Contributed by Robert Lyman © 2017

Robert Lyman is an Ottawa energy policy consultant and former public servant of 27 years; prior to that he was a diplomat for 10 years.

EXECUTIVE SUMMARY

Pursuant to a new federal government policy that it will assess and make public the direct and indirect (i.e. upstream and downstream) greenhouse gas (GHG) emissions of major energy projects under regulatory review, the National Energy Board and Environment and Climate Change Canada will conduct separate reviews of the Energy East pipeline project. This paper examines the logic of this approach.

 

Canada’s climate change policy framework includes a political commitment to lower Canada’s GHG emissions by 30% to 523 megatonnes by 2030. The framework is not a plan, nor does it address the questions of how choices will be made among a wide range of emission reduction measures.

 

The rationale behind the current approach is flawed. For example:

 

  • It is unclear why the public reviews will apply only to energy projects when many other new projects in other sectors of the economy are emissions intensive.
  • It implies that pipelines are somehow responsible not only for the emissions associated with their construction and operation, but also those of the producers that supply the product to be transported and of the consumers that use the product.
  • It implies that the suppliers of the transported product have no alternatives by which they could move their goods and that the consumers of the products have no alternative sources of supply.
  • It implies that the regulation of the upstream portion of the energy lifecycle is subject to federal jurisdiction, whereas Section 92A of the Constitution grants this authority exclusively to the provincial governments.
  • The process imposes barriers to entry that implicitly discriminate against new projects, even when those might be more efficient and environmentally benign than current infrastructure.
  • It implies that a sectoral cap will be placed on energy, leaving the justification for and operation of such a cap unclear.
  • There is no established methodology for conducting such “wells-to-wheels” emissions reviews.

 

The greenhouse gas emissions associated with Canada’s new pipelines will constitute far less than one per cent of global GHG emissions in a world in which those emissions are growing rapidly due to economic trends in Asia. In the circumstances, the use of new and more onerous review processes for pipelines will simply add costs and delays, potentially placing major investments at risk, with no compensating environmental benefits.

 

ASSESSING THE GREENHOUSE GAS EMISSIONS OF PIPELINE PROJECTS

Introduction

On January 27 2016, the Government of Canada announced five interim principles that will guide its decision making on major natural resource projects, including oil and natural gas pipelines, offshore oil and gas and frontier oil and gas exploration and production projects, and nuclear power facilities. One of those principles is that the government will assess and make public the direct and upstream greenhouse gas emissions (GHGs) linked to projects under review.

 

In June, the National Energy Board and Environment and Climate Change Canada published a Memorandum of Understanding for the Establishment of a Public Engagement Process for the Assessment of Upstream Greenhouse Gas Emissions related to the Energy East Pipeline. Under the terms of the MOU, the NEB will conduct a public hearing to review and assess the project. The list of issues the NEB will consider in its public hearing include GHG emissions directly related to the project’s construction and operation. Environment and Climate Change Canada (ECCC) will assess the upstream emissions and produce a report with the results of its assessment.

 

On August 23 2017, the National Energy Board announced that the topics it will consider as part of its assessment of the Energy East and Eastern Mainline pipeline projects will include the associated upstream and downstream GHG emissions. Further, it stated that it would take these emissions into account in determining whether these projects are in the public interest. Finally, the NEB said that it “wants to examine the potential market impacts of GHGs reduction targets embedded in laws and policies on the economic viability of the projects.”

 

This paper will examine the logic behind the government’s decision to publicly review direct, upstream and downstream GHG emissions, the methodology to be followed and the uses to be made of the information found during the reviews.

 

The Canadian Climate Policy Context

In October 2016, the federal, provincial and territorial governments announced agreement on a Pan-Canadian Framework on Clean Growth and Climate Change. This document declared that, based on the analysis done by the United Nations, taking action to address climate change was both “critical and urgent”. It did not validate this statement with any evidence, but rather asserted that the scientific debate on this issue is now “settled”.  By implication, no further discussion is wanted or warranted.

