The Atlantic provinces slow march towards carbon pricing and what it means for the resource extraction sector

The Atlantic provinces slow march towards carbon pricing and what it means for the resource extraction sector

When it comes to establishing a price for carbon in Atlantic Canada and how it will impact resource extraction sectors, the only certainty is uncertainty

It’s an issue governments across Canada are grappling with: climate change, and how to deal with it? In Atlantic Canada, those efforts are murky and, as a result, are creating uncertainty among big industry—the major polluters.

Last October, the federal Liberal government announced a national approach to pricing carbon pollution, demanding that all Canadian provinces and territories implement carbon pricing by 2018. The federal government will set a benchmark for pricing carbon emissions: a minimum of $10 per tonne in 2018, rising by $10 a year to reach $50 per tonne in 2022. But Ottawa is allowing the provinces and territories to choose how they implement carbon pricing, with either a direct price on carbon pollution or by implementing a cap-and-trade system (or a mix of the two.)

Ottawa’s edict is the policy equivalent of a boot to the rear end: do something, or we’ll do it for you. Alberta and British Columbia have adopted carbon taxes, while both Ontario and Quebec have chosen cap-and-trade systems; Saskatchewan is the only province refusing to consider a price on carbon.

So what are the Atlantic Canadian provinces doing to meet the federal government’s requirements? The answers are unclear, and vary between the four provincial governments. That lack of clarity makes it even more difficult to determine how the provincial responses will impact the biggest emitters of carbon: industry. From mining companies to those in the oil and gas sector, companies and industry sectors across the region are wondering how the provincial responses will impact and shape their business in the future.

Of the four Atlantic provinces, Nova Scotia is the most advanced in its effort to meet the federal government’s requirements. Nova Scotia has at least decided which approach it will take: a cap-and-trade system. Jason Hollett, executive director of the climate change division in the province’s environment department, emphasizes that Nova Scotia’s cap-and-trade system is still being designed. “It’s very early days in the development of the program,” he says.

Still, Hollett is able to provide a rough sketch. The system will cover 90 per cent of Nova Scotia’s emissions, with roughly 20 companies responsible for those emissions. Some of the big emitters are Nova Scotia Power, natural gas distributors (such as Heritage Gas Limited), fuel importers (such as Irving Oil and Imperial Oil), and any industrial facilities with emissions over 100,000 tonnes annually. (That would include the province’s Lafarge cement plant and perhaps projects in Nova Scotia’s offshore oil and gas sector, depending on output.)

The government will provide those 20 industry players with greenhouse gas allowances (emissions targets that the companies will be expected to meet). Each company will have to either reduce their emissions, through technological or behavioural change, or by purchasing allowances on the market from companies more easily able to reduce their own emissions. In other words, companies able to easily reduce their emissions can sell those excess reductions to companies that struggle.

“It’s up to the companies to figure out what is most cost effective for them to meet the compliance obligation,” Hollett says. “Where those reductions come from is really up to the market to determine. We’re trying to make it as efficient and effective as possible.”

However, many questions remain unanswered—a concern that’s voiced in the provinces with oil and gas and mining industries. For instance, Hollett can’t say what the impact will be on consumers or individual companies. He insists, though, that the system is being designed to minimize price increases for citizens and businesses. “The ultimate goal is to achieve emissions reductions in a way that minimizes the impact to consumers,” he says.

How will the cap-and-trade system impact Nova Scotia’s offshore oil and gas industry? The 100,000-tonne upper limit apparently won’t affect Encana’s Deep Panuke natural gas project, which is located 250 kilometres southeast of Halifax. “Deep Panuke is operated on a seasonal basis and production is declining,” says Encana spokesman Doug Hock. In fact, the province’s two producing fields, Deep Panuke and the ExxonMobil-operated Sable Offshore Energy Project, are expected to cease producing natural gas by 2021.

