CALGARY – The most challenging part of meeting Alberta’s sweeping new climate change policy goals will be the requirement that oil and gas companies reduce their methane emissions by 45 per cent, which industry groups say could add “hundreds of millions of dollars” in increased costs.
Alberta Premier Rachel Notley introduced her government’s new climate change policies over the weekend, which set a total emissions limit in the oilsands of 100 megatonnes, imposes a $20 per tonne carbon tax in 2017, rising to $30 in 2018, and requires oil and gas companies to cut their methane emissions by 45 per cent by 2025.
“We know for certain to meet the 45 per cent reduction in methane there will be real costs in the tens or hundreds of millions of dollars over the next five years,” Canadian Association of Petroleum Producers president and CEO Tim McMillan said.
Alberta’s oil and gas sector produced 30.4 megatonnes of methane emissions in 2013, according to the provincial government, which accounted for 70 per cent of the province’s overall methane emissions.
Notley instructed the Alberta Energy Regulator to work with industry and the province’s environment ministry to develop a plan in the next five years to reduce methane emissions by 2025.
“Methane emissions are a more potent greenhouse gas than good old fashioned CO2,” Explorers and Producers Association of Canada president Gary Leach said.
Leach, whose organization represents mid-sized oil and gas companies, added that reducing methane emissions was one of the biggest issues for conventional oil and gas producers, along with higher energy input costs, as they try to comply with the government’s carbon policies.
The Alberta government’s methane reduction targets are similar to requirements U.S. President Barack Obama unveiled in August, when the U.S. Environmental Protection Agency announced oil companies must cut their methane emissions between 40 and 45 per cent below 2012 levels by 2025.
“From the Alberta government’s perspective, they may be hoping to get some sizeable credit from the international community for tackling methane emissions,” Leach said.
Though that requirement will result in additional costs for the industry, Leach said he took “some comfort” in the report compiled by Notley’s climate change review panel.
In two instances, the climate change panel’s report suggests the province’s royalty review panel will account for the additional costs of the carbon taxes when recommending how to change royalties charged to oil and gas companies in Alberta.
“Finally, we have been in regular contact with the province’s royalty review panel, and where appropriate, they will be accounting for any increases in costs brought about by new greenhouse gas policies in making their recommendations,” the climate change panel’s report said.
The provincial government said the climate change panel’s report was only a set of recommendations, some of which would not become official government policy.
The panel’s report also shows proposed carbon levies rising every year to 2030, when the recommended carbon price would be $100 per tonne.
National Bank Financial analyst Kyle Preston called Alberta’s climate change policy announced “fair and accommodating” for oil and gas companies, adding the impact was neutral for the industry.
He said newer energy projects, like MEG Energy Corp.’s Christina Lake facility and Canadian Natural Resources Ltd.’s Horizon oilsands project emit less greenhouse gas than older facilities, which will likely be hit harder by the new policies.