 

In their announcement, the governments referred to the COP21 Agreement under which Canada and other countries had agreed politically to take collective action to reduce GHG emissions. They stated that the Pan-Canadian Framework was based on four pillars: pricing carbon “pollution”; complementary measures (i.e. direct action in the form of regulation, subsidies and information programs) to further reduce emissions; measures to adapt to climate change; and actions to accelerate innovation and technology. The Framework document outlined an emissions trajectory, or “pathway”, to the target previously set by the federal government of lowering Canada’s GHG emissions by 30% to 523 megatonnes (Mt) per year by 2030. All the measures mentioned fall under one of the pillars.

Nowhere is it stated that the 2030 target is an absolute, immutable limit, and that all measures necessary would be taken to achieve it, regardless of cost. Indeed, the Pan-Canadian Framework does not acknowledge that there will be any costs entailed in major emissions reductions.

 

The framework, in fact, is a political document stating the aspirations of the various governments, not a plan that clarifies the comparative roles of different emissions reduction approaches or the contributions each is expected to make to the 2030 target. The framework similarly does not explain how choices will be made among a large number of emissions reduction and avoidance measures. For example, what emphasis will be placed upon analysis of the costs and benefits of alternative approaches? Will cost effectiveness be considered? Will the government establish and continually update a social cost of carbon to be integrated into the cost/benefit analysis of different measures? Will there be any other consistent standards against which such measures are assessed before adoption? The absence of such policy and program standards leaves Canada open to a policy approach in which any and all measures are justified simply because climate change considerations are considered pre-eminent.

 

The Science is Not Settled

The central “global warming” thesis is that GHG emissions produced by humans are the main cause of the slight rise in global temperatures observed over the period since the beginning of the industrial revolution, and that these emissions, unless drastically reduced within 33 years, will cause catastrophic damage to the earth’s ecosystems. It would be beyond the scope of this article to review the controversies that now rage about this thesis. An excellent summary of these controversies was produced following a January 2014 workshop of the American Physical Society (APS) and can be found here:

 

https://andymaypetrophysicist.com/a-summary-of-the-aps-workshop-on-climate-change/

 

In a previous article critiquing Ontario’s Cap and Trade program, I quoted at length Dr. Judith Curry, an American climatologist and former chair of the School of Earth and Atmospheric Sciences at the Georgia Institute of Technology. On March 29 2017 Dr. Curry made a statement to the U.S. House of Representative Committee on Science, Space and Technology. I will quote here only a small part of her statement:

 

“In the early 1990’s there was a belief in the feasibility of reducing uncertainties in climate science and climate models, and a consensus seeking approach was formalized by the IPCC. Global climate models were elevated to a central role through investigations of climate change impacts and applications. Very substantial investments have been made in further developing climate models, with the expectation that these models will provide actionable information for policy makers.

 

The hope, and the potential, of climate models for providing actionable information for policy makers have not been realized. With the failure of climate models to reduce uncertainty about the sensitivity of the climate system to CO2 and the failure to accurately simulate decadal and regional climate variability, we have arguably reached the point of diminishing returns from this particular path of climate modeling – not just for decision support but for scientific understanding of the climate system.

 

The climate community has worked for more than two decades to establish a scientific consensus on human-caused climate change, prematurely elevating a hypothesis to a ruling theory. The IPCC’s consensus-seeking process and its links to the UNFCCC emissions reduction policies have had the unintended consequences of hyper-politicizing the science and introducing bias into both the science and the related decision-making process. The result of this simplified framing of a wicked problem is that we lack the kinds of information to more broadly understand climate variability and societal vulnerabilities.”

 

The full text of Dr. Curry’s statement can be read here:

 

https://science.house.gov/sites/republicans.science.house.gov/files/documents/HHRG-115-SY-WState-JCurry-20170329.pdf

 

There is No Policy Rationale for Canada to Make Massive Emissions Reductions

In my previous article, I also reviewed the history of international negotiations under the auspices of the United Nations Framework Convention on Climate Change to reach an agreement on collective action.  The COP21 Conference in December 2015 produced a new agreement that is being treated by governments and the media as through it contains binding commitments. If one reads the actual provisions of the agreement, however, it is clear that this is not true. The agreement contains very few binding legal requirements, there are no formulas for determining what each country’s obligations are, and there are no penalties for non-compliance. Rather, it represents a best-efforts political commitment to keep the level of global GHG emissions below that which, in theory, might produce a two degree Celsius increase in average global temperatures. So, no one knows how much emissions would have to be reduced, and the countries did not agree on individual targets.

