Will the Canada-Alberta 'Grand Bargain' oil pipeline deal lead to more emissions?

A historical oil color line trade betwixt the federal and Alberta governments — set to be announced on Thursday — could lead to more production in the oilsands, cementing Canada’s position as one of the world’s largest fossil fuel producers, while pushing its climate targets even further out of reach.

At the same time, the deal could help strengthen the crown jewel of Canada’s climate plan: the industrial carbon pricing system, which is considered by experts to be Canada’s strongest tool to push companies to drive down their emissions, bring new efficiencies to the oilpatch and spur investment into expensive carbon capture projects.

“It has the potential to work. This could actually be a watershed moment for decarbonization,” said Michael Bernstein, president of Clean Prosperity, a research non-profit that studies decarbonization policies that can grow the economy.

“Industrial carbon pricing is at the heart of a strong climate policy, and it can drive many tens of millions of tonnes of emissions reductions, but only if the design is really done carefully and properly.”

Analysts have been warning that the pricing system is not working as it should be in Alberta, hampering low-carbon investment. 

Like in other provinces, industrial facilities in Alberta have to gradually bring down their emissions over time. The provincial government gives them sector- and facility-specific emissions standards; companies invest in technology to help meet them. 

Companies that outperform the standards get awarded carbon offsets, which they can sell to others. On the other hand, those that go over their limits have to pay a carbon price (currently $95 per megatonne of carbon) or buy those offsets from other companies.

The issue, analysts say, is that over the past few years, too many of those offsets have been circulating in Alberta. They're now trading at around $25 per megatonne of carbon.

Bernstein says a big reason companies spend millions of dollars on reducing emissions “is actually to generate credits that they can then sell to other companies, and therefore earn revenue that helps them recover their investment in decarbonization.”

If those offsets drop in price too much, there really isn't a business case to invest in decarbonization, he said. The solution to that is something called a carbon contract for difference, he said, through which the government guarantees a minimum price for a carbon offset.

This would give companies "the confidence that if the market price is too low, well, the government will come in and make up the difference and compensate them," he said.

A contract like this would also motivate both levels of government to make sure the carbon pricing system remains strong, and the value of the offsets is maintained, guaranteeing the system will survive even if the party in power changes.

The deal being negotiated by Prime Minister Mark Carney and Alberta Premier Danielle Smith could include federal support for a new oil pipeline to the West Coast, allowing Canadian oil to be exported to new markets in Asia on tankers. (At the moment, almost all of it is exported to the U.S.) 

Alberta wants the pipeline to have a capacity of one million barrels of oil per day. Current production in the oilsands is around 4.7 million barrels a day.

Carney deal with Alberta's Smith will support oil pipeline: sources

But it won’t be enough to offset the increase in emissions from all the additional oil that will be produced to fill the new pipeline, according to an analysis from the Pembina Institute energy think-tank.

“We need about eight more Pathways projects if you actually wanted to achieve a decarbonized barrel of oil in the pipeline,” said Ian Sanderson, senior analyst with the Pembina Institute’s oil and gas program.

Pembina’s analysis suggests that even if a new oil pipeline were built along with the new carbon capture facility, oilsands emissions would still be higher than the current levels, where there is no pipeline or carbon capture. 

Sanderson says the Pathways project, on its own, is a great opportunity for Alberta as it would drive billions of dollars of investment and bring down emissions from Canada’s highest emitting sector.

But it was proposed before discussions of a new pipeline began, he said.

"The fact that now they've been tied together, I think that that scenario should never have existed.”

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