Articles

The View from Alberta: Recent Developments in Provincial and Interprovincial Energy Policy

Alan L. Ross* and Lorelle Binnion** December 2015 – Volume 3, issue 4 2015

Introduction

In May, 2015 Alberta elected – for the first time in the Province’s history – a New Democratic Party (“NDP”) majority government, replacing over 44 years of Progressive Conservative rule. This came shortly after a steep drop in oil prices in 2014 that threatened the viability of many Alberta companies who had grown accustomed to hundred-dollar per barrel oil. Provincial energy policy changes coincided with an embattled industry concerned over the scope of the NDP government’s reforms.1 Policy development would not, however, be limited to the Province of Alberta.

Shortly after the provincial election, the Council of the Federation (“COF”) released the Canadian Energy Strategy at the 2015 COF meeting. The Canadian Energy Strategy is the collaborative effort of Canada’s premiers to achieve consensus-based approaches to the country’s energy resource development. The project was co-chaired by the premiers of Alberta, Manitoba, Newfoundland and Labrador, and New Brunswick, and has been in development since 2012. The Canadian Energy Strategy sets out a vision of how Canadian provinces and territories can “work together on energy issues and grow the economy, protect the environment, create new opportunities for individuals, organizations and businesses, and enhance the quality of life for all Canadians.”2 The document sets out ten focus areas that each represent an issue in Canadian energy development on which the provinces and territories can work in partnership.

Premier Notley’s approach to energy and climate change is becoming clearer. So far, it appears that Alberta may further align its policies with the Canadian Energy Strategy. There is overlap in many of the areas of focus, such as emphasis on public involvement, technological development, emissions control and climate change, as well as acknowledgment of the need to build and improve energy transmission and transportation infrastructure and the desirability of building the refining and upgrading industries to promote market diversification. The government is waiting on the recommendations of two panels, the Royalty Review Panel (“Royalty Panel”) and the Climate Change Advisory Panel (“Climate Change Panel”), established to conduct studies and solicit public opinion.3 Both will make recommendations later this year,4 although the Notley government is not bound to follow all or even some of the panels’ recommendations.

The first part of this paper will summarize the current status of Alberta energy policies within provincial jurisdiction. The second part will provide an overview of the history and current status of the Canadian Energy Strategy. The third part will be a discussion of alignment between provincial and national policies, and an analysis of how these policies might affect the oil and gas industry in the short- and long-term.

I. Alberta Energy Policy

1. General Introduction and Overview

It is clear that Alberta’s NDP government will take significant action in the areas of environmental responsibility and climate change. This was a major part of the NDP’s campaign, and is unlikely to be abandoned. Understandably, many industry players are apprehensive about the possibility of change at a time when oil prices are low. The short-term financial effects of implementing such policy are likely to take a toll on an already struggling industry.

However, fresh regulatory reforms can also go a long way in improving the public opinion of the oil industry, and potentially help facilitate the social licence required for new energy infrastructure build. Premier Notley’s choice to address climate change, even in the face of challenging economic times for Alberta, may ultimately enhance Alberta’s reputation in the rest of Canada and the world on sustainability and the environment.

2. Alberta’s Key Energy Policy Developments

The most significant energy policy changes anticipated from the new government include:

  • a royalty review and possible changes to the royalty system;
  • the implementation of a climate change policy to address emissions and likely impose carbon pricing;
  • potential government support for the construction of more refineries and upgraders in Alberta; and
  • support for the use of renewable resources for the electricity provision in Alberta.

These issues have been assigned to either the Royalty Panel or the Climate Change Panel for investigation and analysis. The Premier has placed significant emphasis on public engagement through information disclosure and open policy discussions. However, the final panel recommendations on Alberta energy policy are therefore currently unclear. This part will canvass more generally the types of policies that may be implemented.

a. Royalties

Premier Notley stated that her chief concern is Albertans not receiving a fair return for their resources,5 and is conducting a royalty review to ensure that the province is benefitting from the oil and gas industry to an appropriate degree. Accordingly, the government established the Royalty Panel,6 chaired by David Mowat, ATB Financial’s president and Chief Executive Officer. Also on the panel is Peter Tertzakian, Calgary energy economist, Annette Trimbee, former deputy Minister of Finance, and Leona Hanson who is the mayor of Beaverlodge located west of Grande Prairie. The Royalty Panel must file a preliminary report to Energy Minister McCuaig-Boyd by the end of 2015. However, the government has promised that no changes will take place to the province’s royalty structure until 2017.7

The Royalty Panel has focused on simplifying Alberta’s complex royalty system. Alberta’s royalty regime operates on a sliding rate formula which factors in elements such as price and production levels.8 Currently, Alberta’s royalty program “varies with commodity prices and contains a bewildering array of tax holidays and incentive plans introduced over time to moderate “unintended consequences” of the much-criticized last royalty review in 2007.”9 Although the Royalty Panel has not yet made any decisions, Mr. Mowat indicated that it is considering a system based on a cash-flow tax calculated on gross revenue minus expenses.10 Premier Notley has been clear that she will is “not pre-judging” and will wait for the panel’s recommendations before she makes any decisions.11

b. Oil & Gas Infrastructure

Pipelines

Premier Notley has indicated that she is not opposed to pipelines, and recognizes that Alberta’s ability to access new markets is essential.12 The Premier has further indicated that she will not support pipelines that have little chance of realization, but will instead support the Energy East pipeline which would transport crude Alberta oil to refineries in Atlantic Canada and Kinder Morgan’s TransMountain line to the west coast.13

Like the COF, the Alberta government’s approach is that in order for a multi-jurisdictional pipeline to succeed, the interests of multiple provinces must be taken into consideration. Access to international markets necessarily means passing through one of British Columbia or Quebec, both of which are strongly opposed to the environmental impacts of the oil and gas industry.14 Therefore, improving environmental standards and public support is essential to the viability of these projects.