 

The Canadian policy framework states unequivocally, however, that Canada is intent on pursuing the (arbitrary) target of cutting emissions to 30% below 2005 levels to 521 Mt per year. Doing this during a period when the Canadian economy and population are growing will entail costly and disruptive changes to several sectors of the Canadian economy.

 

The consequences of such a sacrifice can best be understood in a global context. The most authoritative source of future projections of world energy supply, demand and emissions is probably the United States Energy Information Administration (EIA). In its 2016 International Energy Outlook, the EIA examined the likely trends in the world economy, including technological change, over the period to 2040. It concluded that, in fact, worldwide energy use will grow continuously over the next three decades, led by strong increases in Asia. Energy-related carbon dioxide emissions will grow from 32.3 gigatonnes (Gt) in 2012 to 43.2 Gt in 2040, a 34% increase. Ninety-one per cent of the emissions growth will take place outside of the countries of the Organization for Economic Cooperation and Development (OECD), again mainly in Asia. If Canada eliminated 80% of its emissions, the global total would only grow to 43.14 Gt.

 

The United Nations insists that, to avoid a serious risk of warming, global emissions will have to decline by at least 50% by 2050, to about 16 Gt. Global emissions, driven by the desire of many countries to enjoy the benefits of higher economic activity, are headed in precisely the opposite direction to that favoured by the U.N. Further, there is absolutely nothing that Canada, or even the entire OECD, can do about this, as almost all the emissions growth is occurring elsewhere.

 

The stark reality is that Canada’s emissions represent only 1.6% of global emissions and over 90% of the global emissions growth is taking place in the developing countries. Even eliminating Canada’s emissions entirely would not meet the U.N. emissions reduction goal. In these circumstances, a policy of imposing major emissions reductions at great costs can have little more than symbolic value.

 

The Questionable Rationale for Assessing Project Emissions

The announcement that the Government of Canada will assess the direct, upstream and downstream emissions of GHGs related to energy resources projects implies that the collection and publication of this information will be relevant to its decisions in some way. When one considers the subject to be assessed and the nature of the decisions to be made, however, the linkage between the two is unclear.

 

Indeed, the National Energy Board, in its decision on the Trans Mountain Expansion Project in 2016, specifically decided against acceding to requests that it include upstream and downstream effects in the list of issues it would consider. In its July 14 Ruling No. 25, the Board stated in part the following:

 

“The Project does not include upstream production and is not dependent on any particular upstream development; therefore, any link to environmental changes caused by any such upstream production is indirect and is not necessarily incidental to Board approval.

 

In addition, no particular upstream development is dependent on the Project.”

 

With respect to downstream use the Board said:

 

“The Project does not include downstream use and is not tied to, or dependent on, any particular use in any particular destination… The effects of end use are not directly linked or necessarily incidental to the Board’s regulatory process regarding the Project.

 

Downstream effects are more effectively assessed and regulated by the jurisdictions where the use occurs.”

 

The Board’s decision with respect to the Trans Mountain Expansion Project was accepted and approved by the federal Cabinet and the Board subsequently issued a certificate to the project. This certainly implies that the federal government accepted the validity of the Board’s decision on the scope of the pipeline project that properly fell under its purview. Yet, one year later, this position is being reversed.

 

The NEB and ECCC reviews will encompass newly proposed energy projects and most especially pipeline projects. One has to wonder why this scope of review was chosen. It is true that these projects will add marginally to Canada’s GHG emissions, but so too will every major new industrial project, particularly in emissions-intensive industries like mining and metals fabrication, petrochemicals, auto and parts manufacturing, steel, cement and other industries. Why develop an elaborate and public review only for energy projects?

 

The announced intent of the ECCC review is to assess “upstream” emissions, while the NEB will examine direct, upstream and downstream emissions. The inclusion and repetitive review of upstream emissions again demonstrates the unusual focus on the energy industry, where the term “upstream” is used to refer to the exploration, development and production of products to be transported. Other industries similarly have supply chains that precede transportation. If, for example, one were to consider the environmental implications of certifying an oil pipeline to include the production of the oil, would one not similarly review the construction of a rail line or a highway in terms of the production of the products that these would transport? A similar question arises as to the downstream environmental implications. If pipelines are to be reviewed in terms of the emissions that may be caused by the energy products consumers use, why should roads and railways not be also assessed in terms of the emissions associated with the goods they transport?

