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Energy firms plan for higher carbon costs

A demonstrator holds up a sign during a march past the White House to protest against the Keystone XL pipeline in Washington, Feb. 17, 2013. Environmentalists say approval of the pipeline will encourage more development in the oil sands, where extraction is carbon intensive, leading to greater greenhouse gas emissions.

Richard Clement/Reuters

Canada's energy companies are factoring a carbon price into their business planning, even in the absence of federal climate regulations.

In a survey to be released Monday, 10 of the country's top oil and gas and power companies say they currently use a "shadow carbon price" to quantify and manage the risk of higher costs that would arise from future carbon constraints.

The survey by Ottawa-based Sustainable Prosperity research institute included some of the giants of the oil industry, including Suncor Energy Corp., Cenovus Inc. and Royal Dutch Shell PLC, as well as electricity producers SaskPower and Ontario Power Generation.

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Seven of the companies include a notional carbon price formally in their investment planning, while the other three informally assess the likelihood of a rising cost of carbon. Sustainable Prosperity does not break out individual company practices.

The survey shows "companies have internalized those costs already, so the talk of a kind of shock that a carbon price would mean to the energy system doesn't really hold," says the institute's policy director Alex Wood.

The survey comes amid mounting pressure on the federal government to introduce climate regulations covering the oil and gas sector, which Environment Minister Peter Kent has long promised but has not delivered.

The U.S. government is reviewing TransCanada Corp.'s proposed Keystone XL pipeline, and critics have urged President Barack Obama to block the development as part of the get-tough policy on climate he vowed to take in his inaugural speech in January.

Alberta Premier Alison Redford has acknowledged Canada must do more to rein in greenhouse gas emissions in order to win international support for expansion in the oil sands, including credible federal regulations. U.S. ambassador David Jacobson has also said Ottawa must do more on climate policy.

While the Harper government is promising to introduce a sector-by-sector set of regulations, it rejects anything that might smack of a "carbon tax." Conservative cabinet ministers and MPs have regularly slammed the New Democrats for favouring a more robust cap and trade approach, calling it a tax on jobs.

But the energy industry already faces some carbon-related costs in Alberta, British Columbia, Ontario and Quebec.

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Alberta has set a regulatory limit on emissions, and imposes a $15-a-tonne levy – paid into a technology fund – when that limit is exceeded. Ms. Redford says the province is reviewing that policy, and is expected to increase the per-tonne price.

In the survey, companies use a range of carbon prices to the economics of their projects, from $15 up to $68 per tonne forecast in 2030 or 2040.

"Managing and quantifying the risk of higher costs associated with future constraints on carbon emissions was identified as the primary driver by all of the companies using a shadow carbon price in decision-making," the report said.

The Harper government, which once promised a cap and trade system, is now is following the Obama administration's lead. It adopted a regulatory approach when it failed to get climate legislation through Congress.

Mr. Wood said the regulatory approach favoured by Ottawa is more costly and inefficient than "market-based approaches" like a cap-and-trade or a carbon tax, which was adopted by the B.C. government.

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