Premier Notley has already met with Quebec Premier Philippe Couillard regarding Energy East. Premier Notley agreed with Premier Couillard that Alberta has an obligation to “show we’re taking real action on climate change concerns and overall environmental protection.”15 This approach appeared to resonate with the Quebec Premier who said, “I am convinced that we have found a new ally in Ms. Notley,” and agreed that a pipeline would be the best and safest way to transport crude oil to Eastern Canada.16

Upgrading and Refining

In her election campaign, Premier Notley supported building more refineries and upgraders in Alberta rather than shipping bitumen and crude for refining in the United States.17 This would help address the “bitumen bubble” problem in Alberta, as well as diversify the Alberta economy to weather swings in oil prices.18 However, many major extractors are not in favour of increasing refining activity in Alberta as opposed to the United States on the claim that it is uneconomic.19

There are five operating upgraders and four operating refineries in Alberta.20 Currently, about half of the province’s bitumen is processed in Alberta, compared to 70 per cent a decade ago. It is predicted to fall to about one third by 2023.21 There is already one refinery project underway near Redwater, Alberta22 which has faced significant criticism due to its reliance on government support. The issue of whether there would be a benefit to refining more oil locally is part of the Royalty Panel’s mandate.23

c. Carbon and Greenhouse Gases

Alberta’s current emission reduction policy is set out in the Specified Gas Emitters Regulation.24 That regulation applies to large industrial emitters representing approximately 50 per cent of Alberta’s emissions.25 Under the current system, emitters must reduce their emissions intensity by 12 per cent below a historical baseline, but can pay into a fund for excess emission at $15 per tonne. If an emitter reduces emissions below the historical baseline, these can be banked or traded. This past summer, the provincial NDP government changed the thresholds from 12 per cent to 15 per cent in 2016, and 20 per cent in 2017. The price for excess emissions will rise to $30 per tonne in 2017.

Revamping Alberta’s emissions control and climate change policy was a significant part of Premier Notley’s campaign promises. In developing these new policies, she has created the Climate Change Panel which is tasked with providing advice on matters including:

  • pricing carbon;
  • growing the renewable energy sector;
  • promoting energy efficiency for individuals and companies; and
  • reducing the province’s reliance on coal-fired electricity.26

The deadline for the Climate Change Panel to make its recommendations to Shannon Phillips, the Minister of Environment and Parks, is November, 2015. This schedule is to allow time to prepare the policy before the 2015 United Nations Climate Change Conference in Paris, which will be attended by Premier Notley. The Premier has expressed that she intends to attend the conference with a climate change policy that “Alberta can be proud of.”27

The Climate Change Panel is chaired by Andrew Leach who is an energy and environmental economist, and is an Associate Professor and Academic Director of Energy Programs at the University of Alberta. Also on the panel is Linda Coady, an expert on corporate sustainability, Gordon Lambert who is the Suncor Sustainability Executive in Residence at the Ivey School of Business, Stephanie Cairns who works with Sustainable Prosperity, a national green economy research and policy institute, and Angela Adams, a former heavy equipment operator for Suncor and a member of one of Fort McMurray’s Métis founding families. The Climate Change Panel will hold public meetings, and has made an online survey available. It is now in the process of engaging with the public and with aboriginal peoples to consider environmental, social and economic factors before making their recommendation.

In August, 2015, the Alberta Government published its Climate Leadership Discussion Document (“Discussion Document”) which is a roadmap for the province’s climate change policy development.28 The Discussion Document emphasizes the importance of Alberta’s economy to stay competitive in a lower-carbon world.29 A key principle of the Discussion Document, which will likely be reflected in the Climate Change Panel’s final report, is that “Alberta must grow its economy sustainably and in a way that is more responsive to a changing global market.”30 If there is a consistent criticism of the Discussion Document, however, is that is says relatively little about the role of oil sands in Alberta’s energy supply mix.31

One of the ways that the province may achieve the Discussion Document goals is through the implementation of a carbon pricing scheme. The Climate Change Panel is tasked with making recommendations on how Alberta should implement such a system. When the Alberta government introduced the Specified Gas Emitters Regulation in 2007 it was the first GHG pricing policy in North America. Premier Notley’s view is that Alberta’s climate change regime needs updating. There are a number of models on offer. British Columbia imposes a tax per tonne of CO2 equivalent emissions on the purchase or use of fuels.32 Quebec launched a cap and trade system. Ontario established a mid-term GHG pollution reduction target, and is moving towards cap and trade. All three provinces support a Western Climate Initiative which, along with Manitoba and the State of California, is pursuing a broader regional cap and trade program.