 

These questions illustrate, I hope, how artificial is the implied judgment that energy projects, and energy projects alone, should be subjected to a searching, high profile analysis of their direct, upstream and downstream emissions. Indeed, there are several flaws in the logic of this approach.

 

  • It implies that pipelines (for example) are somehow responsible for the oil and natural gas exploration, development and production of hydrocarbons that they transport, when they clearly are not.
  • It implies that, if the pipelines were not built, the upstream activities would not occur, and that this would be a beneficial thing. In fact, there are other ways to transport oil and natural gas to market, although they are admittedly more expensive.
  • It similarly implies that, if the pipelines were not built, consumers would not obtain fossil fuel energy supplies by other means, and the GHG emissions associated with fuel combustion would not occur, which is again clearly false.
  • It implies that the regulation of the upstream portion of the energy lifecycle is subject to federal government jurisdiction. Under Canada’s Constitution, the regulation of oil and gas production, including environmental regulation, clearly falls under the jurisdiction of the provinces where the production occurs. These provinces are, in law, the owners of the resource. In fact, Section 92A of the Constitution, approved in 1982 after decades of federal-provincial conflicts over resource policy, grants to provincial legislatures the exclusive authority to make laws in relation to the development, conservation and management of non-renewable natural resources in the province.
  • It implies that the upstream and transportation parts of the production/consumption lifecycle are what drive it, rather than producers’, transporters’ and refiners’ efforts to respond to consumers’ demand for fuel and energy services.

 

The questions of rationale extend to what, exactly, will be assessed. The focus, it appears, will be on emission increases, but from which (historical or future) baselines and within which geographic area? The current emissions may in fact be declining. A system that imposes higher barriers to the entry of new businesses in any sector implicitly discriminates against new entrants in favour of existing ones. That is not only unfair; it ignores the possibility that the new entrants might be more efficient, more environmentally benign, or more commercially viable than the existing businesses.

 

By which standard would the finding that a project will increase emissions give rise to a decision to deny a permit? The logic of the process seems to suggest that the government would apply a real or notional cap on emissions, not only to the entire Canadian economy, but also to each of the energy production sub-sectors and their related upstream and downstream connections.  This would entail a highly intrusive level of government controls and sector-specific accounting. Except perhaps in wartime, such controls are unprecedented. The actual or notional imposition of caps invites other questions. How will the allocations within the caps be decided within each industry and jurisdiction (e.g. will an increase in emissions in Newfoundland have to be offset in Newfoundland?)?

 

The NEB announced that it will “examine the potential market impact of GHG emissions reduction targets embedded in laws and policies on the economic viability of the projects.” This statement furthers the notion that a sectoral cap, focused on the energy industry, is contemplated. The statement reverses the historical logic of NEB regulation. In the past, it determined whether projects were safe, financially viable and economically justified by market conditions and therefore should be permitted by government; now, it proposes to ask first whether the government will allow free markets to work or will instead prohibit projects that serve the wishes of consumers. The NEB has lost the independence that justified its initial creation and served Canadians well for over sixty years. Instead, it appears that the current federal government has pressured it into becoming an agent of its climate change-inspired central planning.

 

If no sub-national caps are intended, another set of questions arises. For example, which actions would project proponents have to take to “compensate” for the increased emissions? Would such compensation be in the form of fines, obligations to achieve offsetting emissions reductions elsewhere, or some other form? Who will bear the costs of this compensation, the projects’ customers? If a compensation model is intended, why is this necessary given that the federal and provincial governments have already agreed to implement a pan-Canadian system of carbon pricing, allegedly to ensure that the costs of environmental externalities are reflected in investment and consumption decisions?

