Tuesday, 23 August 2011

Canada Turns to Carbon Capture and Storage. Why?

In a speech on Friday, August 19, Canadian Environment Minister Peter Kent announced that the federal government was going to implement carbon dioxide emissions standards on coal-fired power plants. The standard is a performance standard, which requires coal-fired power plants to emit carbon dioxide at a rate not to exceed 375 tons of CO2 per Gigawatt-hour of electricity generated. At this time, this rate is unattainable by coal-fired power plants without carbon capture and storage (CCS). The timeline is not very ambitious: it requires owners of existing coal-fired power plants to ramp up to CCS by 2025, requiring owners to produce all kinds of documentation, plans, corporate resolutions, economic and technical analyses, showing a sincere intent to actually implement it by 2025, not just a say-so that carbon capture and storage will be installed. Whether these reporting requirements will actually sniff out those plants just playing along to get a 14-year reprieve is anybody's guess.

The curious thing is why is the Conservative Canadian Prime Minister is taking this course. Ideologically, it doesn't make sense -- I found it ironic that the late NDP leader Jack Layton (who passed away this past weekend) was stumping for a cap-and-trade system while the Prime Minister, the purported economist, has been moving towards something command-and-control all along. Politically, it doesn't make sense -- oil sands executives in the PM's home province, crucial to the PM's political fortunes, have called (if a bit weakly) for a carbon tax, in part to help raise money to pay for carbon capture and storage. Economically, it doesn't really make sense, since a carbon tax would be a fairly innocuous way of penalizing the oil sands for its emissions, one that most oil sands companies can easily absorb. Politically (again), it isn't consistent with Canada's behavior vis-a-vis the United States, with which it wants to harmonize climate policy, but this regulation puts Canada ahead of the United States in terms of what the US is likely to do with its own carbon dioxide regulations under the Clean Air Act

So what's up? According to Shawn McCarthy of the Globe and Mail, Canada has been dancing on hot coals for a while, trying to fend off European initiatives that would disadvantage oil sands firms. One policy that the EU has floated has been to introduce a fuel standard that would classify oil sands crude as a dirty fuel. Why that matters is beyond me, since Europe doesn't import any oil sands crude. But at any rate, McCarthy reports that this was worrisome enough to the PM that Canadian EU Ambassador Ross Hornby had promised EU officials that Canada would get its oil sands greenhouse gas emissions under control soon. Again, I don't get it. And I also doubt that this weekend's Washington D.C. protests over the Keystone XL pipeline had much to do with the timing of Kent's announcement. It doesn't seem as if this is aimed at heading off American opposition to the Keystone XL pipeline. Oil sands crude will get sold, whether Keystone XL is built or not; requiring CCS is too costly a price to pay just to mollify opponents of Keystone XL. And finally, it is true that Canada has also been very sensitive to opposition in the United States to importing Canadian crude produced from the oil sands. But again, cheaper fixes -- like a carbon tax -- could have gone a long way towards mollifying that opposition, and oil sands execs are fine with that cheaper option.

Some possibilities: 1. The PM is getting bad advice from somebody about the feasibility of CCS. 2. The PM fervently hopes that with the infusion of Canadian and Albertan taxpayer dollars, CCS can be made economically viable under Canadian leadership (wouldn't that be great? ) 3. PM is willing to spend whatever taxpayer money it will take to get CCS installed and up and running, economically sensible or not. CCS does not, at this time, appear to be economical. But there are only 51 coal-fired power plants in Canada, that emit 13% of Canada's greenhouse gas emissions. 33 of those will come to the end of their useful life by 2025 anyway. Some of them, for reasons that I can't fathom, already meet the standards. Of those that remain, how much can it cost the government for CCS to be installed and operational? Less than the PM is willing to spend to appease critics and to make sure that the oil sands remain the engine of economic growth for Canada in the near term. As my colleague Kathy Harrison quips, "regulation is not so bad, after all, if the state pays the compliance costs."

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