NEB ‘modernization’ turning into muddled mess. Will someone please restore order?

GHG emissions is a policy issue that doesn’t belong in an NEB pipeline review, according to Alberta energy minister

Alberta Energy Minister Marg McCuaig-Boyd had harsh words Thursday for a decision by the National Energy Board to include upstream and downstream GHG emissions in its review of the Energy East pipeline project. She echoed criticisms from industry, which is becoming increasingly frustrated by the federal Liberal government’s ham handed “modernization” of the Canadian regulator.

“…the NEB will consider upstream and downstream greenhouse gas emissions (GHGs) in determining whether these projects are in the public interest. The NEB also wants to examine the potential market impacts of GHGs reduction targets embedded in laws and policies on the economic viability of the projects,” the regulator announced in a release.

Industry associations were quick to condemn the move, while environmental groups were just as quick to praise it. Thus far, entirely predictable.

Then McCuaig-Boyd weighed in.

“The scope of the assessment released today is wide reaching and we continue to review it, however, based on our initial analysis, we believe this would be a historic overreach and have concerns about what this means for energy development across Canada,” she said in a statement that smacked of the epic political and legal battles regularly fought between American states and Washington over “federal overreach.”

Keep in mind that Prime Minister Justin Trudeau and Alberta Premier Rachel Notley have been joined at the hip when it comes to pipelines and climate policies.

When Trudeau approved Kinder Morgan’s Trans Mountain Expansion project to the West Coast and Enbridge’s Line 3 replacement in Ontario last Nov., he said the approvals would not have been possible without the aggressive policies set out in Notley’s Climate Leadership Plan.

And the Prime Minister has said over and over again that Canada needs pipelines and wind turbines as the national economy transitions over many decades from fossil fuels to cleaner energy.

So, why blindside Alberta and industry?

As McCuaig-Boyd pointed out, “[d]eciding the merits of a pipeline on downstream emissions is like judging transmission lines based on how its electricity will be used.”

Indeed.

Neither the Alberta government nor provincial producers have any say about what happens to the crude oil when it hits refineries.

For instance, California requires refineries to hit a carbon-intensity target by blending light sweet crude with heavy crudes like those that are produced in the Alberta oil sands.

In the case of Energy East, a similar clean fuel standard would be the purview of the Canadian government, or Quebec and New Brunswick where the oil will be processed. Not Alberta.

Likewise, automobile fuel economy standards are the responsibility of the Canadian government, not Alberta.

Automakers have provided climate regulators with some good news lately. For instance, last week Mazda announced a breakthrough engine technology that enables a gasoline-powered engine to be function like a diesel engine, with thermodynamic efficiency as high as 45 or 50 per cent, compared to just 15 to 20 per cent for the gasoline counterpart. Higher efficiency means lower emissions.

But these issues have nothing to do with Alberta climate regulations, oil producers, or pipelines.

As the Alberta energy minister opined, “this is not an appropriate issue to include in the review.”

She wasn’t happy about reviewing upstream GHG emissions, either, but at least Alberta is on more solid ground here.

In 2018 the oil sands, which alone account for almost 10 per cent of Canadian GHG emissions, will be subject to provincial regulations comprised of a carbon levy, emissions cap of 100 megatonnes that will include penalties for laggards, and output-based allocations to incentivize innovation.

SAGD (steam-assisted gravity drainage) produces will substitute solvent for steam, which requires burning a lot of natural gas, and mines will adopt some version of the paraffinic froth treatment, which has already allowed Imperial Oil’s Kearl plant to achieve a carbon-intensity virtually equal to that of the average American crude oil.

Oil sands giants Suncor and Cenovus recently said in their sustainability reports that they intend to reduce the carbon-intensity of their crude oil between 30 and 33 per cent by 2030.

The oil sands emissions regulations were designed with industry and, as a bonus, promise to to reduce production costs by 34 to 40 per cent, according to a recent study by the Canadian Energy Research Institute.

This policy promises to be a big winner for industry and government. As McCuaig-Boyd says, “Alberta’s Climate Leadership Plan should satisfy concerns about upstream emissions.”

But what if it doesn’t?

And why include GHG emissions in the NEB review? Nick Schultz, VP, pipeline regulation and general counsel for the Canadian Association of Petroleum Producers, noted in yesterday’s interview that is already done by Environment and Climate Change Canada.

“The NEB is really duplicating something that’s already available to the government of Canada,” he said.

The Canadian Energy Pipeline Association put its finger on another problem with the NEB considering GHG emissions: “CEPA firmly believes that broad public policy issues, such as climate change, should be addressed at the political level, and not through pipeline project reviews.”

The expert panel struck to suggest ways to “modernize” the NEB said the same thing in its May report to the Canadian government.

The panel recommended a one-year process to listen to any Canadian who wants to weigh in, during which it would be determined if a pipeline project lined up with Canadian policies – including greehhouse gas emission reductions.

“It would not be a loose bunch of cabinet ministers or politicians out doing town halls. The process would be evidence-based but strategic, focused on assessing a project at a strategic level against well-understood policy objectives,” panel member and former CEPA head Brenda Kenny told me in an interview.

“Natural Resources Minister Jim Carr, through the cabinet, would call on the government to make that national interest determination at the end of year one.”

In other words, keep the policy discussion and debate out of the pipeline review process.

Why, then, did the NEB decide to insert a policy issue – GHG emissions impact – into the Energy East review?

And before the Trudeau Government has even had a chance to publicly respond to the panel’s recommendations!

The Liberals promised change to pipeline reviews that would allow indigenous peoples, eco-activists, and concerned members of the public appropriate input into policy and the review, while tightening up and streamlining the process as requested by industry.

Instead, the so-called modernization is unravelling. Someone in Ottawa needs to take the reins and impose some semblance of order on this mess.

McCuaig-Boyd gets it right: “We believe in a strong, sound, objective review process, as it’s important to improve the process and restore some public trust – but we believe many of these issues listed today are best addressed in other ways and should not be part of this process.”