 

Problems of Methodology

The decision to prepare an assessment of the GHG emissions of a pipeline project further implies that there is an established and accepted methodology for doing so. In fact, this has rarely been done elsewhere. In the United States, the Department of State undertook a comprehensive review of the environmental impacts (“Supplementary Environmental Impact Statement”) of the Keystone XL pipeline as part of its process of advising former President Obama whether to issue a Presidential permit for the border crossing from Canada. It evaluated the potential effects of the proposed project on GHG emissions and climate change from the following “perspectives”

 

  • “The GHG emissions associated with the construction and operation of the project and its connected actions;
  • The potential increase in indirect lifecycle (wells-to-wheels) GHG emissions associated with the WCSB [Western Canada Sedimentary Basin) crude oil that would be transported by the proposed project;
  • How the GHG emissions associated with the proposed project cumulatively contribute to climate change; and
  • An assessment of the effects that future projected climate change could have in the proposed project area and on the proposed project.”

 

In its key findings, the Impact Statement explained its use of lifecycle assessment (LCA) as an analytical tool for evaluating the climate change implications of a project, largely on the grounds that it permits emissions from different sources and processes to be evaluated on the basis of a single metric – carbon dioxide equivalent GHG emissions of transportation fuel. It acknowledged, however, the limitations of this methodology:

 

“Applying LCA to petroleum systems is at the cutting-edge of the art. The complex lifecycle of fuels requires the consideration of a large number of analytical design issues… These include developing rules for how to handle co-products within the study system’s boundaries or to allocate the GHG emissions associated with production and use of these outputs outside the boundaries. The choice of functional unit, whether in terms of a barrel of crude, a barrel of refined premium fuel products (including or excluding co-products), or a barrel of a specific product such as gasoline or diesel, also influences the presentation of the results. Finally, the design life of the proposed project and the likelihood of substantial changes in emissions intensity over time makes the results sensitive to the study timeframe and any assumptions used to forecast future trends in technology, fuel use, global oil supply, and extraction methods. It is necessary to be aware of each LCA study’s treatment of these issues to understand the results and to make meaningful comparisons of the lifecycle GHGs from different crude sources.

 

In addition, information on a large number of individual inputs and assumptions is necessary to capture the relative lifecycle GHG emissions between fuels in sufficient detail. In many cases, key information and data sources are proprietary or not otherwise publicly available, which reduces the quality or transparency (and sometime both) of the final results. This can make it difficult to resolve discrepancies between different studies or to identify the underlying drivers behind variation in the results of WTW (wells-to-wheels) LCAs.”

 

It is notable that no such assessments were required for any oil pipeline internal to the United States and that President Obama ignored the findings of the environmental assessment in refusing to issue the permit for Keystone XL. Nonetheless, the methodology used in the State Department assessment offers one model of how this might be done, as well as some of the uncertainties and problems in doing so.

 

Conclusion

The GHG emissions from the entire Canadian oil and natural sector in 2015 were 189 Mt, or 26% of Canada’s total. It is unlikely that new pipelines, even including their upstream emissions, would add a fifth to that by 2030. As Canada represents 1.6% of global emissions, the mathematical calculation is simple. The new emissions that would potentially be subject to assessment constitute (26% x 20% x 1.6%) 0.083% of global GHG emissions. That is less than one one-thousandth of global emissions, in a world in which emissions are being driven inexorably higher every year as a result of economic development in the less developed countries and especially in Asia.

 

In this context, assessing the GHG emissions likely to result from new energy pipelines in Canada would have no impact on reducing global emissions or in affecting global temperatures, even if the scientific claims of future catastrophe were proven true. The initiation of a new and yet more onerous and time-consuming review process on Canadian pipeline project sponsors thus can have only one objective – to add more uncertainty and cost to the sponsors’ efforts to initiate their projects, in the expectation that they will eventually give up the effort and take their investment dollars elsewhere.

 

On September 7, 2017, TransCanada Corp. announced that it had asked the National Energy Board for a 30-day suspension of its review of the Energy East Pipeline, so that it could study the possible impacts of the Board’s decision to add further review of the project’s GHG emissions. TransCanada said that it needed time to conduct a careful review of how these changes will affect the cost, schedule and viability of Energy East and a related natural gas pipeline in southern Ontario. If the project is cancelled, this will be an early and strong signal as to the effect that the federal government approach will have on future energy development in Canada.

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