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The Suncor tar sands mining operation is shown in this aerial photo north of Fort McMurray, Alberta in this November 3, 2011 file photo. Alberta will implement an economy-wide tax on carbon emissions in 2017, addressing long-standing criticism it is not doing enough to combat climate change.TODD KOROL/Reuters

Cash-starved oil sands producers face mounting pressure to slash carbon emissions or dial back long-term growth plans after Alberta's NDP government unveiled new rules aimed at cleaning up the industry's tarnished reputation.

Alberta Premier Rachel Notley slapped a hard cap on planet-warming greenhouse gases from the sector, drawing praise from environmentalists and some energy executives with a plan to limit the industry's soaring emissions to no more than 100 megatonnes (Mt) a year.

The measures also include a 10 Mt allotment above that threshold for projects that use co-generation as well as provisions to enable additional bitumen processing, officials said, giving companies additional leeway.

That leaves some room for major producers to grow production using existing technology – the industry currently spews out 70 Mt of carbon annually, according to provincial data.

But the changes threaten to further undercut long-term expansion plans already shaken by the collapse in oil prices. Scores of companies have abandoned growth projects and sliced billions of dollars from budgets to cope with the sharp plunge in U.S. oil prices to less than $50 (U.S.) a barrel.

Now, they face added pressure to devise more benign ways to extract crude from one of the world's most expensive oil zones.

"We fully anticipate oil sands growth beyond 2020, but the licence to do so is now tied to lower-emission barrels," Royal Bank of Canada analyst Greg Pardy said Monday in a note to clients.

Alberta is hoping to dent fast-rising oil sands emissions in exchange for popular support for pipeline proposals after U.S. President Barack Obama scuttled TransCanada Corp.'s $8-billion Keystone XL project earlier this month.

The industry is now pinning its hopes on rival proposals to funnel crude to Canada's coasts, including TransCanada's $12-billion (Canadian) Energy East project and Kinder Morgan Inc.'s $6.8-billion Trans Mountain expansion.

Supporters of both projects have come out in favour of more stringent environmental controls in the oil sands, despite earlier warnings from some executives that excessive regulation would hinder growth in the sector.

In a sign of the industry's new-found enthusiasm, top executives from Suncor Energy Inc., Royal Dutch Shell PLC, Cenovus Energy Inc. and Canadian Natural Resources Ltd. joined Ms. Notley in unveiling the new rules on Sunday.

The measures include a carbon tax of $20 a tonne starting in 2017, rising to $30 a tonne in 2018. The policy will apply to emissions across the economy, expanding on current efforts that only target large emitters.

The province said the added costs would hit the least efficient oil sands projects hardest, and that new developments that use more efficient technology could face lower compliance costs compared with the status quo.

The moves did not win universal praise. On Monday, the association representing Canadian drilling contractors said the province should cut oil and gas royalties to offset the impact on its members of higher carbon fees.

Meanwhile, other firms with significant stakes in the oil sands remain circumspect.

Imperial Oil Ltd., which recently started up a $9-billion expansion at its Kearl mega-mine, is studying the new rules to gauge their impact on existing operations and possible future projects, spokesman Pius Rolheiser said in an e-mail.

The sector's largest companies have pumped hundreds of millions of dollars into promising technologies aimed at curbing emissions, including trials that use solvents to cut energy use at steam-driven plants.

Barring big breakthroughs, however, the industry will hit the imposed emissions cap by 2023, allowing for another 1.2 million barrels a day of production growth over current output levels, according to ITG Investment Research in Calgary.

The industry faces an "uphill climb" to adapt, said Samir Kayande, an analyst with the firm, although weak crude prices could kickstart innovation as companies seek to juice returns. "The incentive is certainly there," he said.


Alberta's climate plan in brief

Alberta has announced plans to implement an economy-wide tax on carbon emissions in 2017, addressing long-standing criticism it is not doing enough to combat climate change. What it entails:

Carbon tax

The tax would generate about $3-billion in revenue that would be divided into an household adjustment fund and measures such as clean technology and public transit to reduce pollution. The proposed tax would be $20 a tonne in 2017 and increased to $30/tonne in 2018, increasing in real terms each year after that. It would replace an existing price on carbon for large industrial facilities.

Coal plants

The province would eliminate pollution from coal-fired electricity generation by 2030. It was also proposing new incentives to increase renewable energy sources. Currently, 55 per cent of Alberta's electricity generation comes from coal.

Oil sands

Oil sands operators would pay carbon tax based on a standard set by Alberta's best-performing operations. A new target would be introduced preventing companies from emitting more than 100 million tonnes of emissions a year. If all major companies reach that cap, it would be equivalent to a 40-per-cent increase in emissions from today's levels.


The province is proposing rules for new facilities that it said would reduce methane emissions from oil and gas companies by 45 per cent by 2025. A new voluntary plan would also address venting and fugitive emissions from existing plants.

Household costs

Alberta estimates the new carbon tax would cost the average household $320 a year in 2017 and $470 a year in 2018.


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