Canada’s carbon conundrum

Canadian federal environment minister, Peter Kent, has been tasked with what may prove to be an impossible job, reducing Canada’s greenhouse gas emissions (GHG) by 17% from 2005 levels by 2020 without apparently using carbon tax or setting up a cap and trade emissions market. With those options all but gone because of government pledges not to do them Kent has to go sector by sector, an approach that media pundits have labelled cumbersome and the least efficient. Nevertheless, Kent is working on the biggest emitting sectors first and, after transportation and coal come the oil sands. “We started with the sectors that generate the most. The oil sands generate something like 6% to our national greenhouse-gas inventory. So we’re working to make the biggest changes in the largest-emitting sectors first,” Kent told reporters earlier in the year.

Regulating the oil sands is not going to be easy, especially with the provincial government of Alberta being ready to fight changes that affect its control over what it regards as its resource. Federal regulations have been long in promises but have to-date never quite seemed to arrive as the federal conservatives must take on companies in regions that are at the bedrock of the party’s support. Kent has recently announced a, “integrated, world-class monitoring plan for the oil sands region,” which is said to follow the recommendation of an independent Oil Sands Advisory Panel. Whether this monitoring initiative or schemes like it will actually delay getting oil sands emissions on the regulatory books in 2011 remains to be seen.

Enter CCS

Meanwhile, the Alberta government is moving ahead with a carbon capture and storage (CCS) initiative that it first announced in 2008 with its Climate Change Strategy, which the province reckoned would take 200Mt of GHG out of the Alberta atmosphere by 2050 and provide 70% of Alberta’s GHG savings.

The jury is still out on whether the relatively newly-developed technology of CCS is a cost effective solution. However, the evaluation of projects in Alberta may shed a light as to what can be done, how good it is and how the costs stack up against the benefits. In June 2011, Royal Dutch Shell (LSE:RDSA) said that it had signed agreements with the federal Canadian government and the Alberta provincial government to secure CAD865m for its Quest CCS project. Shell said that Quest will capture and store, deep underground, over 1Mt of CO2 every year from the company’s Scotford upgrader near Edmonton, Alberta, which processes heavy oil from the oil sands. “Quest would be the first application of CCS technology for an oil sands upgrading operation,” said John Abbott, Shell’s executive vice president of heavy oil. “Not only would it allow us to significantly reduce the carbon footprint of our oil sands operation here in Alberta, but it will contribute to the global knowledge that will help to get other CCS projects up and running more quickly.”

Regulatory applications for the Quest Project were submitted in November 2010 and the signing of the funding agreements represents another important milestone prior to Shell taking a financial investment decision in 2012, subject to the outcome of the regulatory process and economic feasibility.

With CO2 injection planned for 2015, the Quest Project would join a handful of CCS projects around the world that are injecting CO2 at a commercial scale. Shell says that it is working with governments and other experts globally on both political and technical levels to facilitate the development and wide-scale deployment of CCS and is also involved in progressing a number of projects around the world, across a wide range of sectors.

The Quest project is not quite a done deal however. Regulatory applications were filed in November 2010 and the signing of the funding agreements represents another step forward but it is Shell that will still have to take a financial investment decision in 2012. “CCS is recognized as one of the most promising technologies to reduce greenhouse gas emissions from fossil fuels,” said Abbott. “To realise that potential, government support in this important demonstration phase is essential.”

Swan Hills CCS project

On 27 July 2011 the government of Alberta revealed that the final funding agreement had been signed for a CCS project to capture CO2 from a deep coal gasification process.
The in-situ coal gasification project will turn an unmineable coalbed near Swan Hills in Alberta into syngas underground, which will be used to generate electricity. At the same time, CO2 will also be collected and pumped down oil wells for enhanced oil recovery. “This project has tremendous potential to change the way we use our vast coal resources,” said Ron Liepert, Minister of Alberta Energy. “This innovative approach will decrease the environmental impact while generating a reliable energy supply.”

Again, it is government money that is helping the Swan Hills Synfuels project become a reality and the provincial government says that it has committed C$285m towards it; construction is set to start in 2013 with the carbon capture process expected to commence in 2015. “The support of the province is helping to make this major energy project a reality, upgrading a low-value resource into valuable clean energy in Alberta,” said Martin Lambert, CEO of Swan Hills Synfuels.

Need for private investment

Altogether, the Alberta government has stated it has a CAD2bn budget for investing in CCS projects. Although this seems to be a considerable sum of money the reality is that it is likely to cost much, much more than this for CCS to even keep pace with expanding oil sands emissions. Private enterprise is the key to push CCS along but it seems that companies are reluctant to invest on their own if they see no gain in doing so. There is also a difficult political line for governments to tread as taxpayers question why government money should be used to clean up an industry problem. Perhaps forthcoming federal Canadian emissions regulations will end uncertainty and establish some clarity and motivation for CCS to move forward.