Alliance of Alberta, B.C. and U.S. states grappling with huge energy-environment challenges, high public expectations

Author: Mark Lowey


Publish Date: Tuesday, August 9, 2016

Large photo is of Peter Watson, Chair and CEO, National Energy Board


Public expectations for clean energy development have never been higher yet the challenges in reducing greenhouse gas emissions – including phasing out coal-fired power – have never been greater, government and industry officials told an international conference in Calgary.

Huge expectations and equally big challenges in the energy-and-environment area exist across Canadian provinces and U.S. states in the Pacific Northwest, panelists told the Pacific NorthWest Economic Region (PNWER) 26th Annual Summit on Tuesday, July 19.  The challenges include:

  • an unprecedented phase-out of coal-fired power with a significant ramp-up in renewable energy in Alberta;

  • a renewed climate action plan somehow coupled with a hoped-for LNG industry in British Columbia;

  • a “brutal” transition away from coal power in Montana; and

  • a steep decline in oil production and resulting revenues for Alaska.

“We’re working in a completely different world” compared with only a few years ago, said Jim Ellis, president and CEO of the Alberta Energy Regulator. “The expectations of the public have never been higher” in wanting topnotch industry performance, sound government policy and regulatory excellence, he said.

Peter Watson, chair and CEO of the National Energy Board (NEB) said public expectations around renewable energy are “very high,” with people expecting rapid growth of solar, wind and other clean energy sources. Yet at the same time, the NEB’s most recent Energy Futures report forecasts an increase in crude oil production in Canada – under a scenario of ‘high’ global oil prices – of 6.1 million barrels per day in 2040, compared with 3.9 million b/d in 2015.

The NEB’s low-oil price scenario projection is closer to the 4.9 million b/d of crude by 2040 forecast by the Canadian Association of Petroleum Producers, Watson added. He said he “expects” new pipelines will be built to transport the greater oil volumes, but that shipments of crude by rail will increase if that doesn’t happen.

On the renewables side, Watson said the NEB’s electricity generation scenarios show more than 65 per cent of electricity in Canada in 2015 was generated from renewable sources – mainly hydropower. Power production accounted for 11 per cent of the country’s greenhouse gas (GHG) emissions in 2014, compared with 26 per cent in the oil and gas sector (including the oilsands) and 23 per cent in the transportation sector, according to NEB data.

Bill Bennett, B.C.’s minister of energy and mines, noted that 98 per cent of electricity generation in his province is already “clean” (most of it hydro), and that B.C. will continue to develop its fossil hydrocarbons – including establishing a liquefied natural gas (LNG) export industry.

“We don’t buy into the myth that the end of fossil fuels is right around the corner,” he said, adding when it comes to LNG “we want that industry.”

B.C. was the first jurisdiction in North America, in 2008, to implement a carbon tax. Bennett told the PNWER Summit that the province is within three weeks of announcing a “refreshment” of its climate policy. However, he said that he doesn’t favour increasing B.C.’s current carbon tax of $30 per tonne, “until the rest of the country catches up . . . We don’t want to do so much more that we find ourselves uncompetitive” with other jurisdictions.


Alaska’s decline in oil revenues, Montana’s “brutal” phase-out of coal

Speaking on a panel of policy makers, Alaska Senator Lesil McGuire pointed out that in the state of 735,000 people, no one has ever paid income tax or a state-wide sales tax, and every resident has received a dividend from North Slope oil production. Since 1982, every eligible resident has received an annual cheque of as much as $2,000; through 2014, some $21 billion has been paid out directly to Alaskans.

However, facing a crash in global oil prices and a steep decline in oil production (from a high of more than 2 million barrels per day in 1988 to just over 500,000 b/d in 2015) and revenues, Alaska now has to consider restructuring its $52-billion ‘savings account’ amassed from oil revenues in order to diversify its economy and pay for government and public services, McGuire said. The state lacked two-thirds of the revenue needed to cover this year’s $5.2-billion budget, according to a report in Forbes.

Alaska has set a goal of getting 100 per cent of its energy from renewables by 2025, McGuire said, adding that as of this year the state is 35-per-cent of the way to achieving this goal. New policies are encouraging capital investment in such projects as in-river hydro power that’s replacing diesel-fuelled electricity generation especially in remote communities, she said. “We’ve done a really good job of environmental protection in our state.”

Montana is facing perhaps the greatest energy transition of the PNWER members. Although agriculture is the state’s biggest industry, it also has the largest coal reserves in the U.S. and is a major exporter of coal-fired power. However, under the Barack administration’s Clean Power Act, U.S. Environmental Protection Agency rules require Montana to reduce its carbon emissions by 47 per cent by 2030, Senator Cliff Larsen said. The courts this month ordered the decommissioning of two of the state’s seven coal-fired power plants.

“We’re really against the wall right now,” and the transition away from coal will be “brutal,” Larson said, adding coal taxes help fund “education, the courts . . . “our way of life.” The state has opportunities in wind, solar and geothermal power, but developing those resources will take money and infrastructure, he said.

