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Canadian Tar Sands to be Pressured by CFS Program
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Monday, 18th April 2022
Ujjwal Gupta

Key Highlights

– The Canadian oil and gas sector accounts for 26% of total emissions, and 6% of the Canadian economy
– Canadian banks are double financing highly polluting oil sands
– The province of Alberta has proposed to toughen its greenhouse gas emissions standards for oil sands mines by updating the industry benchmark
– The US wants more oil from Canada but not a new pipeline to bring it in

What are the oil sands and how do they relate to emissions in Canada?

Canada’s oil sands are the biggest deposit of crude oil on the planet. The sands are a mixture of oil, sand, clay, and bitumen (oil that is too heavy or thick to flow on its own). Canada’s oil sands are found in three regions within Alberta and Saskatchewan: Athabasca, Cold Lake, and Peace River. According to the National Inventory Report, 1990-2019: Greenhouse Gas Sources and Sinks in Canada, Canada’s overall emissions in 2019 were 720MMt. Oil and sands are both a major economic contributor to the country (6% of the Canadian economy) and Canada’s largest source of greenhouse gas emissions (26% of total emissions), reducing emissions from the oil and gas sector will have a critical role to play in meeting Canada’s climate objectives.

Fig 1: Overall GHGs emissions in Canada

In 2019, Oil & Gas and Transport were the largest GHG emitting sectors in Canada. Together, they accounted for 52% of total emissions, the oil and gas sector accounted for 191 Mt CO2 (26% of total emissions) as shown in the chart below (Fig: 2)

Fig 2: Canada’s GHGs emissions by sector

The oil and gas sector is also critical to the economy, currently contributing nearly 6% to Canada’s GDP. Employing thousands of Canadians throughout the country, the sector is particularly important in Alberta, Saskatchewan, British Columbia, Quebec, Newfoundland, and Labrador. The sector is diverse, comprising a wide range of activities from exploration, drilling, and extraction to processing, transportation, and refining of multiple resources, including light oil, heavy oil, oil sands, and natural gas. Most of Canada’s oil production is exported to the United States, making the U.S. a key trading partner.

The war in Ukraine has brought a tremendous energy crunch to the US. Canada has ample reserves under its soil to meet U.S. demand, but it just doesn’t have enough pipeline capacity to pump it. The “Keystone pipeline”, supposed to connect Alberta with Nebraska, was put on hold by the Biden administration, and the freeze has since come back into the limelight. However, Biden has shown no interest in reviving the “Keystone XL pipeline” project. Nor could it be completed in time to address today’s shortfall, and the President is still committed to reducing greenhouse gas emissions from fossil fuels over the long term.

Alberta’s oil sands are among the world’s largest deposits of crude oil. In 2019, 50% of Alberta’s total emissions, i.e 275 megatons of CO2 emissions came from the oil and gas sector.
This first Emissions Reduction Plan charts a credible path to emissions that are 40% lower than 2005 levels by 2030. Interestingly, oil sands emissions in Canada have risen by 23% since 2005. In Alberta alone, oil and gas emissions have risen by 40% since 2005.

Fig 3: Greenhouse gas emissions by province and territory, Canada, 1990, 2005 and 2019


According to the Financial Times, Canada’s top banks more than doubled their financing of highly polluting tar sands oil to $16.8bn in 2021, despite signing up to the UN’s net-zero banking alliance on greenhouse gas emissions. The jump in the financing of tar sands comes as the banks face growing pressure from investors to step up the battle against climate change. Additionally, several of the Canadian banks’ directors sit on the boards of the country’s big tar sands companies Cenovus Energy and Suncor Energy.
Considering all this, the Province of Alberta has proposed to toughen its greenhouse gas emissions standards for oil sands mines by updating its industry benchmark that sets emissions reduction requirements per unit of production, closing a loophole that rewarded some of Canada’s highest-emitting facilities with millions of dollars.
According to S&P global, emissions from oil and sands will start to decrease post-2025. Emissions could decline from 20-28% from 2020-2030. It is expected that the inflection point will be achieved in 2025. Stringency in the policies along with technological and efficiency improvements in the value chain and higher facility utilization rates could be a major driver towards emissions reduction in this sector.

How will it impact the upcoming Clean fuels program 2022

The Clean Fuel Regulations will reduce the carbon intensity of liquid fossil fuels in Canada, including by reducing emissions from oil and gas production. The Clean Fuel Standard will require liquid fuel (gasoline and diesel) suppliers to gradually reduce the carbon intensity of the fuels they produce and sell for use in Canada over time, leading to a decrease of approximately 13% (below 2016 levels) in the carbon intensity of our liquid fuels used in Canada by 2030.
The Clean Fuels Standard (CFS Program) is scheduled to begin in Dec 2022, and demand for credits from the oil and sands sector is going to play a crucial role in the initial development of the program. The CFS will create new, burdensome compliance requirements that will increase the costs of doing business for primary suppliers. While improvements have been made, it remains unclear if the CFS credit market will have enough credit supply for primary fuel suppliers.
Considering the current trajectory, demand for credits will be significant which will result in higher CFP credit prices when the program starts in 2022, in turn making fuel from tar sands less economical than other sources.

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