No model reflects the full costs of navigating GHG restrictions in an oil and gas-dependant province. Nor are they perfect in themselves. Carbon tax and cap and trade methodologies both add burdens for new facilities and barriers to investment with high net present value.33

The Climate Change Panel also will make recommendations on how Alberta should establish requirements related to technology or policies that reduce emissions and increase efficiency. Some examples may include:

  • requiring that coal-fired plants must, at the end of their lifetime, be shut down or retrofitted to perform at an emissions intensity roughly equivalent to a natural gas-fired power plant;34
  • the establishment of vehicle emissions regulations;
  • establishing requirements for a minimum share of renewable electricity generation;
  • bans or limits on certain products such as incandescent light bulbs, pesticides, or chlorofluorocarbons (CFCs); and
  • developing building codes that require certain efficiency standards.

d. Renewables Policy

Alberta is the only province in the country that does not have a legislated renewable energy program.35 It is also reliant upon coal for electricity.36 Alberta’s coal-driven energy sector generates nearly the same amount of carbon pollution as the oilsands.37 A report by the Pembina Institute and Clean Energy Canada predicts that as Alberta further develops renewable energy resources such as solar, wind, geothermal, biomass and hydro, it will increasingly be able to phase out coal.38 The province’s NDP government appears to agree.

The Climate Change Panel has been tasked with making recommendations on how Alberta should proceed regarding renewable energy, with a plan expected as part of its consideration of climate change policy. Suggested policy options to achieve a transition to renewable energy include making renewable sources more competitive by accounting for hidden pollution and greenhouse gas costs of fossil fuel generation, and providing long-term price certainty for renewable electricity.39 The Climate Change Panel and the province are not acting alone on the development of renewables policy. Initiatives are also proceeding at the national level through the Canadian Energy Strategy.

II. Canadian Energy Strategy

1. Background to the Canadian Energy Strategy

The Canadian Energy Strategy is a joint effort of the provinces to collaborate on shaping energy development in Canada. It was developed by the COF, which is a group comprised of the premiers of all Canada’s 13 provinces and territories that meets twice a year with the main goal of inter-provincial policy coordination. The Canadian Energy Strategy has been in development since 2007 when the COF released a document entitled “A Shared Vision for Energy in Canada.”40

The 2007 Shared Vision for Energy in Canada document set out a seven point action plan that “strikes a balance between a secure energy supply, environmental and social responsibility, and continued economic growth and prosperity.”41 It highlighted the following:

  • improving energy efficiency;
  • developing new and innovated energy technologies;
  • developing renewable resources;
  • improving transmission and transportation infrastructure;
  • improving inefficiencies and uncertainty in the regulatory approval process;
  • addressing the skilled labour shortage; and
  • formalizing the role of provinces and territories in international energy discussion.42

An interprovincial and collaborative approach to energy was also discussed at the 2011 Energy and Mines Ministers Conference in Kananaskis, Alberta with an Action Plan subsequently developed.43 The Ministers “agreed to initiate voluntary collaborative work” in the areas of economic prosperity and responsible energy supply, efficient energy use, and knowledge and innovation.44

The premiers, with the exception of British Columbia, agreed to build on the Shared Vision for Energy in Canada at the 2012 COF meeting, to “advance the common goals of ensuring Canada is a recognized leader in sustainable and secure energy production, conservation, supply and transportation.”45 The Canadian Energy Strategy was to combine Alberta’s interest in provincial collaboration on building pipelines with Ontario and Quebec’s interest in developing a nation-wide agreement on climate change policy.46

Alberta Premier Alison Redford, Newfoundland and Labrador Premier Kathy Dunderdale, and Manitoba Premier Greg Selinger led a working group on energy. The working group developed the Canadian Energy Strategy: Progress Report to the Council of the Federation in July 2013.47 The Progress Report identified activities advanced by the provinces and territories in accordance with the Shared Vision for Energy in Canada from 2007,48 and areas of challenges and opportunities. Those included infrastructure challenges, including transmission capability between jurisdictions, economic incentives for innovation, labour and human resources needs, access to markets other than the United States, intergovernmental collaboration, regulatory reform, awareness and education of the public, and reducing emissions and improving efficiency.49

The Progress Report was presented to the COF in July 2013. The Canadian Energy Strategy was discussed again in 2014 in Charlottetown PEI, and officially approved at the July 2015 COF meeting in St. John’s Newfoundland and Labrador.50

2. Current Status

As described by the premiers in the Canadian Energy Strategy, the purpose of developing the Strategy is to “work together on energy issues and grow the economy, protect the environment, create new opportunities for individuals, organizations and businesses, and enhance the quality of life for all Canadians.”51 There is recognition at COF that Canada’s energy sector is one of the primary drivers of the Canadian economy, but also the expectation that it to be developed “responsibly and with a focus on environmental protection and performance, and addressing climate change.”52

The Canadian Energy Strategy addresses three themes: sustainability and conservation, technology and innovation, and delivering energy to people. The themes are divided into ten areas of focus, each of which had a working group team consisting of representatives from provinces and territories.53 There was also a stakeholder engagement workshop in Edmonton in June 2013 which included participants from industry associations, environmental non-government organizations, members of the academic community, policy institutes and think tanks, research organizations, and provinces and territories.54 The result is a strategy that defines common goals and actions to achieve meaningful progress in each area of focus, and that identifies energy-related initiatives for potential provincial and territorial collaboration.55

a. Carbon Emission and Greenhouse Gases

Four of the ten focus areas relate to reducing carbon emissions and greenhouse gases. They are: promoting energy efficiency and conservation, transitioning to a lower carbon economy, developing energy research and technology, and enhancing energy information and awareness.

