Oil sands companies called on to “keep it in the ground” – but Suncor opens new mine near Fort McMurray, deploys driverless trucks

Parkland report big oil coverThe majority of Alberta oil sands production is owned by the five companies: Canadian Natural Resources Limited (CNRL), Suncor Energy, Cenovus Energy, Imperial Oil, and Husky Energy.  What the Paris Agreement Means for Alberta’s Oil Sands Majors, released on January 31 by the Parkland Institute, evaluates what the 2°C  warming limit in the  Paris Agreement means for those “Big Five” –  by assessing their  emissions-reduction disclosures and targets, climate change-related policies, and actions, in light of their “carbon liabilities.” The carbon liabilities are calculated using  three levels for the Social Cost of Carbon, ranging from $50, $100, and $200 per tonne. Even under the most conservative scenario, the carbon liabilities of each corporation are more than their total value, and the combined carbon liabilities of the Big Five ($320 billion) are higher than Alberta’s GDP of $309 billion. Conclusion: “the changes required to remain within the Paris Agreement’s 2°C limit signals a need for concrete, long-term “wind-down” plans to address the challenges and changes resulting from global warming, including the fact that a significant portion of known fossil fuel reserves must remain underground.” What the Paris Agreement Means for Alberta’s Oil Sands Majors was written by Ian Hussey and David Janzen, and published by the Parkland Institute as part of the SSHRC-funded Corporate Mapping Project.  A National Observer article reviewed the report and published responses from the Big Five companies on January 31.

autonomous electric mining truckRather than keeping it in the ground, Suncor Energy announced on January 29 that it is continuing to ramp up production at its Fort Hill oilsands mine, about 90 kilometres north of Fort McMurray.  The next day, Suncor also announced  the beginning of a 6-year phase-in of approximately 150 autonomous electric trucks at numerous locations. The company said it will “continue to work with the union on strategies to minimize workforce impacts,” and that “current plans show that the earliest the company would see a decrease in heavy equipment operator positions at Base Plant operations is 2019.”   Reaction from the local union is here in a notice on the website of Unifor 707A;  Unifor National Office response is here:  “Driverless trucks aren’t the solution for Suncor” .  The National Observer published an interview with a Suncor spokesperson on January 31.  According to”Suncor Energy says driverless trucks will eliminate a net 400 jobs in the oilsands” , Suncor is the first oil sands company to use driverless trucks, and “Suncor’s plan to test the autonomous truck systems was initially criticized by the Unifor union local because of job losses. But Little says Suncor is working with the union to minimize job impacts by retraining workers whose jobs will disappear. The company has been preparing for the switch by hiring its truck drivers, including those at its just−opened Fort Hills mine, on a temporary basis.”

The good news is that  “the era of oil sands mega-projects will likely end with Suncor Energy’s 190,000 barrel-per-day Fort Hills mining project, which started producing this month”, according to an article by Reuters.  The bad news is in the title of that article:  “Why Canada is the next frontier for shale oil” (Jan. 29) . The article extols the strengths of Alberta’s mining industry, and quotes a spokesman for Chevron Corporation who calls the Duvernay and Montney formations in Canada “one of the most promising shale opportunities in North America.”  For a quick summary, read   “Montney, Duvernay Oil and Gas Fields Seize the Momentum from Athabasca Tar Sands/Oil Sands” ( Jan. 31) in the Energy Mix.

Also,  consider the work of Ryan Schultz of the Alberta Geological Survey.  Most recently, he is the lead author of  “Hydraulic fracturing volume is associated with induced earthquake productivity in the Duvernay play”, which  appeared in the journal  Science on January 18 , and which is summarized in the  Calgary Herald  on January 18.  It discusses the complexities of how fracking has caused earthquakes in the area.

Recommendations to change the U.S. Social Cost of Carbon, and possible impact for Canada

The U.S. National Academies of Science Press released an important report in January 2017, suggesting changes to the methodology of the Social Cost of Carbon (SCC), an economic metric used to measure the net costs and benefits associated with the effects of climate change- including changes in agricultural productivity, risks to human health, and damage from extreme weather events.  U.S. government  agencies such as the Environmental Protection Agency  are required by law  to estimate SCC when  proposing regulations such for vehicle emission standards or energy efficiency standards for appliances.  One of the most recent, thorough, and important applications of the U.S. Social Cost of Carbon appears in the 2015  Regulatory Impact Analysis Report for the Clean Power Plan Final Rule.    The U.S. updated the SCC to $37 U.S. per tonne of carbon dioxide in September 2015, a value often criticized as too  low, and economists continue to differ about the methodology.  A study by researchers at Stanford University, published in Nature Climate Change  (2015) estimated a more accurate  SCC of $220 per tonne – six times higher.

