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Beyond Bali

Peter McKenzie-Brown
March 3, 2008

“Climate change is a serious threat to development everywhere”, said Rajendra Pachauri last November as he released technical reports prepared by the UN’s Intergovernmental Panel on Climate Change. “Today, the time for doubt has passed. (We have) unequivocally affirmed the warming of our climate system, and linked it directly to human activity.” To make sure there was no doubting his message, he added that “slowing or even reversing the existing trend of global warming is the defining challenge of our age.” According to Pachauri, global warming will lead to melting icecaps and rising sea levels, the drowning of some island nations, the extinction of species, desertification of tropical forests and more frequent and deadlier storms.

The world’s media soon became focused as never before on greenhouse gases (GHG) – the emissions (mainly carbon dioxide and methane) causing Earth to warm and its climates to change. The occasion was a United Nations conference meant to negotiate national targets for reducing greenhouse gases. The venue was the Indonesian resort island of Bali.

The US, Canada, and Japan became villains in the piece as they argued that the targets of the 1997 Kyoto Protocol were unrealistic. To live up to that agreement would have required Canada, for example, to cut its GHG emissions by perhaps 50 per cent during the next 12 years. The three villains complained that Kyoto required nothing from emerging economies like China and India, which are big polluters. They and others also observed that, at the time of the original Kyoto discussions, science had little understanding of the impact on global warming of tropical deforestation. Deforestation amounts to destruction of some of the vital CO2 reservoirs often called “carbon sinks”. Factor in the loss of sinks from rainforest destruction and Brazil and Indonesia become the world’s third- and fourth -largest GHG emitters.

Despite the sound and fury, Bali achieved little. It reinforced the global dread of carbon-induced climate change through the media, and the conference agreed to develop detailed plans for cutting emissions, with special focus on reforestation. When that is done next year, a convention of member states will negotiate GHG reduction targets in earnest – or such is the plan.

Looking for Solutions: Given the glacial pace of implementing global treaties, the first steps in managing carbon emissions need to be taken locally. An industry of national and global importance, Canada’s petroleum sector can become a leader in taking those local steps. More to the point, a group of large players in the sector have already begun to do so through an initiative called the Integrated CO2 Network (ICO2N or, more simply, ICON) – a proposed system for the capture, transport and underground storage of carbon dioxide.

But before reviewing ICON’s remit, let’s take a quick look at trends in pollution control. Just as today’s science says controlling these gases is environmentally critical, today’s higher-cost energy is combining with technological change and evolving policy to make it easier to reduce emissions. GWG reduction can take the form of finding non-hydrocarbon sources of energy. It can mean using technologies that produce fewer unwanted emissions. It can mean using lower-carbon fuels.

The good news is that a great deal can be done, and in many different ways. For example, a tried and true way of reducing air pollution is to take old automobiles off the streets. Replacing those cars with low-pollution, fuel-efficient vehicles can increase the benefits. This is the idea behind a federal initiative which encourages Canadians to go green by offering rebates ranging from $1,000 to $2,000 to people who buy fuel-efficient vehicles.

Sometimes newer technologies hark back to older times. For example, wind-assisted ships that use a computer-controlled, helium-filled kite to capture wind energy can reduce a vessel’s fuel consumption by 20 per cent or more. Fuel can represent as much as 60 percent of a merchant ship’s operating costs, so this innovation has high economic potential. Wind-assisted boats also produce less pollution, and in GHG terms this is no small matter. The world’s 50,000 or so trading vessels carry 90 per cent of global trade. Most fly flags of convenience, and their emissions are subject to little national control.

In the matter of electricity generation, fuel switching – using natural gas instead of coal, for example – reduces carbon dioxide emissions by using a cleaner fossil fuel. It replaces an abundant fuel with a scarcer one, though, and is therefore not a sustainable long-term strategy. However, the Paris-based International Energy Agency says that emissions from coal-powered electricity generation can be reduced immediately, but also over the longer term.

Cost-effective CO2 emissions reductions can be achieved almost immediately by burning coal with less waste. Long-term, carbon capture and storage (CCS) offers the potential for near-zero carbon dioxide emissions from coal-based power plants. “These strategies are complementary,” says the IEA report. “Deployment of modern, efficient coal-fired electrical generation technologies in the short to medium term can enable carbon capture for less cost in the longer term, if those power units are designed to enable cost-effective carbon capture retrofitting when that technology becomes available for commercial application.”

Of particular importance to the petroleum industry, carbon reduction can involve warehousing greenhouse gases in depleted oil and gas reservoirs. It is in the arcane area of CCS that Canada’s petroleum industry can make a world-class contribution to the problem.

Carbon Capture and Storage: What is carbon capture and storage? It involves capturing the carbon emissions from an electric utility or an oil sands plant and storing them, for example, in depleting oil fields.