Questions regarding the potential impact on the Sable Offshore Energy Project were referred to the Canadian Association of Petroleum Producers. CAPP didn’t have much to say about the issue, either. “We are unable to comment on the impact of climate change regulation on the Atlantic Canada offshore industry as we have not yet seen any offshore related regulations in Newfoundland and Labrador or Nova Scotia,” says Paul Barnes, CAPP’s director for Atlantic Canada and the Arctic, in a statement. “We look forward to future consultation with governments on this important issue.”

Under Nova Scotia’s cap-and-trade system, fuel importers like Irving Oil will be judged on the emissions their fuels eventually put into the air. All the oil and gas majors on the East Coast, such as Irving Oil, Imperial Oil, Shell, Suncor Energy, Husky Energy, ExxonMobil, and Chevron, are represented by the Canadian Fuels Association, which calls itself the “voice of the transportation fuels industry”—from refining down to retail.

Association spokesperson Bill Simpkins says there is much uncertainty surrounding the climate change regulations that will emerge from the four Atlantic provinces. “We still don’t know yet what the provinces’ plans are to meet the federal requirements. They are still working on those plans. So we really don’t have anything to react to at this point,” he says.

“It will affect consumers,” he added, predicting an increase in the price of gasoline. The Globe and Mail has noted a $50-a-tonne carbon price would add 11.6-cents a litre to the cost of gasoline, as well as impact the price of natural gas, and electricity generated from coal or natural gas. “There will be some effect on businesses but we don’t know the details of any of those programs at this point. It’s hard to predict what the final policies will be in the Atlantic provinces,” Simpkins says.

That’s particularly true of New Brunswick. “We have not yet implemented any major climate change regulations, but we are working on plans to implement a carbon pricing mechanism in New Brunswick by 2018,” Marc André Chiasson, a spokesperson with the provincial environment department, wrote in an email.

According to a CBC report, the 300,000 barrels-per-day Irving Oil refinery in Saint John could be mostly exempt or even profit from the federal carbon tax, thanks to “output-based pricing” that is meant to protect businesses that would be rendered uncompetitive by a high carbon tax.

Herb Emery, a professor and the Vaughan chair in regional economics at the University of New Brunswick, says that provision of the federal government’s default carbon tax would likely be agreeable to many industry players in the province. In other words, the New Brunswick government might be content to accept the federal carbon tax, receive the resulting funds in the province, all while having the province’s largest emitter (the Irving refinery) largely exempt from the scheme.

“So from one respect New Brunswick doesn’t have to do anything other than put a price on carbon,” he says. “But that wouldn’t reduce emissions anyway. It would just generate revenue. I think it’s widely agreed that the federal carbon tax is not high enough to generate the emissions reductions they expect.”

Emery notes that New Brunswick’s intentions on the file are difficult to decipher. “We don’t even know what the objective of the (provincial) government is for the carbon pricing scheme. We don’t know if their target is to reduce emissions or if it’s to raise revenue to finance clean technology. If it’s an emissions target they would go cap and trade. If it’s (about) revenue they’d go carbon tax.” Even the ultimate federal goal is unclear, he says.

Prince Edward Island is also mulling its approach. “The prudent thing is to look at all options,” says Todd Dupuis, executive director of the P.E.I. Climate Change Secretariat. Dupuis says the province is investigating the three available options: a cap-and-trade system, a carbon tax, or an “Alberta-style” hybrid system. The hybrid would be composed of two key elements: a carbon levy applied to fossil fuels, and an outputbased pricing system for industrial facilities that emit more than 50,000 tonnes of CO2 per year.

Regardless of approach, P.E.I.’s climate change measures won’t impact big industry.

“There’s no oil and gas or big industry or mining here on P.E.I.,” Dupuis says.

Still, he says the island must act because it is very vulnerable to the effects of climate change, particularly coastal erosion, despite producing only one-quarter of one per cent of Canada’s emissions. “With the exception of the North, there’s no other province more impacted by climate change than P.E.I.” he says, noting the need to both curb emissions and adapt to the new environment. “We’re very much in the planning mode now on both those files.”