Promote energy efficiency and conservation

This area of focus has been part of the Canadian Energy Strategy discussion since the 2007 Shared Vision. Improving energy efficiency and conservation is an important part of ensuring the country’s energy demands can be met. Furthermore, increasing efficiency “decreases greenhouse gas emissions and pollutants, mitigates consumer vulnerability to price increases and supply disruptions and creates employment.”56 The Canadian Energy Strategy notes that Canada’s total energy consumption continues to grow, and that even minor efficiency improvements can generate significant reductions of greenhouse gases. The strategy encourages consumers to make energy efficient choices and accelerate the adoption of products and technologies that support energy efficiency and conservation.57

Transition to a lower carbon economy

The provinces through the COF identified a need to develop more renewable sources of energy in the 2007 Shared Vision. This has carried forward into the Canadian Energy Strategy, which aims to transition to a lower carbon economy by doing three things.58 The first is to develop complementary carbon management mechanisms across Canada, such as efforts on measuring and reducing emissions. These will likely vary depending on the needs of the jurisdiction but could include carbon capture and storage technologies and the review of emissions reporting requirements.59 The second is to create and review policies that encourage the marketplace to reduce or eliminate emissions to increase the efficiency and effectiveness of these programs such as a carbon tax or a cap and trade system.60 The third is collaborating on the development of an integrated pan-Canadian approach to greenhouse gas reductions with “targets based on sound science.”61

The role of the federal government remains critical, albeit to date limited. A 2013 “40/40 plan” – reducing emissions by 40 per cent per barrel of oil and charging companies exceeding emission limits a $40/tonne penalty – receded quickly. On May 15, 2015 Environment Minister Aglukkaq announced a reduction on Canada’s GHG emissions to 70 per cent of the 2005 Canada-wide levels by the year 2030 – without placing regulations on the oil sands. At the time of writing, the results of the 2015 federal election and the approaches of each of the parties to climate change were uncertain.

Develop energy research and technology

The desirability of promoting technological development in the energy sector has also been a focus of the provinces since the 2007 Shared Vision. With current low oil prices, technological advances become highly critical for improving extraction efficiency and keeping projects economically viable. Technological advances are also important for commercializing new energy resources as well as reducing the environmental impacts of conventional resources, and expanding the use of cleaner sources of energy.62

Fostering greater innovation and technological development is important for enhancing the energy sector’s environmental performance and Canada’s global economic competitiveness. The Canadian Energy Strategy provides that focus should be on technologies that support safe and sustainable energy production, conversion, storage, transmission, distribution and consumption and that are resilient to climate change.63 There should also be an emphasis on collaboration across provincial jurisdictions to share best practices related to the demonstration and implementation of technologies.

Enhance energy information and awareness

Improving access to information, and promoting energy awareness and education for Canadians was a focus included in the 2013 Progress Report to the COF.64 The benefits of promoting energy literacy involve allowing individuals and industry to make more informed energy-related choices to increase energy saving and conservation from the consumer level,65 as well as potentially increasing the social acceptability of the energy industry in Canada.

b. Energy Infrastructure

The focus areas related to the development of energy infrastructure are: the need to meet energy sector human resource requirements, develop and enhance Canada’s energy transmission and transportation networks, improve and coordinate provincial regulatory systems, especially for interjurisdictional projects, and the need to promote market diversification away from the United States.

Develop and implement strategies to meet energy sector human resource needs

Meeting demand for a skilled and available workforce has been an area of focus since the 2007 Shared Vision. A range of skilled professionals and tradespeople are required to support Canada’s energy industry, and shortages of skilled labour and human resource issues have been a problem in many sectors.66 The Canadian Energy Strategy confirmed that is important to develop strategies to increase skill development, job training, and apprenticeship programs.67 This is a factor related to other policy questions, for example, when deciding whether Alberta should increase the amount of refining done in province. Of course, given the current economics, if oil prices do not recover, this could address some of the current employment and skills issues.

Develop and enhance a modern, reliable, environmentally safe, and efficient series of transmission and transportation networks

The Canadian Energy Strategy focused on the importance for provinces and territories to collaborate in the facilitation of efficient and safe movement of energy products between jurisdictions.68 This featured prominently in the 2007 Shared Vision as well as the 2013 Progress Report. As Northern Gateway, Line 9 and other projects indicate, this is an important area because energy transmission and transportation infrastructure often cross jurisdictional borders, which necessarily requires provincial cooperation. The main areas identified as needing improvement are electricity transmission capability between jurisdictions, as well as the construction of West-East oil pipelines.69 The goal is to sustain and improve transmission and transportation infrastructure for energy resources. This involves not only building new infrastructure, but also investing to maintain existing infrastructure to ensure its reliability, safety and security.70

Improve the timeliness and certainty of regulatory approval decision-making

One of the necessary results of provincial jurisdiction over natural resources is the development of a unique regulatory system in each province and territory. Regulation ensures the protection of the environment and public interest, but also has the potential to cause delays and inefficiencies in the context of interjurisdictional projects that must seek approval from several regulatory agencies.