The January  report from the National Academy of Science, Valuing Climate Damages: Updating Estimation of the Social Cost of Carbon Dioxide  , suggests restructuring the Integrated Assessment Models framework used to ensure greater transparency, and  recognizes new research  which should be incorporated into the  models (e.g. the effect of heat waves on mortality) . It also recommends a regular 5-year updating schedule,  “to ensure that the SC- CO2 estimates reflect the best available science.”  For a summary of proposed changes and the political context, see “Scientists have a new way to calculate what global warming costs. Trump’s team isn’t going to like it” in the Washington Post  . Noting that the new report has no legal force, The Post article quotes expert reviewer Richard Revesz, Dean emeritus of the New York University School of Law: “If the metric is revised, then the incoming administration would have an obligation to explain why it’s departing from the current approach… Any changes made without adequate scientific justification would likely be struck down in court.”   But see also “How Climate Rules might Fade away”     in Bloomberg Business Week.

What are the implications for Canada?  Canada, like the U.K., Germany, France, and other countries, already uses its own Social Cost of Carbon, pegged at a $28 per tonne in 2012, according to  Canada’s  Regulatory Impact Analysis Statement issued with the vehicle emissions regulations for passenger cars and light trucks.  The Leaders Statement from the North American Leadership Summit in Summer 2016 ,  ties Canada more closely to U.S. and Mexico, when it pledges to “ … align analytical methods for assessing and communicating the impact of direct and indirect greenhouse gas emission of major projects. Building on existing efforts, align approaches, reflecting the best available science for accounting for the broad costs to society of greenhouse gas emissions, including using similar methodologies to estimate the social cost of carbon and other greenhouse gases for assessing the benefits of policy measures that reduce those emissions.”

U.S. Updates the Social Cost of Carbon to $36 Per Ton

On July 2, the White House Office of Management and Budget (OMB) set the new 2015 Social Cost of Carbon at $36/ton of CO2, representing the cost of the damage to society caused by one ton of carbon dioxide emission.   At the same time, the Interagency Working Group on Social Cost of Carbon released its formal response to the comments and letters submitted during the most recent public comment period in 2013 in   Response to Comments: Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866  .

The Social Cost of Carbon Attacked and Defended

The Social Cost of Carbon (SCC) is an important analytical tool which estimates the economic harm caused by one additional metric ton of carbon dioxide (CO2) emissions. It has been used in the U.S. and Canada to evaluate the costs of activities that produce greenhouse gas emissions, and the benefits of policies that reduce those emissions. See the U.S. Environmental Protection Agency webpage which lists the regulations which have used the SCC at: http://www.epa.gov/climatechange/EPAactivities/economics/scc.html.

A review of the SCC is currently underway in the U.S., led by the Office of Management and the Budget (the public comments period closed on February 27, 2014). Inevitably, this has been controversial, with oil and gas interests leading the push to prohibit the use of the SCC, on the grounds that it is imprecise and inaccurate. A joint submission by the Environmental Defense Fund, Institute for Policy Integrity at New York University School of Law, Natural Resources Defense Council, and the Union of Concerned Scientists supports the use of the SCC and refutes the arguments of its critics; their statement is available at: http://www.ucsusa.org/assets/documents/global_warming/Joint-Comments-to-OMB.pdf. See the terms and links to the Technical document at: https://www.federalregister.gov/articles/2014/01/27/2014-01605/technical-support-document-technical-update-of-the-social-cost-of-carbon-for-regulatory-impact.

The Effects of Carbon Tax, and an Upward Revision of the Social Cost of Carbon

The U.S. Congressional Budget Office released a study on May 22 which reviews the existing literature on the economic impacts of a carbon tax, and explores three options for using the revenues from the tax: to reduce budget deficits, to decrease existing marginal tax rates, or to offset the costs to the most affected groups of people. Read: Effects of a Carbon Tax on the Economy and the Environment at: http://www.cbo.gov/publication/44223 or for a more detailed study of the effects on employment, see the May 2010 CBO Briefing Report How Policies to Reduce Greenhouse Gas Emissions Could Affect Employment at: http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/105xx/doc10564/05-05-capandtrade_brief.pdf. The 2013 CBO study discusses various studies which estimate the social cost of carbon – the value used by governments (including Canada’s) to assess the benefits and costs of the reduction of greenhouse gas emissions.

An important new report released by the U.S. Government in June revises the “official” U.S. social cost of carbon substantially, by between 50 – 60%. The first regulation to use this new SCC will be the U.S. emission standard for microwaves; it has also been recommended for use by the State Department in its consideration of the impact of the Keystone Pipeline. Read: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis – by the U.S. Interagency Working Group on the Social Cost of Carbon Under Executive Order 12866 at: http://www.whitehouse.gov/sites/default/files/omb/inforeg/social_cost_of_carbon_for_ria_2013_update.pdf, and for background, see the U.S. Environmental Protection Agency article at: http://www.epa.gov/climatechange/EPAactivities/economics/scc.html