Production foreman Ron Toly visually inspects the carbon capturing research facility near Redwater, Alberta, June 26, 2009.John Ulan
Canada's oil sands companies say they must adopt expensive carbon-capture-and-storage technology to meet environmental challenges, but will require major government subsidies to do so for at least the next decade.
While carbon-capture-and-storage (CCS) will be expensive, the industry defends it as being competitive with wind power and biofuels in terms of the cost per tonne for reducing greenhouse gas emissions.
"CCS is vital to the sustainability of Canada's oil sands development and the continued production and use of Canada's fossil fuel resources," says the report from the Integrated CO{-2} Network (ICO{-2}N), an industry group that represents Canada's major oil companies and coal-based utilities.
"It makes environmental and economic sense to develop initial CCS projects within a vision of a long-term, large-scale integrated system."
While the major oil companies all endorse the need for CCS, they do not agree on the best way to impose the price on carbon emissions that will be required to commercialize the technology.
Imperial Oil Ltd.'s parent company, Exxon Mobil Corp., argues in the United States for a direct tax on carbon emissions, while Royal Dutch Shell PLC and ConocoPhillips Co. support a cap-and-trade system. As a result, the industry's main lobby group, the Canadian Association of Petroleum Producers, has been unable to forge a consensus on how Ottawa should proceed.
Both the U.S. and Canadian governments are developing plans to impose cap-and-trade regimes under which companies would have to pay a price per tonne for permits to emit greenhouse gases, and a limited number of permits would be available.
The ICO{-2}N report suggests that, whatever the mechanism, the oil industry and coal-fired utilities inevitably face requirements to significantly reduce greenhouse gas emissions, and CCS needs to be a part of the response.
However, the cost of CO{-2} capture at oil sands extraction sites would be far higher - perhaps prohibitively so - than at power plants, chemical facilities and oil sands upgraders, which refine raw bitumen into synthetic crude oil.
Even for the less expensive options such as chemical and fertilizer plants, wide-scale deployment would require carbon emission prices considerably higher than the levels that industry and government have suggested as reasonable for meeting greenhouse gas emissions targets.
The adoption of CCS would cost $85 to $120 a tonne at existing chemical and fertilizer plants and some new coal-fired power plants, rising to $120 to $160 per tonne for refineries and upgraders. But capturing CO{-2} emissions from the natural gas-fired boilers that create steam for oil sands extraction would top $160 a tonne.
In a companion report released by ICO{-2}N today, Ottawa-based consulting firm Delphi Group compared costs of competing emission-reduction technologies. Delphi calculated that, in terms of displacing carbon emission from fossil fuels, both wind power and ethanol cost well above $150 a tonne, and both receive generous government support.
The oil companies and utilities are awaiting federal government climate change regulations that will force them to reduce their emissions and essentially set a price on carbon.
In the initial years at least, the carbon price is expected to be far below what is needed to justify investments in CCS by oil sands producers and utilities. In a now-discarded regulatory plan released in 2007, the Harper government estimated that carbon prices would rise to $65 a tonne by 2020.
To close that cost gap, the industry is suggesting governments must directly support the early adoption of CCS beyond what has been committed. Ottawa and Alberta have already announced $1.4-billion in funding for CCS pilot projects involving a coal-fired power plant and an oil sands upgrader, which together would reduce emissions by one million tonnes. The federal share amounted to $463-million.
The industry group does not put a price tag on its call for subsidies, saying the cost will depend on what carbon price Ottawa imposes, and actual cost of capturing emissions, and number of projects supported.
Environment Minister Jim Prentice has repeatedly delayed the release of his plan, saying he wants to see what regulations are adopted in the United States to ensure Canada's approach is compatible with our major trading partner.
With an aggressive program, the report says the technology could reduce emissions by as much as 35 megatonnes per year by 2020, roughly a quarter of the reductions necessary to meet Ottawa's target of a 20-per-cent reduction from 2006 emission levels. By 2025 to 2030, CCS could reduce emissions by 50 megatonnes per year.
Report on Business Company Snapshot is available for: IMPERIAL OIL LIMITED