In comments that could foreshadow what Alberta faces in phasing out coal-fired power, another Montana senator who lives in a region underlain by the Bakken shale gas formation, told the PNWER Summit that taxes have doubled on houses – most of them owned by widows and widowers – in a small community in the region. What happens, he asked, when coal power is phased out and electricity prices double for those people on a fixed income?


Positive messages from Alberta energy minister

Amid the daunting challenges, Alberta Energy Minister Margaret McCuaig-Boyd delivered some positive messages in her keynote talk.

Alberta’s oilsands contain about 11 per cent of the world’s known oil reserves, yet have been a “convenient target” for criticism, McCuaig-Boyd said. But the province’s Climate Leadership Plan, which includes “world-leading” methane-reduction targets, “is working to change the way the world views Alberta’s energy products,” she said.

U.S. President Barack Obama has gone from calling Alberta’s oilsands crude “dirty oil” to praising Alberta for its new climate change policy, in a speech in June to Canada’s Parliament, McCuaig-Boyd said.

Alberta’s new oil and gas royalty framework is so popular, the government has received several requests from industry to opt in early, she noted. The government expects 10 to 12 new projects in the first year of the new Emerging Resources Program, and up to 30 new projects in the first year of the new Enhanced Hydrocarbons Program, she said. The two programs will take into account the higher costs associated with developing emerging resources and the higher costs associated with enhanced recovery methods when calculating royalty rates for qualified companies.

Later this summer, the government will announce more details of a new funding program to encourage the building of petrochemicals facilities in Alberta, McCuaig-Boyd said. The Petrochemicals Diversification Program will provide up to $500 million in incentives through royalty credits.

In another positive development, Ellis of the Alberta Energy Regulator noted that for the first time in the province, multiple stakeholders were involved in developing new regulations for oilsands tailings ponds.


Regulators’ perspective

On a panel of regulators, Paul Jenkins, commissioner and CEO of the BC Oil and Gas Commissioner, told the PNWER Summit that the Western Regulators Forum, established in 2014 and which includes B.C., Alberta, Saskatchewan and the National Energy Board, has a renewed focus on reducing methane emissions in the oil and gas industry and is working on recommendations to make it happen.

Philip Jones, a commissioner with the Washington Utilities and Transportation Commission, said that when it comes to carbon pricing, “We in the West need to do something. We need to lead.” Washington State has proposed a carbon tax starting at $15 per tonne, he said.

The state also has begun phasing out coal-fired power, but there is no guarantee of companies recovering the costs of stranded assets, Jones said. “We’ve been discussing this issue for at least a decade,” he said, pointing out that people have benefitted for 40 years from cheap coal power.

Jones said that following last year’s massive Aliso Canyon natural gas leak from a Southern California Gas storage site near Los Angeles and a subsequent gas shortage, 15 to 20 million people could be facing rolling blackouts this summer and a lack of heat in winter. Critical infrastructure is a potential target for terrorists, he said, noting that Ukraine’s electrical grid was brought down by hackers. There is an urgent need for regional integration of electricity markets in North America, he added, calling for the independent system operators approach to be expanded to the Pacific Northwest region.

Travis Kavulla, president and chairman of the board of the National Association of Regulatory Utility Commissioners and commissioner with the Montana Public Service Commission, said environmental regulation in the U.S. in changing, with regulators taking a broad view of carbon policy. Montana has no “expressed” carbon price, although it has a renewable portfolio standard and offers tax credits for wind and solar power, he said.

The U.S. federal Clean Power Plan is not a national carbon standard and carbon credits under the plan vary and are sometimes non-existent, Kavulla said. ‘Renewable’ power is defined differently in various state laws, and the difference in carbon abatement costs varies widely from state to state range.


Industry’s response

Responding to the regulators via an Industry Panel, Alex Ferguson, vice president of policy and performance at the Canadian Association of Petroleum Producers, said he thought public expectations of industry’s performance remain the same, but that it is a much more dynamic, complex and confusing world, especially in communicating amid social media’s influence. Ferguson said he’s pleased by the trend among regulators to an “outcomes-based” regulatory approach, rather than prescriptive measures.

Linda Coady, chief sustainability officer at Enbridge Inc., said there needs to be alignment among policy and regulation, industry performance, and transparency and accountability, in order to secure capital investment for energy development. Equity and a “just transition” are important in making an energy transition to a low-carbon world, and the disproportionate impacts must be properly managed, she said.

Arlene Strom, vice president of sustainability at Suncor Energy, said there needs to be leadership shown by industry and government in “establishing common ground,” such as the effort that produced  Alberta’s Climate Leadership Plan, announced in November last year. “We got international recognition for that climate leadership,” she said.

Coady said that over the next 15 years, she expects industry will be able to develop the technologies and systems needed to deeply reduce carbon emissions and find ways to decarbonize oil and gas production.

Strom agreed, saying that the oil and gas industry plans to be around for a long time. “We know we have to bend the emissions curve and we think we can do that through technology [innovation],” rather than leave fossil fuels in the ground, she said.

More than 540 people attended this year’s PNWER Summit, including:

  • 61 state, provincial and territorial legislators

  • 11 MPs and senators

  • Eight provincial ministers

  • 46 corporate CEOs or vice-presidents

  • 57 NGO executive directors

  • 14 university presidents or vice-presidents

  • 87 other government officials.

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