Oilpatch prepares for life with Kyoto

Chris Varcoe
Calgary Herald
December 11, 2002

After the most acrimonious battle with federal politicians since the National Energy Program two decades ago, Canada’s oilpatch is now preparing for life with Kyoto. But that doesn’t mean the industry likes it.  The federal government passed the controversial Kyoto protocol Tuesday by a 195-77 vote in the House of Commons, committing Canada to reduce greenhouse gas emissions over the next decade. The head of the Canadian Association of Petroleum Producers said the industry’s relationship with Ottawa has cooled, as Kyoto created “frustration and disappointment” in the sector.

“We feel many of the issues that are important to us are going unresolved,” said CAPP president Pierre Alvarez.  “We still don’t know (Kyoto’s) costs . . . and we still can’t calculate the competitiveness implications. While Ottawa may have taken a few baby steps forward, we still have far more questions than answers.”

Executives in downtown Calgary were equally unimpressed.  “I’m not satisfied. I don’t think we ever had a truly informed debate – lots of conjecture, no real analysis,” said Charlie Fischer, chief executive of Nexen Inc., one of Canada’s largest oil producers.  “I am still a long way from knowing what this will cost our company.”

The country’s energy sector opposes Kyoto, fearing it puts Canada at a disadvantage to countries not bound by the international agreement.  Canada was one of 160 nations that gathered in Kyoto, Japan, five years ago and signed the protocol to slash emissions to six-per-cent below 1990 levels by 2012.  However, Canada’s emissions rose steadily throughout the 1990s due to a booming economy and record energy exports to the United States.  Canada now needs to reduce emissions by 240 megatonnes, or more than 20-per-cent below 1990 levels.  The oil and gas sector – the lifeblood of Alberta’s economy – is responsible for about 18 per cent of all industrial emissions.  The energy sector is worried about the treaty’s impact, as man-made emissions are created mainly by burning fossil fuels such as crude oil, coal and natural gas.  Experts say any significant attempt to reduce emissions will drive up operating costs in the energy business.

“A lot will depend on how the accord is carried out,” said Lawrence Solomon, managing director of Energy Probe Research Foundation in Toronto.  “We’re already seeing some investor uncertainty” in oilsands ventures due to the accord.

Since summer, the Alberta government has fiercely fought Ottawa on Kyoto, saying the deal’s timetable is too aggressive and the targets are unattainable.   According to a provincial study, the deal could cost Alberta’s petroleum-rich economy up to $5.5 billion a year and result in 70,000 lost jobs.  Ottawa, however, says the impact will be moderate, with the price to produce a barrel of conventional oil rising by three cents.  Energy Minister David Anderson told reporters that implementing the protocol will be “painless and seamless.”  His department estimates forcing companies to reduce emissions and consumers to pay more for energy will cut economic growth by 0.4 percentage point between now and 2010.

Industry received some concessions during negotiations with the federal government this fall.  Ottawa has agreed to cap the amount of emissions reduction required by heavy industry – including oil and gas producers, miners and manufacturers, along with power generators – at 55 megatonnes.  Ottawa also said this week it would likely cap the amount of money industry would pay for green credits – the right to emit carbon – at $15 per tonne, minimizing the price risk.  Environmentalists say the industry won major gains, with the federal government bending over backward to accommodate business concerns.

“What a number of people in the oilpatch undertook was really just scare-mongering – trying to frighten people as a negotiating tactic,” said Robert Hornung of the Pembina Institute.  “At this point, any more industry whining or complaining about Kyoto, quite frankly, needs to fall on deaf ears.  “Every key point that has been raised has been addressed.”

With files from Bloomberg

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