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Alberta could impose carbon reductions on oil sands

Highway 63 curves past the Syncrude oil sands site, north of Fort McMurray, Alberta, May 6th, 2015.

Ian Willms/The Globe and Mail

Alberta will have the power to impose mandatory carbon reductions from oil sands facilities and halt project approvals under the first draft of a plan aimed at winning support for major new pipelines.

Climate policy recommendations introduced in the oil-rich province would give officials the power to withhold permits for new facilities should greenhouse gas emissions from the oil sands approach a legislated cap of 100 megatonnes per year.

The recommendations, released Friday by Environment Minister Shannon Phillips but not yet adopted by the government, are a key plank in the province's attempt to improve the environmental reputation of an industry already struggling through a three-year slump in crude prices. They come amid a massive sell-off of oil sands reserves by major foreign companies and with shares in energy companies under severe pressure.

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Currently, oil sands emissions stand at about 70 megatonnes per year. The Alberta government insists the plan will keep a firm lid on carbon output but still allow for the growth of bitumen production as emission-reduction technology improves.

"I can't envision a scenario where if climate remains a significant issue – and I think it will – that the oil sands industry won't come under pressure of some kind to constrain emissions," said David Collyer, chair of the advisory panel that drafted the recommendations. "To think that the alternative is [doing] nothing, I think, is a flawed assumption."

Alberta is pushing for the construction of the federally approved but heavily opposed Kinder Morgan Inc. Trans Mountain pipeline expansion from Edmonton to Burnaby, B.C., which could get Alberta oil to new markets in Asia and California.

The proposals from the government-appointed Oil Sands Advisory Group call for oil sands facilities to be given annual allocations that allow them to emit a specified amount of greenhouse gas emissions each year, with the poorest environmental performers getting placed at the back of the queue for permits.

These allocations would be given out in future years as the industry edges closer to the cap, with reviews and warnings increasing if and when the industry as a whole hits milestones, including 80, 90 and 95 megatonnes. A declaration of "emissions scarcity," giving the province additional enforcement powers, would be made if forecasts show the 100-megatonne limit could be breached within five years.

The province could also force mandatory reductions from the highest-emitting facilities, or defer new approvals in order to stay below the limit, should annual forecasts show emissions are expected to exceed the 100-megatonne limit within a year.

Projects that exceed their emission allocation could be hit with per-tonne financial penalties – but only once the industry collectively breaches the 100-megatonne cap.

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The province does not expect that to happen before 2030, assuming current economic conditions. This week, the Canadian Association of Petroleum Producers forecast oil sands production would climb more than 50 per cent from current levels to 3.7 million barrels per day by then.

The government says it will now begin stakeholder consultations on the recommendations, and some portion of the details could become law by 2018.

Canadian Natural Resources Ltd., Suncor Energy Inc. and Cenovus Energy Inc. were among those who helped shape the recommendations. In recent months, the companies have bulked up with multibillion-dollar acquisitions that have transformed the ownership structure of the Alberta oil sands. Sellers included Royal Dutch Shell and U.S.-based ConocoPhillips Co.

"We are witnessing a mass exodus of foreign capital out of the Canadian oil and gas industry and the oil sands in particular," TD Securities Inc. analyst Menno Hulshof wrote on Friday.

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