Problems with duplication and overlap of regulatory functions were identified in the 2007 Shared Vision, and carried through to the Canadian Energy Strategy.71 Streamlining regulation could help in the development of energy infrastructure by speeding up the process and therefore reducing costs. At the federal level, the need for streamlining regulatory processes for energy projects was addressed in Ottawa’s Responsible Resource Development Plan, announced as part of Economic Action Plan 2012, and is the policy basis for recent federal regulatory energy reforms. These commenced in 2012 with amendments to the National Energy Board Act.72 The status of those amendments may be subject to change after the 2015 federal election, with the federal NDP, for example, committed to removing them.

Promote Market Diversification

The Canadian Energy Strategy recognizes the need for Canada to focus on market diversification. This area of focus was not part of the 2007 Shared Vision, but featured prominently in the 2013 Progress Report. The Progress Report recognized the United States as an important export market. It also highlights the need for Canada to compete in new and emerging markets on a world scale, for all energy products including liquefied natural gas, clean energy and emission-mitigation technologies, environmental performance technologies and energy services.73

Market diversification will require an “interconnected energy transmission and transportation infrastructure” in order to move energy products. Furthermore, “[d]iversifying provincial and territorial energy products will require continued innovation, support for value-added processing, and the enhancement of public trust and confidence in energy development.”74 This suggests that the provinces – at least in the context of the Canadian Energy Strategy – are in agreement that more refining and upgrading should be done in Canada as opposed to the United States.

c. Renewables Policy

Facilitate the development of renewable, green and/or cleaner energy sources to meet future demand and contribute to environmental goals and priorities

The Canadian Energy Strategy specifically recognizes the promotion and development of renewable energy as a necessary area of focus for Canada. Shifting production and consumption to renewable and greener energy sources has been a focus since the 2007 Shared Vision. This was originally driven by increasing fossil fuel prices, and the concern – reflecting, of course the energy economics in 2007 rather than today – that eventually oil and gas would become too expensive for consumer use.75

The push towards clean energy sources still has traction even with low oil prices because of concerns regarding the environmental impact of the fossil fuel industry. The Canadian Energy Strategy supports the efficient deployment of clean and renewable energy sources across Canada, especially in off-grid areas that are currently dependent on diesel. The intended effect is to reduce environmental impact, as well as diversify Canada’s energy sources to ensure the continuing security of energy.76

III. Analysis

1. National/Provincial Alignment

There are significant similarities between the Canadian Energy Strategy and Alberta’s energy policy reforms. Prior to the election of Premier Notley, the COF largely reflected a compromise between Alberta’s desire to facilitate the construction of interprovincial pipelines and Ontario and Quebec’s desire to develop a national climate change policy.77 Alberta’s policies are now more in line with many of the areas of national and interprovincial focus set out in the Canadian Energy Strategy, such as investing in technology and innovation, energy efficiency and addressing climate change and the environment.

2. Public Opinion and the Viability of the Energy Industry

This convergence of Canada-wide energy policy and Alberta energy policy could ultimately be positive for the Alberta oil and gas industry. For many years, the oil and gas industry in Alberta has suffered from poor public opinion in the rest of Canada. For example, a national survey on energy literacy published in Alberta Oil magazine showed that for 57.3 per cent of Canadians the oil and gas sector brought to mind the words “wasteful” or “environmental disaster”.78 The figures were about the same in British Columbia (57.5 per cent), and much worse in Quebec (98.8 per cent). The number is slightly better in Alberta at 39 per cent.79 The practical consequences of the industry’s low public opinion are significant, and include everything from lawsuits from communities affected by individual extraction projects80 to the obstruction of essential pipeline projects such as the Northern Gateway pipeline,81 and even the province-wide moratorium on oil and gas extraction in Quebec.82

With oil prices at record lows, the oil and gas industry will not likely have the resources to continue fighting the public opinion battle, either by continuing its various ad campaigns,83 or being able to support the expensive delays associated with opposition to projects. However, the Premier has the potential to change Canadian’s minds about the oil and gas industry. The problem is, in working to gain the trust of individuals and organizations who are against the oil and gas industry, Premier Notley risks losing (or never gaining) the confidence of the industry itself. This is more than understandable. Many oil and gas companies are bankrupt or on the verge of bankruptcy84 and probably will not recover if the price of oil does not increase soon.

Alberta’s NDP government is therefore in a challenging position. They were elected on, among other things, a pro-environment mandate. Not acting now will undermine Premier Notley’s credibility and jeopardize her ability to gain public trust for the oil and gas industry. However, every measure she takes that introduces uncertainty, or higher payment obligations on industry will be seen at worst as sabotaging the oil and gas industry, and at best as “the straw that broke the camel’s back.”

3. Practical Industry Impacts

Alberta’s oil and gas industry is fragile at the moment, and there are predictions that low oil prices may be long-term because of new technologies that reduce the price of extraction, resulting in even more supply,85 as well as the potential effects of potentially lifting the economic sanctions on Iran.86 Further, world demand for cleaner energy especially in developed countries, and policies such as California’s Low-Carbon Fuel Standard are increasingly putting emissions-intensive energy sources at a disadvantage.87

The industry is also dealing with obstacles imposed by the low public opinion of the oil and gas industry.88 This is particularly debilitating for an economy dependent on exporting oil and gas. Canadian oil is currently exported to the already saturated United States market at subsidized rates, creating what has been referred to as the “bitumen bubble.”89 Alberta needs to connect its oil and gas network to new markets, which requires Alberta to develop a reputation both nationally and internationally as a responsible and environmentally-friendly producer of energy resources.

