Secret deal on Alberta tar sands emissions cap

A hard cap on oilsands emissions that became part of Alberta Premier Rachel Notley’s climate change plan was the product of secret negotiations between four top oilsands companies and four environmental organizations, the Financial Post has learned.

The companies agreed to the cap in exchange for the environmental groups backing down on opposition to oil export pipelines, but the deal left other players on the sidelines, and that has created a deep division in Canada’s oil and gas sector.

Four oilsands leaders — Murray Edwards, the billionaire oil investor and chairman of Canadian Natural Resources Ltd.; Steve Williams, president and CEO of Suncor Energy Inc.; Lorraine Mitchelmore, president of Shell Canada; Brian Ferguson, president and CEO of Cenovus Energy Inc. — stood behind Notley Nov. 22 as she announced an aggressive climate change plan for Alberta. In addition to imposing a $3-billion a year economy-wide carbon tax and phasing out coal-fired electricity generation, the plan strictly caps the oilsands’ share of provincial emissions at 100 megatonnes per year, from about 70 megatonnes today.

The plan is a big part of Canada’s offering to the UN climate change summit under way in Paris.

During the Edmonton announcement, the four leaders praised the plan, with Williams describing it as a “game changer” for the oilsands.

Notley indicated in her speech that it could lead to less opposition to pipelines to export Alberta oil sands production.

“I’m hopeful that these policies, taken overall, will lead to a new collaborative conversation about Canada’s energy infrastructure on its merits, and to a significant de-escalation of conflict worldwide about the Alberta oilsands,” she said.

But leaders of competing companies, including Imperial Oil Ltd. chairman and CEO Rich Kruger, and MEG Energy Corp. president and CEO Bill McCaffrey, were not consulted and are reportedly outraged by the secret deal. The arrangement’s details and backers, other than the Pembina Institute, remain unknown, said senior industry sources.

They also worry the deal is unenforceable and that it is premature to support a policy whose details and financial implications remain unknown.

“What deal can one do with NGOs?” asked one senior industry source. “How is it binding and how does that translate into binding the premier and regulators to market access?”

The cap has raised questions about how the remaining quota of emissions will be allocated. Industry analysts expect there is room for an additional one million barrels a day of oilsands production, which would be achieved in the next decade. Other assets could become worthless, resulting in major writedowns.

Even companies that produce conventional oil and gas, such as Encana Corp., are concerned that the four oilsands companies broke ranks with the rest of the industry, represented by the Canadian Association of Petroleum Producers.

The deal could decide new winners and losers, said another senior source. “Potentially, it could put oilsands miners … against in situ, heavy oil against light oil.”

Pius Rolheiser, a spokesman for Imperial Oil, which just completed an expansion of the Kearl oilsands project with parent Exxon Mobil Corp., said his company doesn’t comment on rumours. However, he said “Imperial believes any GHG policy for Alberta should be designed to protect the competitiveness of the province’s oil and gas industry. We are studying the announcements from the Alberta government to assess their impact on our existing operations and possible future projects in Alberta.”

MEG Energy did not respond to a request for comment.

CAPP president Tim McMillan said the group supports part of the climate change plan, such as the increased use of natural gas in electricity generation to replace coal and a reduction of methane emissions. But there are also details on the carbon tax and on the oilsands emissions cap that need to be clarified, he said, “and we have been pursuing those over the last week.”

“We have started working through the numbers and we have concerns about how this could affect our province,” McMillan said from Paris, where he’s attending the climate change conference.

On Friday, Edwards acknowledged that the negotiations with green groups were controversial. He said on the sidelines of the Bennett Jones Lake Louise business forum, of which he is a co-sponsor, that informal meetings took place over the past year with the leaders of Canadian and U.S. green organizations as a way to push the conversation on the oilsands in a new direction.

“The end result, time will tell, but I think it’s going to lead to more positive discussion, (rather than) the adversarial discussion we had in the past,” Edwards said in Banff. He could not be reached for comment Tuesday.

Ed Whittingham, Pembina’s executive director, said during the climate change announcement that Alberta’s plan would “change the debate about the oilsands industry and whether the oilsands industry is doing its fair share to reduce climate change.” Whittingham was not available for comment Tuesday.

Notley was only informed about the deal in the days leading to the climate change announcement. The rest of the industry was advised a day before.

Tempers flared when the four oilsands leaders briefed CAPP members last week.

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