Carbon policy and impacts on Suncor
Since the ratification of the Paris Agreement, the focus of governments globally is on the technology pathways and policy frameworks required to achieve a stable and responsible transition to a low-carbon energy system at the same time as meeting the continued rising global demand for energy.
Canadian Federal Government
The federal government’s Pan-Canadian – Framework on Clean Growth and Climate Change requires each province to implement a carbon pricing policy with an overall stringency equivalent to a minimum price of $20 per tonne in 2019, rising to $50 per tonne over the next four years. Provinces and territories that do not comply are subject to a federal carbon pricing backstop. Provinces and territories that volunteered to accept the federal plan may use the revenue as necessary for the unique circumstances of their region, including protecting carbon-intense, trade-exposed industries. Involuntary provinces with policies that were viewed to be inadequate are subject to the federal backstop. In these jurisdictions, carbon revenues are generally collected from two streams:
- a consumer-facing carbon tax on all fossil fuels where the majority of the carbon revenues collected are returned to their citizens in the form of a rebate, not their provincial governments
- to protect the competitiveness of the industrial sector, an output-based pricing system for industrial facilities that emit above 50 kt CO2e or more per year, with the ability to opt-in for smaller facilities
The federal government is consulting with industry on how best to use the carbon revenues to help industry reduce their emissions.
Impact of Canadian climate change regulations
Our carbon price outlook assumes the current carbon price will rise to $100 per tonne on an increasing percentage of our emissions, by 2040. As most of our facilities are currently regulated under various carbon pricing regimes, the impact of our outlook is built into our planning assumptions.
Based on the outlook for new emissions regulations, we have updated our cost estimates. The production weighted average after-tax cash cost per barrel of global production over the period 2019 to 2028 has increased from 2018 and is now estimated at an average of $0.70 per barrel1.
In April 2019, Alberta elected a new provincial government that has eliminated the consumer portion of Alberta’s carbon tax and reduced overall tax on industry. However, for the remainder of 2019, Alberta’s industries will continue to be regulated under the Carbon Competitiveness Incentive Regulation (CCIR) at the current economy-wide price of $30 per tonne. Starting in 2020, Alberta industries will be regulated under a yet-to-be-developed Technology Innovation and Emission Reduction Fund program (TIER). The construct of the TIER is expected to be modelled after the previous Specified Gas Emitters Regulation (SGER) that was in place from 2007 to 2017. Similar to the SGER, the TIER will apply to facilities that emit greater than 100,000 tonnes of carbon dioxide (or equivalent) per year. It will require carbon emissions intensity reductions from industrial operations by 10% per year relative to a historical baseline. Electricity generators will be required to meet a “good as best gas” output based standard similar to the current CCIR. Regardless of the methodology (i.e. SGER, CCIR or TIER) Suncor continues to support carbon pricing policies designed to mitigate the competitiveness impact on trade exposed sectors like oil and gas, while continuing to accelerate emissions performance improvements. Given that there is no universal approach to carbon pricing around the globe, we recognize that leading policy includes a carbon price.
The Oil Sands Emissions Limit Act includes a precedent-setting 100 Mt emissions limit2 by 2030 on oil sands development. As a limit on emissions, rather than production, it allows production to grow as long as the total emissions of the sector remain under the limit. The emissions limit is expected to encourage the innovation required to reduce both carbon and cost in the oil sands industry.
In June 2018, Ontario withdrew its participation in the WCI cap-and-trade program in favour of introducing its own Emission Performance System intended to meet the overall stringency of the Federal backstop. In the interim, Ontario has become an involuntary province subject to the Federal backstop. Suncor’s Sarnia refinery and St. Clair ethanol plant are both regulated facilities under the Federal out-based pricing system (OBPS) and free emission receive emissions allowances, a measure intended to maintain sector competitiveness. Suncor will work with the provincial government to explore solutions that achieve the required outcomes.
Suncor’s refinery in Quebec is regulated under a cap-and-trade program linked to the Western Climate Initiative (WCI). Regulated refining facilities receive an allowance allocation that aligns with a benchmark performance and takes into account competitiveness in a trade-exposed context. Fuel suppliers are required to purchase allowances to cover the tailpipe emissions of all fuel sold, the cost of which is expected to be largely passed to the consumer, thus acting as a carbon price on fuel consumption.
Transportation fuels policies in Canada
Transportation emissions are approximately 25% of total emissions in Canada. Jurisdictions across the country are considering policy mandates and incentives for alternative fuels, as well as major public transit and urban planning initiatives intended to reduce the carbon intensity of transportation.
British Columbia’s Renewable and Low Carbon Fuel Requirement Regulation requires fuel suppliers to meet a provincial fuel pool carbon intensity target through blending incremental renewable fuel or investing in alternative fuels infrastructure. Federal and provincial renewable fuel standards mandate blending of ethanol into gasoline, and blending biodiesel into diesel.
In addition, the federal government has recently proposed implementing a national Clean Fuels Standard, which remains under development.
U.S. GHG Regulations
The U.S. Environmental Protection Agency (U.S. EPA) has established a rule mandating that all large facilities (defined as facilities emitting greater than 25,000 tonnes of CO2e per year, which includes Suncor’s refinery in Commerce City, Colorado) must report their GHG emissions. The mandate of the U.S. EPA is under review by the current administration. In June 2017, the withdrawal of the U.S. from the Paris Agreement was announced. The current administration has also overturned a number of decisions made by the previous administration. Efforts have also been made at the state level to adopt legislation requiring entities to report on GHG emissions. Suncor continues to monitor these developments. The outcome of these changes in approach to GHG emissions is currently unclear and the impact on Suncor, including its Commerce City, Colorado refinery, is unknown at the time of publication.
1 Regulatory changes in 2018-19 contributed to the modified cost per barrel. Additional information on the Output Based Allocation for Upgrading under Alberta’s Carbon Competitiveness Incentive Regulation (CCIR) was the largest contributor to the year-over-year changes. Carbon emissions policy development remains in flux with a high degree of uncertainty.
2 Emissions from the production of power through cogeneration are excluded from this limit, as is an incremental 10 Mt of upgrading capacity.