This is not new. Carbon dioxide has long been used for enhanced oil recovery, to urge incremental barrels out of elderly oil fields. One such project has been operating in the 50-year-old Weyburn oilfield in Saskatchewan for nearly eight years. The project uses a 330-kilometre pipeline to transport carbon dioxide captured at the Great Plains Coal Gasification plant, which manufactures methane from coal near Beulah, North Dakota. This project disposes of about 1.5 million tonnes of this greenhouse gas each year, and also keeps oil flowing from this aging field.

At present, Weyburn is one of only three such projects in the world, all of them about the same size. The second is the BP-operated In Salah project in Algeria, where carbon dioxide extracted from the gas reservoir is removed and reinjected. This reduces pollution, but the injected gas also plays a role in maintaining reservoir pressure. The third is Statoil’s Sliepner project, in the Norwegian sector of the North Sea. There, carbon dioxide extracted from gas production at the Sleipner West gas field is stored in a reservoir 1,000 metres below ground instead of being released to the air. In this project, injection is strictly a waste management practice. It does not assist in field production.

Injecting carbon dioxide into old oil fields as a method of enhanced oil recovery could eventually help the petroleum industry add 1.2 billion barrels to conventional oil production in Alberta alone. This, at least, is the view of Suncor’s Stephen Kaufman, chair of the 16-member Integrated Carbon Dioxide Network (ICON).

Using carbon dioxide from an industrial source for enhanced oil recovery is increasingly economic as energy prices rise. But can pumping GHGs into the ground be economically viable if it isn’t being done for a commercial purpose? According to Kaufman, this is the sticking point. “There is no value chain for CO2 capture,” he says. “It is extremely difficult from a pure market standpoint to make it profitable.”

The ICON consortium of mostly blue chip companies with Alberta operations wants to develop a national greenhouse-gas collection, pipeline and storage grid with roots in the Alberta oil industry and branches across the country – from British Columbia to Nova Scotia (see map ).

In the beginning, the network would capture carbon dioxide from sources in north-central Alberta, including Fort McMurray, Fort Saskatchewan and the coal-fired power plants near Wabamun Lake. The carbon dioxide would be transported by pipeline to suitable geological sites for storage and to EOR loranios- for sale to oil producers. About 1,000 kilometres of main pipeline and 400 kilometres of small collector lines would ultimately be needed for this system, which would be built up over a decade or more. Longer term, carbon-capture could be done elsewhere in Canada, which has suitable geologic storagic basins in nearly every province and territory.

In effect, ICON is proposing a vast network of waste treatment facilities, and the industry believes sharing of the costs of this network with energy consumers is appropriate since “it is more difficult and more expensive for consumers to make emission reductions directly.”

Noting that Canadians will be facing “increasingly stringent carbon regulations”, Kaufman says those regulations are going to force energy consumers of all types to find ways to reduce net emissions. “GHG emissions result from making fossil fuels, power and manufactured materials that benefit all Canadians. The consumer will have to pick up a share of the tab for clean-up.”

If not exactly profitable, these developments will make ICON viable. “We are very interested in starting this system off”, Kaufman says. “The first GHG injections could go into storage in 2013”, he adds, stressing that the project is ambitious and the “hurdles are very substantial.” However, it “could represent perhaps the largest single carbon-dioxide reduction approach Canada takes until renewables, alternative fuels and energy conservation become very significant.”

Also known as carbon sequestration, CCS has been a topic of many reports in recent years. “When it’s not commercial to do something,” Kaufman points out, “you tend to do a lot of study. We need these technical and economic reports, and eventually we will also need public input. People need to be sure this can be done safely.”

Most importantly, though, “We are looking for the right way to move this concept forward. Our first objective is to contribute to policy – it will need provincial and federal legislation to make this happen.” The right policy will include a cost- or risk-sharing formula, clear greenhouse-gas emissions rules and government commitments to reassure ICON that the policy will not change during the one to two decades needed to develop the carbon disposal grid. Long-term policy commitments will encourage new oil sands and power plants and other large, GHG-intensive facilities to invest in carbon capture technologies during construction, so they can connect to the system when they go on stream.

Kaufman believes tax incentives will also be needed, as will carbon disposal credits. Carbon credits “will need to be as widely tradable as possible, so we can develop an efficient market”. For example, an Ontario industrias producer with a GHG emission problem could pay to capture and store carbon in Alberta, thereby using tradable credits to meet local emission regulations. This approach reflects an environmentally acceptable exchange of value. After all, global warming is a planet-wide problem precisely because carbon dioxide respects no boundaries. No matter where they take place, GHG reductions benefit everyone. From the perspective of economic efficiency, it is important to reduce emissions wherever it is cheapest.

The tropical paradise of Bali may be far from Alberta’s main centres of industrial GHG pollution, but in the big picture of energy-induced climate change there is an ironic link between the two. ICON illustrates how Canada’s oil patch could take a leadership role in mitigating the causes of global warming – and do so without waiting for the diplomats.

