Canada’s new greenhouse gas requirements will inflict widespread pain

On Jan. 27, the federal government injected yet another syringe full of uncertainty into the country’s oil and gas sector, announcing a nebulous plan to overhaul Canada’s environmental assessment process to incorporate concerns over greenhouse gas emissions. As always, the initial announcements are long on lofty goals, and short on the devilish details. But some things are clear.

First, cue the climate accountants. A safe assumption is that whatever shakes out as the process of defining how Canada defines upstream emissions will be something roughly in line with the methods used by the United Nations Framework Convention on Climate Change, or UNFCCC. The UNFCCC defines upstream emissions as “GHG emissions associated with the production, processing, transmission, storage and distribution of a fossil fuel, beginning with the extraction of raw materials from the fossil fuel origin and ending with the delivery of the fossil fuel to the site of use.”

The UN graciously excludes “Other greenhouse gas (GHG) emissions sources, such as those associated with the construction of equipment are relatively small and therefore not considered.” So, oil and gas producers won’t have to go all the way back to tally up the GHG emissions associated with producing their drilling equipment, trucks, pipeline segments, or the materials used to build the materials used to produce said equipment. That’s a silver lining, since one can only imagine the recursive navel-gazing that would be required to calculate the GHG emissions leading up to the fabrication of the staples used in the administration centers.

Second, set a course to delay. Decisions on the proposed twinning of the Trans Mountain Project will be set back at least four months with additional consultations; community involvement; and critically, this new process that must “Assess the upstream greenhouse gas emissions associated with this project and make this information public.”

And what does this mean for Canada’s oil and gas sector? Well, a self-inflicted public relations problem, for one thing. Canadian oilsands do take more energy to produce than many other types of oil, they must be heavily processed before they can be used, and they must be transported for long distances to reach markets. The new requirements will almost certainly boost estimates of the greenhouse gas intensity of oilsand production compared to alternative sources of hydrocarbons. ENGOs will latch onto these upstream estimations with glee, further raising the barriers that Canadian companies must overcome to obtain what is an increasingly Will-O’-the-Wisp-like “social license” to develop and export Canada’s oil and gas resources.

And if these newly assessed upstream emissions wind up being included in any carbon-pricing scheme, Canadian producers will face a significant disadvantage to competing oil-producing jurisdictions around the world that do not implement such pricing schemes.

All of this, we’re told, is to “restore public trust” in the environmental assessment process. Whether or not it will do so is dubious: environmental groups have made it plain that their goal is to halt fossil fuel production altogether, and to start immediately. They will hardly be appeased by new GHG accounting methods, but will certainly be happy to use them to continue their attacks on Canada’s oil-sands as “dirty” fuel.”

Needless to say, at the end of the day, Canadian investors, consumers, and those who benefit from the public services funded from oil production and trade will feel the pain of our new greenhouse gas accounting requirements.