The complexion of the next federal government at the time of writing had not yet been determined. Irrespective of which party is in power nationally, provinces’ co-ordination on energy issues generally, and climate change in particular, must acknowledge Ottawa’s role. Pursuant to the division of powers provisions in the Constitution Act, 186790, this is an initiative that is at least partly under federal jurisdiction.

Section 92A of the Constitution Act, 1867 provides that Parliament has the authority to make laws that will prevail over conflicting provincial laws in relation to the export of the primary production from non-renewable natural resources from a province.91 Furthermore, Parliament has jurisdiction over railways, canals and other works and undertakings, which include interprovincial and international pipelines, as well as any works that are to be for the general advantage of Canada or for the advantage of two or more of the Provinces.92 A weakness of the Canadian Energy Strategy, a cornerstone of previous interprovincial engagement on GHG and pipeline policy, is that it largely ignored the federal government.

From royalties to refineries, the Notley government is poised to substantially impact energy and environmental policy in Alberta and beyond its borders. A refreshed national engagement on climate change, potentially facilitated through the Canadian Energy Strategy and a significant, but not overbearing, federal role need not be a threat to the Alberta economy. A stable framework for GHG emissions – which many in the oil and gas industry themselves have asked for – may provide necessary clarity for investment and growth. It may also facilitate something more elusive, the social acceptance to develop energy infrastructure necessary for Canada to remain an international economic leader, rather than simply an energy superpower in waiting.

 

* Alan L. Ross, formerly Alberta’s Provincial Representative to Ottawa, is a partner with Borden Ladner Gervais LLP.