Unlike P.E.I., Newfoundland and Labrador is heavily dependent on oil and gas to keep its economy humming. The province, however, has not yet decided how it will tackle emissions from its offshore oilfields: Hibernia, Terra Nova, White Rose and Hebron, the latter of which is scheduled to produce first oil by the end of 2017. “Whatever we do will recognize the fact that these facilities are hundreds of kilometres offshore,” says Perry Trimper, the minister in charge of the province’s Office of Climate Change. “They are spaced-constrained. There are some massive challenges where they are working. You need to consider all of that.”

While the province is still “exploring” measures for the offshore, it has made some progress in assembling a plan for regulating emissions from onshore industries.

The province is currently asking companies with emissions above 15,000 tonnes of CO2 per year to start reporting their exact emissions. Companies with emissions above 25,000 tonnes are to start reducing their output.

Following two years of measurements, a price will be affixed to each tonne of carbon, and big emitters will be assigned an emissions target. “It will be [a target] that we do believe they will be able to achieve,” Trimper says. “They’ll have a variety of strategies as to how to deal with the expectation of government.”

Trimper said the province’s measures will ultimately reduce emissions but won’t “cripple” onshore industry. Companies unable to meet their individual targets will have options, such as buying carbon offset credits, or putting money into a technology fund that will help other companies achieve their own emissions reductions.

Currently, six industrial sites will be impacted by that system. Two of those sites are owned by Vale: an open pit mining and milling operation at Voisey’s Bay, Labrador, and a hydrometallurgical processing plant at Long Harbour, Newfoundland. At Voisey’s Bay, a major expansion is underway. The plan to develop two underground nickel mines will significantly increase the site’s energy requirements.

In 2015, Vale’s output of greenhouse gas emissions represented six per cent of the total from large onshore industry in Newfoundland and Labrador. The mine expansion may push Vale’s contribution up to 12 per cent of the total, says Vale spokesperson Bob Carter. Vale intends to reduce its greenhouse gas emissions by five per cent in 2020, and is still waiting to receive further instructions from government. “Although the provincial government has outlined their legislative framework and reporting requirements, they have not announced the reduction targets and cost per tonne of CO2,” Carter says. “As a result, it is not possible for companies to determine with certainty how this will affect their business.”

The Iron Ore Company of Canada’s mine and pelletizing plant in Labrador City will also be impacted. The company’s majority shareholder, Rio Tinto, says it supports the national price on carbon, but is calling for clear regulations that won’t overburden industry.

“Government has a leadership role to play by providing clear, consistent and effective climate change frameworks. For Newfoundland and Labrador, that means ensuring the province’s small industrial sector does not bear the entire burden of emission reductions,” the company said in a statement. “Policies or programs should take into consideration the impact carbon pricing will have on the competitiveness of businesses in emission intensive trade exposed sectors, such as IOC. Having access to flexible compliance mechanisms is critical to ensure that we stay globally competitive and can continue to provide jobs to the people of Labrador West and Sept Iles, Quebec while reducing emissions.”

Trimper acknowledges that Newfoundland and Labrador industry already has “some interesting challenges” and is “competitively constrained.” For example, he says the oil refinery in Come By Chance is the only one in North America that lacks access to natural gas, so it must rely on more expensive fuel to run its operations.

But he insists that the initial reaction of industry—that climate change regulations will boost operating costs—will not be the case for everyone. “There are some, frankly, that stand to gain in terms of profit as well as helping this province meet its targets,” he says. “It doesn’t have to be a negative here in terms of the bottom line.”

The lack of details and clarity on how carbon pricing will be implemented by the four provincial governments in Atlantic Canada, and how that will ultimately impact the mining and oil and gas industries, shows how complex the issue is. “I would say none of the provinces really have good explanations for how they’re going to handle these issues,” Emery says. “Going from the principle of pricing carbon to the practice is very complicated.”

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