal and provincial governments working with industry to build the backbone of pipeline to make it happen. It won't be cheap and it won't happen overnight."

That "backbone" is contentious. Many in the industry picture a future Alberta criss-crossed by CO2 pipelines ferrying the gas to storage sites. But that network would also help inject CO2 into aging, less productive wells to help force valuable conventional oil to the surface - a gambit that would promote the burning of even more fossil fuel. The technique, called enhanced oil recovery, has a history in the U.S. and is now used at an EnCana operation in Weyburn, Sask. Industry is keen to exploit that silver lining from the sequestration cloud. Giving CO2 such a role would make Alberta "receptive, not only from a geological point of view, but receptive from an economic point of view, where there is actually some value to the CO2 ," says Pierre Alvarez, president of the Canadian Association of Petroleum Producers. "But it's important to recognize that this is not easy, it's not quick and it's not cheap."

Baird was cool to the notion of much federal money going to help energy firms undertake sequestration. Ottawa has allocated $1.5 billion to the provinces for green technology, which he noted Alberta will likely use for capture and storage. That won't go far in a "transformative" shift to sequestration. Given that small federal contribution, Stelmach's mild response to Baird's plan looked suspiciously meek - leading Liberal environment critic David McGuinty to latch on to his lack of worry as proof of the Tory plan's laxness.

That critique glosses over the real consternation in Alberta, among both government and industry insiders, who are still trying to figure out what Baird's plan means, how much it will all cost and who will pay. Many also worry that sequestration - a technology currently used at only a handful of locations worldwide - would create a new building frenzy in a province already frazzled by boom-related inflation and labour shortages.

Nor did Baird's national emissions trading system, one of the sticks he'll seek to use in encouraging carbon storage, inspire confidence. "We're not a province that's going to be either buying credits somewhere else or looking at any inter-regional transfer of wealth," said Stelmach. Such commentary strikes at the core question of who controls the energy patch - Alberta or the feds. "The resources are owned by all Albertans," Stelmach argued. "I'm sure the Prime Minister is aware of it. I will be constantly reminding him." Then Stelmach asked who'll pay: "I'm just saying that if the oil sands are the focus, let's all sit around the same table and put money on the table and start dealing with the issue."

Costs associated with sequestration could lend appeal to other bold options. Last week, Liberal Leader Stéphane Dion said that as prime minister he would adopt a national version of B.C.'s carbon tax, which begins in July, charging a $10-per-tonne levy on nearly all fossil fuels. The tax, which will rise to $30 by 2012, is revenue neutral, with money returned via corporate and personal tax breaks. Even some leaders in Alberta's energy industry last week voiced support for a carbon tax so that consumers, through a levy at the gas pump or on energy bills, could help share the cost of carbon constraints. But both the feds and Alberta rejected the notion, blocking one route out of their who-will-pay impasse.

Money and provincial rights - the stuff of good old-fashioned Canadian-style warfare. Baird, for his part, sees no federal-provincial clash in the offing. "This is not about a national energy program," he said last week. "We're not seeking a massive transfer of wealth." But Stelmach is enlisting soldiers. Last week, fashioning a new cabinet after a massive electoral victory this month, he named no less than Deputy Premier Ron Stevens, a savvy, patrician Calgary lawyer, as minister of international and intergovernmental relations. Stevens now is negotiator-in-chief, Alberta's goaltender. He could very easily become Stelmach's general.

See also ENERGY; POLLUTION; ENVIRONMENT; ENERGY POLICY.

Maclean's March 31, 2008