** Lorelle Binnion, Student at Law, Borden Ladner Gervais, LLP.

  1. Kyle Bakx, “Alberta oil industry wary of NDP government”, CBC News (30 May 2015) online: CBC News <http://www.cbc.ca>; Claudia Cattaneo, “Alberta premier Rachel Notley didn’t start the oil shock crisis, but she’s making it worse”, Financial Post (16 June 2015) online: Financial Post <http://www.financialpost.com>.
  2. The Council of the Federation, Canadian Energy Strategy, July 2015 at 11 [Canadian Energy Strategy].
  3. “Advisory panel: Climate leadership discussions” Alberta Government, online: Alberta Government <http://alberta.ca/climate-leadership.cfm>; “Alberta’s Royalty Review Panel 2015”, Alberta Government, online: Alberta Government <http://www.albertaroyaltyreview.ca>.
  4. Jodie Sinnema, “Confused about Alberta’s two new review panels for climate change and royalties? Here are some facts”, Edmonton Journal (18 September 2015) online: Edmonton Journal <http://edmontonjournal.com/news/politics/confused-about-albertas-two-new-review-panels-for-climate-change-and-royalties-here-are-some-facts> [New Review Panels for Climate Change and Royalties].
  5. “Notley promotes value-added, fair resource royalties”, online: Alberta NDP <http://www.albertandp.ca /notley_promotes_value_added_fair_resource_royaltiesold>.
  6. New Review Panels for Climate Change and Royalties, supra note 4.
  7. Ibid.
  8. See e.g. “Alberta Royalty Framework Oil Calculator”, online: Alberta Energy <http://www.energy.alberta.ca/Oil/2344.asp>.
  9. Dan Healing, “Royalty review chair vows to consider C.D. Howe’s simplification plan”, Calgary Herald (23 September 2015) online: Calgary Herald <http://www.calgaryherald.com /business/energy/royalty-review-chair-vows-to-consider-c-d-howes-simplification-plan>.
  10. Ibid.
  11. Matt Dykstra, “‘Folks need to settle down’: Alberta Premier Notley”, Edmonton Sun (20 September 2015) online: Edmonton Sun <http://www.edmontonsun.com/2015/09/18/folks-need-to-settle-down-alberta-premier-notley>.
  12. “Rachel Notley wants to see at least 1 ‘drama-free’ pipeline project”, The Canadian Press (24 September 2015), online: CBC news <http://www.cbc.ca/news/canada/calgary/rachel-notley-pipeline-support-1.3243106>.
  13. Alberta NDP, News Release, “Reality Check: Rachel Notley and Pipelines” (25 April 2015) online: Alberta NDP <http://www.albertandp.ca/realitycheck_rachel_notley_and_pipelines>; Brent Patterson, “Notley government backs Energy East and Trans Mountain pipelines”, National Observer (29 June 2015) online National Observer: <http://www.nationalobserver.com/2015/06/29/opinion/notley-government-backs-energy-east-and-trans-mountain-pipelines>.
  14. Emma Gilchrist, “Five Public Opinion Headaches For Alberta Oil Execs” The Tyee (7 February 2015) online: The Tyee <http://thetyee.ca/Opinion/2015/02/07/Five_Public_Opinion_Headaches_Alberta_Oil_Execs/> [Public Opinion Headaches].
  15. Jodie Sinnema, “Rachel Notley confident Quebec premier will support Energy East pipeline”, Edmonton Journal (13 July 2015) online: Edmonton Journal <http://www.edmontonjournal.com>.
  16. Jodie Sinnema, “Rachel Notley confident Quebec premier will support Energy East pipeline”, Edmonton Journal (13 July 2015) online: Edmonton Journal <http://www.edmontonjournal.com/Rachel+Notley+confident+Quebec+premier+will+support+Energy+East+pipeline/11213255/story.html>.
  17. Alberta NDP, News Release “Rachel Notley makes upgrading and refining jobs a top priority for NDP” (10 April 2015) online: Alberta NDP <http://www.albertandp.ca/rachel_notley_makes_upgrading_and_refining_jobs_a_top_priority_for_ndp>.
  18. “Alberta’s Refining Plans Panned as ‘Dream’ by Oil Executives”, Bloomberg (1 June 2015) online: <http://www.bloomberg.com/news/articles/2015-06-01/alberta-s-refining-plans-panned-as-dream-by-energy-executives>.
  19. Brent Jang, “Alberta’s oil patch faces a refining moment – and B.C. wants in too”, The Globe and Mail (14 August 2015) online: The Globe and Mail <http://www.theglobeandmail.com/news/alberta/oil-patch-faces-a-refining-moment/article25965077/>.
  20. “Upgraders and Refineries: Facts and Stats”, (September 2015), online: Alberta Government <http://www.energy.gov.ab.ca/Oil/pdfs/FSRefiningUpgrading.pdf>.
  21. Konrad Yakbuski, “Will Notley refine Alberta’s oil royalty regime or her election promises?”, The Globe and Mail (8 May 2015) online: The Globe and Mail <http://www.theglobeandmail.com/report-on-business/rob-commentary/will-rachel-notley-refine-albertas-oil-royalty-regime-or-her-election-promises/article24318228/>.
  22. Brent Jang, “Alberta’s oil patch faces a refining moment – and B.C. wants in too”, The Globe and Mail (14 August 2015) online: The Globe and Mail <http://www.theglobeandmail.com/news/alberta/oil-patch-faces-a-refining-moment/article25965077/>.
  23. New Review Panels for Climate Change and Royalties, supra note 4.
  24. Specified Gas Emitters Regulation, Alta Reg 139/2007.
  25. “Alberta: An Emissions Trading Case Study”, Environmental Defense Fund & International Emissions Trading Association (April 2015) at page 4 online: <https://ieta.memberclicks.net/assets/CaseStudy2015/alberta_case_study-may2015.pdf.>
  26. Review Panels for Climate Change and Royalties, supra note 4.
  27. Graham Thomson, “Thomson: Rachel Notley hopes to turn Alberta into an environmental good guy”, Edmonton Journal (5 July 2015) online: Edmonton Journal <http://www.edmontonjournal.com/opinion/thomson+rachel+notley+hopes+turn+alberta+into+environmental+good/11192808/story.html>; see also Nigel Bankes, “Province of Alberta Announces a Two-step Process for Developing a New Climate Change Policy” ABlawg (26 June 2015) online: ABlawg <http://ablawg.ca/2015/06/26/province-of-alberta-announces-a-two-step-process-for-developing-a-new-climate-change-policy/>.
  28. Alberta, Minister of Environment and Parks, Climate leadership Discussion Document (Edmonton, Minister of Environment and Parks, August 2015) [Discussion Document].
  29. Ibid at 8.
  30. Ibid at 9.