Who Pays the Bill?

After the UN released its report on global warming, Secretary-General Ban Ki-Moon made climate change a central feature of his term of office. “Galvanising international action on global warming” he said, “is one of (my) main priorities.”

Such a commitment at the highest levels is essential. After all, air pollution doesn’t respect international boundaries. Nations routinely outsource emissions to other jurisdictions. Decision-makers often focus on short-term profits and near-term political interests. In that context, Ban’s commanding affirmative raises some fascinating interrogatives.

If the consumer must pay, how should global traders charge for GHG emissions? Will transnational customers actually pay? What’s the best way to enforce international treaties with countries whose domestic poverty trumps their environmental goodwill? Should rich countries simply pay the cost of cleaning up GHG waste in poor countries, since that is often the cheapest and simplest way to reduce emissions? Can accelerating global energy demands be met without use more and dirtier hydrocarbons? Such questions illustrate the complexity of the problem.

Take the oil sands. Oil sand development illustrates the “blackening” of the barrel of oil – the shift from higher-grade reserves to lower-quality, higher-carbon resources that are more expensive to produce. Twenty-five years ago, US customers for Canadian oil generally processed light to medium crude. Those refineries have since been modified to process heavy oil and oil sands production from Canada. Much of that oil is upgraded, but upgrading commands a stiff carbon price. To produce synthetic oil from bitumen requires a lot of heat, much of it generated from natural gas. The synthetic oil we export is responsible for much more GHG pollution than was the light oil of yesteryear. Oil sands production generates three times the carbon emissions created by the production of conventional oil.

The same logic applies to refined products. Canada’s net annual exports of gasoline, diesel and such to the United States amount to about 500,000 cubic metres – about 3.4 million barrels of product. Again, refining is energy-intensive, with the corresponding carbon price we have to pay.

Canada's GHG Ledger

Consider the Canadian GHG ledger. The fuels we use to produce synthetic oil and refined products for U.S. markets amount to an outsourcing of carbon emissions from the United States. Outsourcing CO2 production to Canada in this way lowers per capita GHG emissions produced by Americans but increases those ascribed to Canadians. Of course, this sword cuts many ways. Finished goods from China arrive in Vancouver by the container load, but none of the pollution generated in Chinese plants and factories enters Canada’s environmental ledgers. It was, after all, produced in Asia.

If Canada’s pollution ledgers accurately reflected the pollution generated by the products we consume (and fully offset all those we export), Canada’s CO2 emissions would probably be higher than they are. Canadians would still not be the world’s biggest per capita greenhouse gas polluters, though. Honours in that competition go to Australia and the United States, respectively; Canada only gets the bronze.

The main cause of our high GHG emissions is Canada’s hydrocarbon consumption – at 8,300 kilograms of crude oil equivalent per person per year, the highest in the world. If that crude oil equivalent were bottled water, at 2.2 litres per day it would take a person ten years to drink it all. By using them for fuel instead of hydration, those hydrocarbons provide us with mobility, power and heat, each of which bears an environmental cost. Every transaction involves a measure of energy produced and then consumed. And as we consume energy – by trucking goods, extracting resources, manufacturing products and turning up the thermostat, – we create greenhouse gases.

We live in a big country, so transportation – often in cold weather, when fuel efficiency drops – is a big part of the economy. Nationwide, about 25 per cent of our GHGs come from our trucks, trains, airplanes and, especially, our cars. Commerce, residential fuel consumption and industry (excluding oil and gas) account for 24 per cent of the total, but much of those emissions come from equipment (mining trucks, front-end loaders) that don’t get recorded in the transportation ledger. Another 14 per cent come from non-energy sources. As the following table illustrates, the rest come from the production and manufacture of energy and power.

As Canada creates targets for GHG reductions, policymakers will zero in on the three areas – transportation, electricity generation and fossil fuel production – in which the greatest reductions are possible. Together, these activities account for nearly two thirds of Canada’s greenhouse gases. Efficiencies can be found there.

Will Canada’s pollution actually decline? Not according to Canada’s Energy Outlook, the Natural Resources Canada report from which these numbers came. NRCan estimates that Canada’s GHG emissions will increase by 139 million tonnes between 2004 and 2020, with more than a third of the total coming from petroleum production and refining. Upstream emissions will decline slightly, primarily from gas field depletion and from increasing production of coalbed methane, which requires less processing than conventional natural gas. Meanwhile, emissions from unconventional resources and refining will soar.

Assume these forecasts are accurate, and that in 2020 Canada’s GHG waste will be half again as large as it was in 1990. Assume also that, as the UN’s Rajendra Pachauri thundered to his audience last November, “slowing or reversing the existing trend of global warming is the defining challenge of our age!” Where do we go from here?

Peter McKenzie-Brown
March 3, 2008

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