Alberta Premier Alison Redford has some explaining to do as she makes the rounds in Washington on Tuesday stumping for the Keystone XL pipeline.
Ms. Redford and her counterparts in the Harper government have put forward two key arguments in urging President Barack Obama to ignore oil sands critics and approve the project: Canada is a responsible resource producer and will be imposing new emissions regulations on the oil sands. And, oil sands development is inevitable, with or without KXL, so the pipeline itself won't increase greenhouse-gas emissions by driving bitumen production higher.
The second point is critical: Mr. Obama has said he would reject the pipeline if it significantly increased emissions, and the State Department initial assessment was that it would not, that producers will find other ways to get their product to market, with rail being a much-touted option. But critics question that conclusion, and the department had promised to revisit it in the final environmental assessment, which is expected to be released before the end of the year.
Now new questions are being raised about both those claims, as a result of documents obtained from Alberta under Access to Information legislation and released last week by Greenpeace Canada.
In the documents, Alberta officials send an analysis of proposals floated by the province, the federal government and the industry back to the Canadian Association of Petroleum Producers for comment. The most aggressive of the plans comes from Alberta, which would require oil sands producers to gradually reduce per-barrel emissions by 40 per cent, and pay a $40-per-tonne charge when they exceed their target. The expected cost to producers: between 82 cents and $1.12 per barrel.
In response, CAPP urges the two levels of government to delay implementing any significant new regulatory burden on the industry, and argues that a $1-per-barrel cost burden will drive away investment in the oil sands, leading to lower production. In the face of industry opposition, Ottawa and Alberta have delayed the long-promised release of draft regulations, and Ms. Redford's government has apparently backed off its 40/40 proposal.
Environmental groups in the United States have seized on the Greenpeace documents to attack Canada's reassurances with regard to TransCanada Corp.'s proposed Keystone XL pipeline, which would carry some 800,000 barrels per day of diluted oil sands bitumen to U.S. Gulf Coast refineries.
Danielle Droitsch, a Washington researcher at the well-connected Natural Resources Defense Council, said Monday that groups like the NRDC meet regularly with State Department officials and will be highlighting CAPP's response to the Alberta 40/40 proposal and the subsequent failure of Ottawa to unveil draft regulations. If a $1-per-barrel carbon cost would drive away investment, then it follows that the extra expense of rail as opposed to pipeline – pegged at about $5 per barrel – would have an impact on future production, she said.
"The documents show just how fragile the industry economics are," Ms. Droitsch said. "They help put the lie to the argument that tar sands development is inevitable." She points to a number of analysts' reports, including a recent one by Goldman Sachs that refer to the Keystone XL project as key to solving the industry's problem with market access, though others, including IHS Inc., suggest other pipeline projects and rail can fill the gap in the medium term.
CAPP president David Collyer said last week that the industry is willing to shoulder higher rail costs with the expectation the system will become more efficient and that pipelines will eventually be built, but the carbon levy would be permanent and growing.
In a release issued before her trip, Ms. Redford said she wants to ensure Washington policy makers "have a clear understanding of the responsible energy development and the strong environmental policies we have in Alberta." But the Obama administration has sent strong signals it expects more to be done, and the Greenpeace documents raise serious questions about whether Alberta and Ottawa are willing to override industry objections.
Shawn McCarthy covers energy from The Globe's Ottawa bureau.