  31. See e.g. Kenneth P Green, “How the Alberta government is trying to downgrade the oilsands”, Financial Post (18 August 2015) online: Financial Post <http://business.financialpost.com/fp-comment/how-the-alberta-government-is-trying-to-downgrade-the-oil-sands>.
  32. “How the Carbon Tax Works”, British Columbia, online Ministry of Finance: <http://www.fin.gov.bc.ca/tbs/tp/climate/A4.htm>.
  33. Alan L Ross, “Alberta NDP’s Energy Initiatives Carry Risk and Opportunity”, The Globe and Mail (13 July 2015) online: The Globe and Mail <http://www.theglobeandmail.com/report-on-business/rob-commentary/ndps-energy-initiatives-carry-risk-and-opportunity/article25484770/>.
  34. In addition, and new policy aside, the end of certain coal-fired Power Purchase Agreements in Alberta by 2020, may accomplish significant de-carbonization in the province.
  35. Graham Thomson, “Graham Thomson: Just who is the “Embarrassing Cousin”, Edmonton Journal (17 September 2015) online: Edmonton Journal <http://edmontonjournal.com/news/politics/graham-thomson-just-who-is-the-embarrassing-cousin>.
  36. Tracy Johnson, “Is it the end of coal?” CBC News (17 September 2015) online: CBC News <http://www.cbc.ca/news/business/is-it-the-end-of-coal-1.3230685>.
  37. James Glave & Ben Thibault, “Power to Change: How Alberta can green its grid and embrace clean energy”, Pembina Institute, Clean Energy Canada, May 2014 at 4 [Power to Change].
  38. Ibid at 16.
  39. Ibid at 9.
  40. The Council of the Federation, A Shared Energy Vision for Canada, (August 2007) [A Shared Energy Vision for Canada].
  41. Ibid at 2.
  42. Ibid.
  43. “Action Plan – Collaborative Approach to Energy”, Canadian Intergovernmental Conference Secretariat (Kanaskis, AB, 2011) online: CICS <http://www.scics.gc.ca/english/conferences.asp?a=viewdocument&id=1619> [Action Plan 2011].
  44. Ibid.
  45. The Council of the Federation, Canadian Energy Strategy Working Group, Canadian Energy Strategy: Progress Report to the Council of the Federation, (July 2013) at 3-4 [Progress Report 2013].
  46. Adrian Morrow, “What you need to know about the Canadian Energy Strategy”, The Globe and Mail (16 July 2015) online: The Globe and Mail <http://www.theglobeandmail.com/news/national/what-you-need-to-know-about-the-canadian-energy-strategy/article25522964/> [What you need to know about the Canadian Energy Strategy].
  47. Progress Report 2013 at 7.
  48. Ibid at 8-13.
  49. Ibid at 14-17.
  50. The Council of the Federation, Canadian Energy Strategy, (July 2015) at 10 [Canadian Energy Strategy].
  51. Ibid at 11.
  52. Ibid at 3.
  53. Ibid at 10.
  54. Ibid at 10.
  55. Ibid at 13.
  56. A Shared Energy Vision for Canada¸supra note 40 at 4.
  57. Canadian Energy Strategy, supra note 50 at 14.
  58. Ibid at 17.
  59. Ibid at 16-17.
  60. Ibid at 16.
  61. Ibid at 17.
  62. A Shared Energy Vision for Canada, supra note 40 at 5.
  63. Canadian Energy Strategy, supra note 50 at 21.
  64. Progress Report 2013, supra note 45 at 17.
  65. Canadian Energy Strategy, supra note 50 at 18.
  66. A Shared Energy Vision for Canada, supra note 40 at 7.
  67. Canadian Energy Strategy, supra note 50 at 22.
  68. Ibid at 26-27.
  69. Progress Report 2013, supra note 45 at 14.
  70. Canadian Energy Strategy, supra note 50 at 26.
  71. Ibid at 29; A Shared Vision for Canada, supra note 40 at 7-10.
  72. National Energy Board Act, RSC 1985, c N-7, as amended 6 July 2012.
  73. Progress Report 2013, supra note 45 at 15.
  74. Canadian Energy Strategy, supra note 50 at 30.
  75. A Shared Energy Vision for Canada, supra note 40 at 5.
  76. Canadian Energy Strategy, supra note 50 at 25.
  77. What you need to know about the Canadian Energy Strategy, supra note 46.
  78. Public Opinion Headaches, supra note 14.
  79. Ibid.
  80. “Alberta Oilsands facing aboriginal legal onslaught in 2014”, The Canadian Press (2 January 2014) online: CBC News <http://www.cbc.ca/news/politics/alberta-oilsands-facing-aboriginal-legal-onslaught-in-2014-1.2481825>.
  81. Tracy Johnson, “Is Northern Gateway quietly being shelved?”, CBC News (20 February 2015) online: CBC News <http://www.cbc.ca/news/business/is-northern-gateway-quietly-being-shelved-1.2965355>.
  82. “Quebec Premier Philippe Couillard says no to shale gas”, CBC News (16 December 2014) online: CBC News <http://www.cbc.ca/news/canada/montreal/quebec-premier-philippe-couillard-says-no-to-shale-gas-1.2874976>.
  83. Susan Krashinsky, “Oil companies seek to rebrand with friendly campaigns”, The Globe and Mail (17 July 2015) online: The Globe and Mail <http://www.theglobeandmail.com/report-on-business/industry-news/marketing/oil-companies-seek-to-rebrand-with-friendly-campaigns/article25541810/>.
  84. Rakteem Katakey & Luca Casiraghi, “Energy industry bankruptcies could rise as $500B of oilpatch debt comes due” Calgary Herald (27 August 2015) online: Calgary Herald <http://calgaryherald.com/business/energy/energy-industry-bankruptcies-could-rise-as-550b-of-oilpatch-debt-comes-due>.
  85. Chris Sorensen, “Awash in oil: Why the glut isn’t going anywhere”, Maclean’s (2 September 2015) online: Maclean’s <http://www.macleans.ca/economy/economicanalysis/awash-in-oil-why-the-glut-isnt-going-anywhere/>.
  86. .3 Ajrun Kharpal, “Iran nuclear deal: This is what it means for oil”, CNBC (14 July 2015) online: CNBC <http://www.cnbc.com>.
  87. Climate Change Advisory Panel, Climate Leadership Discussion Document, available online: <http://alberta.ca/climate-leadership.cfm at 13 [Climate Leadership Discussion Document].
  88. Gillian Steward, “Climate concerns present growing obstacle to oilsands development”, The Star (4 September 2015) online: The Star <http://www.thestar.com>.
  89. Kyle Bakx, “Oilpatch could lose $100B without new pipelines, researchers warn”, CBC News (22 June 2015) online: CBC News <http://www.cbc.ca>.
  90. Constitution Act, 1867 (UK), 30 & 31 Vict, c 3, reprinted in RSC 1985, App II, No 5.
  91. Ibid, s 92A.
  92. Ibid, s 92.

 

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