Liberals open door for ridiculous Alberta ‘clean LNG for carbon credits’ scheme

Fighting climate change by massively expanding Alberta, BC hydrocarbon extraction is a terrible idea

Are the Liberals about to capitulate to Danielle Smith on carbon credits for “clean LNG” exports? Recent comments by Natural Resources Minister Jonathan Wilkinson suggest this is the case. If so, it will be a big mistake. But there is still a chance that reason and common sense will prevail.

The Alberta premier has aggressively promoted the idea of Alberta receiving credits under Article 6 of the 2015 Paris Agreement for “avoided emissions.” That is, if LNG made with Alberta natural gas that has less than a three per cent methane leakage rate (the threshold for emissions equivalence with power plants burning coal) and the liquefaction process is electrified, and that LNG is used by another country to displace coal for power generation, then Alberta could receive credits that would offset greenhouse emissions that are the highest in the country by far. 

In a letter to Prime Minister Justin Trudeau, Smith actually argued that if enough Canadian LNG is sold to Asian countries, Canada could earn credits to offset its entire 700 megatonnes per year of emissions. As I argued in this column, Danielle Smith has an oil and gas marketing plan, not a climate plan, the UCP “climate plan” is a joke. The Conservatives and the Alberta oil and gas industry are committed to the hydrocarbon status quo. They see the energy transition as an opportunity to sell more oil and gas, completely ignoring the existential threat to the provincial hydrocarbon industry and the opportunities to attract capital to build clean energy industries within Alberta. 

Jonathan Wilkinson, Minister of Natural Resources.

“Absolutely, under certain conditions,” Wilkinson told Don Braid of the Calgary Herald June 21 after a meeting with his provincial counterparts. “It has to replace coal, we’ve got to verify that, and also account for the domestic issue of reducing emissions…As soon as you do that, you can make it fit in Canada’s carbon reduction plan, and you can have a net benefit of reducing emissions globally.”

Beyond the strategic blunder represented by doubling down on Alberta’s oil and gas status quo, there are serious problems with the entire scheme. 

Carbon management consultant Geoff Stiles explained in an exclusive Energi Media op-ed that Article 6 is actually hostile to avoided emissions and the complex, arcane accounting mechanism in the agreement has already frustrated other countries. Economist Clark Williams-Derry, of the Institute for Energy Economics and Financial Analysis, argues that BC LNG capital costs are almost twice that of US Gulf Coast plants and cheap natural gas doesn’t offset the West Coast disadvantage (see interview below). A study by Simon Fraser University professor Andy Hira found that the subsidies required to electrify BC LNG plants combined with the significant increase in emissions would be a disaster for British Columbia.

Will there be enough demand for more Canadian LNG? Both the International Energy Agency and oil company BP, for example, think global LNG demand will peak in the early 2030s and decline thereafter. Even their most optimistic scenarios only suggest a slight rise in consumption between now and 2050. 

Source: World Energy Outlook 2022, International Energy Agency.

What makes Alberta think it would supply new West Coast LNG plants? The $40 billion LNG Canada project, and its Phase II if approved, will draw from the Montney formation in NE BC. The answer, of course, is that almost all of the companies producing gas in that region are based in Alberta. And many of them are big supporters of Smith and the UCP.

Let’s say that BC LNG development did benefit Alberta, perhaps by backfilling markets if BC gas supply was diverted to LNG projects. As Energi Media is reporting in its Unethical Oil investigative series, Alberta already has a $130 billion of environmental liabilities created by conventional production and no plan to draw down its inventory of orphan wells, facilities, and infrastructure. Any increase in orphan-related liabilities only worsens an already serious crisis for both industry and government. 

There is a strong argument to be made that Smith’s carbon credits for clean LNG exports is a pipe dream. How serious, then, is the Liberal government about facilitating the scheme?

In March, Environment Minister Steven Guilbeault provided Energi Media with exclusive comments about Canada’s approach to carbon credits and avoided emissions.

While touting “one of the most detailed and comprehensive climate plans in the world,” Guilbeault noted that “Canadian industry believes it can help displace heavier hydrocarbon fuels around the world. The Federal Government is open to having this discussion, but it is ultimately up to individual companies to demonstrate the feasibility of potential Article 6 arrangement with another country. 

Steven Guilbeault, minister, Environment and Climate Change Canada.

“If Canadian industry wants to discuss how Canadian LNG could be used to displace coal elsewhere in the world in a way that is compatible with the Paris Agreement, the government is willing to engage in that conversation. But engaging with industry on Article 6 will not come at the expense of our 2030 targets.”

Guilbeault’s comments leave plenty of wiggle room for Ottawa. Perhaps companies can’t demonstrate the feasibility of a potential Article 6 arrangement with another country. Maybe more LNG development simply isn’t compatible with Canada’s 2030 climate targets.

Agreeing to talk is not an agreement to proceed. Nevertheless, Wilkinson’s comments are worrisome.

My sources in Ottawa say the government is wavering on the federal oil and gas emissions cap in the face of staunch Alberta opposition and implementation issues. The federal clean fuel standard, long opposed by industry, takes effect on Saturday.

One can imagine a scenario in which the Liberals engage with industry and Smith’s government as a good will gesture during what is likely to be a period of difficult politics, but holds firm on rational energy policy in the face of a rapidly accelerating global energy transition.

One can also imagine a scenario where a desperate federal government gives in to a recalcitrant oil and gas industry, which it desperately needs onside to meet end-of-decade emissions goals. In this scenario, Smith’s endless demonizing of Trudeau, including the silly accusation that sustainable jobs legislation is meant to phase out Alberta’s oil and gas sector, is nothing more than a club with which to beat the senior government until it compromises.

Either scenario is plausible. The case against Alberta’s “clean LNG for carbon credits” scheme is strong, but politics often isn’t about the best course of action, just the most expedient. I won’t bet against Smith and industry winning this battle.

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