BUSINESS

Oilpatch Not Terribly Anxious About Paris Agreement

12/15/2015 08:48 EST | Updated 12/15/2016 05:12 EST
There was no tearing of hair or gnashing of teeth in the energy sector on Monday as details of the Paris agreement were digested. Shares in energy companies were down on the TSX, but that was more closely connected to the sliding price of crude than concerns about climate change policy.

That's largely because the oilpatch got its dose of climate reality from the Alberta government last month in the form of a $30 a tonne carbon tax on greenhouse gas emissions that will come fully in effect in 2018.

Optimism in oilpatch

The official word from the Canadian Association of Petroleum Producers (CAPP) is that the industry will adjust through the use of technology.

Over the last 25 years, the greenhouse gases involved in producing a barrel of oil have decreased "pretty substantially," said Tim McMillan, the chief executive of CAPP.

"My expectation is that with the investments we're seeing today on the technology side that we'll be able to produce more energy with less greenhouse gases into the future."

That may seem like a comforting bedtime story for oilsands producers, but there is also optimism that if the rest of the world is forced to put a price on carbon the way Alberta is planning, it will level the playing field for the oilsands and other producers in the province.

"I think you could look at the oilsands and say this has been ground zero for the oil climate debate for many years," said Kevin Birn, director with IHS Energy in Calgary.

"Oilsands producers have faced the additional cost of carbon pricing for some time, something most of their global peers have not to date.  So as you move carbon policy forward globally, you may have those additional costs that are being borne by the oilsands start to be spread more globally."

Ambitious but voluntary

The climate agreement is ambitious, with a commitment to keep the rise in global temperatures "well below" 2 C compared to pre-industrial times. But it's essentially voluntary with each country left to formulate its own plan.

Canada has not set an emissions target, other than the commitment to cut them by 30 per cent from 2005 levels by 2030. Ottawa is expected to come up with a target after meeting with the provinces within 90 days. However, we already know what Alberta's plan will look like and there's little expectation that it will change.

"How this ramps up in other provinces will be something to watch," said Trevor Tombe, an economist with the University of Calgary. "But, if I were to guess, I'd say Alberta is already now so far out in front, that our plan will be implemented as is."

The Saskatchewan question

As the federal government works with the provinces to come up with a target, there are questions about the role of Saskatchewan as a high per capita emitter of greenhouse gases.

The province has committed to generating 50 per cent of its power generation from renewable sources by 2030 through a large expansion of wind power, as well as other sources, such as hydro. But coal will still play a role in generating electricity after 2030.

Premier Brad Wall went to the talks in Paris, in part to promote the province's carbon capture and storage technology, but he has consistently struck a cautious tone on the question of a carbon tax, saying the cost to the economy cannot be ignored.

Tombe says Saskatchewan has "made noise about a tax on large emitters," and could "could easily make that a broader based tax along the lines of Alberta and B.C."

Opportunities for renewable energy

The biggest opportunity from the Paris agreement is in renewable power. David Vonesch, an engineering partner with Skyfire Energy, a solar power company said he is feeling optimistic.

"We've been watching very closely the Alberta and Saskatchewan governments, looking at incorporating more renewable solar and wind into their electrical system, it looks very positive for solar in Western Canada," said Vonesch.

Vonesh also thinks renewable power can enable more oil and gas production.

"We have an oil company here in Alberta, Imaginea, we did a solar electric system on one of their leases and they now have a solar powered pumpjack, so the oil and gas industry is gearing up for a transition in our electrical system."