Canada: Federal Government Mandates Carbon Capture And Storage For Oil Sands And Power Generation

The Federal Government has released an enhanced version of its Regulatory Framework for industrial greenhouse gas emissions. The enhanced version adds details to the framework first announced in April 2007, and identifies carbon capture and storage as a key tool for reducing greenhouse gas emissions across all industry, and particularly in the oil sands and electricity industries. Details of the federal scheme will be provided via draft regulations to be released later this year.

The federal government announced on Monday, March 10, 2008 further details to its "Turning the Corner" air emissions regulatory framework (Regulatory Framework), first announced on April 26, 2007. While this plan will continue to be implemented by regulation and take effect in 2010, Monday's details reflect consultation with 16 industrial sectors over the past year and stands as "both an elaboration and a strengthening" of the April 2007 Regulatory Framework. Draft regulations will be published in the Canada Gazette later this year and finalized in 2009.

The most notable policy thrust is the requirement that in situ oil sands projects, oil sands upgraders, and coal-fired power plants built after 2012 must have emissions profiles equivalent to that of facilities employing carbon capture and sequestration (CCS) technology by 2018. To encourage the widespread use of CCS by 2018, the Regulatory Framework will credit firms that make use of this technology for investments in pre-certified CCS projects up to 100% of their regulatory obligation through 2017.

Existing oil sands facilities will be subject to the previously announced 18% emissions intensity reduction taking effect in 2010, whereas oil sands facilities built between 2004 and 2012 will be subject to standards stricter than 18% improvements from 2006 levels, but less than a CCS emissions profile. This intermediate category for 2004-2012 facilities is designed to force these facilities to adopt cleaner fuels and green technologies. In the case of oil sands facilities within this category, there will be a specific "cleaner fuel standard" (based on the use of natural gas) for each of mining, in situ, and upgrading operations.

New facilities will include facilities that came into operation in 2004 or later and include "major expansions" and "major transformations." A major expansion will be defined as a 25% increase in the physical capacity of an existing facility, and a major transformation where there has been "significant changes to processes." Notably, "only the expanded or transformed portion of the facility would be treated as new, unless the integrated nature of the facility requires that the entire facility be treated as new." More detailed questions concerning how the scheme will affect industry must await release of the draft regulations later this year.

CCS has been consistently identified as a prominent potential climate change technology in both Alberta and federal policies. In March 2007, the federal government announced a commitment of $155.9 million to be applied to, among other things, a carbon dioxide pipeline "backbone" connecting the Alberta oil sands to mature oil fields. This would provide the basic infrastructure for the establishment of carbon sequestration "sinks," comprised of oil sands extraction operations, upgraders, and coal-fired power plants. The Government of Alberta's own CCS strategy was announced in January 2008, and the backbone vision has been advanced by the Integrated CO2 Network, an organisation comprised of 14 major Alberta industrial corporations.

In addition to the revised Regulatory Framework, three other associated policy documents were released. These three papers consider offset quantification protocols, early action credits and detailed economic modeling:

  • The offset quantification paper reiterates that standardized offset credit quantification protocols will be developed and reviewed by Environment Canada, and that emissions reductions will be reviewed by independent third party verification under the Canadian Environmental Protection Act. The paper also proposes concepts to quantify biological sink credits (for example, how to take the risk of forest fires into account when attempting to use a reforestation program to generate offsets).
  • The one-time early action credit previously announced will recognize firms that took verified early action to reduce greenhouse gases between 1992 and 2006 and, in so doing, incurred a business disadvantage by making efforts beyond "business as usual" conditions. The credit continues to be a pro-rata allocation of one time credits in each of 2010, 2011 and 2012, with a maximum of 5 megatonnes of credits distributed in each of those years. To be eligible for these credits, an applicant must participate in each of three phases: the first "initial information submission" phase (Phase I) is May–June, 2008; Phase II, "final submission", is February–April, 2009; and Phase III, "allocation," will take place in July 2009.
  • Industrial greenhouse gas emissions reductions resulting from the plan are expected to amount to 165 megatonnes by 2020, half of Canada's total target of 330 megatonnes and a 20% absolute reduction from 2006 levels. The aim of the Regulatory Framework remains to create an appropriate market price for carbon to incent change in the broader Canadian economy. In addition, the Regulatory Framework aims to set up a carbon emissions trading market complete with carbon credit and offsets. The economic modeling for the Regulatory Framework predicts carbon prices per tonne of $25, $50 and $65 for 2010, 2016 and 2020, respectively. This is characterized as a price signal that will incent change in both regulated industries and in the outputs of regulated industries – in other words, there will be a "trickle down" effect into other sectors of the economy.


This regulatory enhancement does not provide the necessary detail to fully assess the impact to much of industry. However, it sends a critical policy and price signal that substantial investment in green technologies will be required (and rewarded) in the near term and project proponents must react and plan accordingly. Proponents should therefore give serious consideration to early compliance and early mover opportunities that may be present in project designs.

Shawn Denstedt is a partner in the firm's Calgary office. Terri-Lee Oleniuk is an associate in the Energy and Litigation groups of the firm's Calgary office. Matthew Keen is an associate in the firm's Calgary office. Radha Curpen is a partner in the Litigation Department of Osler, Hoskin & Harcourt LLP.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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