Shell Includes $40 Carbon Tax in Oil Sands Financing

20 12 2013

Why Shell Canada Welcomed Carbon Pricing and Approval of New Oilsands Project in the Same Week

Last Tuesday, Shell Canada’s president earned praise when she said her company would welcome federal greenhouse gas regulations on the oil and gas sector. Then on Friday, Shell had its controversial Jackpine oilsands mine expansion plans approved by Ottawa.

With fears riding high over landlocked western oil blocked by limited pipeline capacity, it is somewhat surprising to hear a major oil company come out in support of increasing costs. However, interviews with experts and Shell Canada reveal Shell’s expansion plans will likely not be hindered by federal carbon prices — and they may just benefit.

Oilsands Operators Can Afford Carbon Prices

Andrew Leach, energy economist at the University of Alberta, has done some simple calculations on what a carbon price would mean for oil companies. If a company were to pay a $30 to $50 price on a tonne of carbon emissions, they would subtract it from roughly $400 to $500 worth of profit, Leach wrote on his blog.

“The realization people need to have is these (oilsands) projects would probably be more resilient to carbon pricing than most people think,” Leach said in an interview with DeSmog Canada.

$200 a Tonne and Oilsands Growth?

In 2009, M.K. Jaccard and Associates conducted economic modelling for the Pembina Institute and David Suzuki Foundation on the impact of carbon pricing on the Canadian economy. The models showed the federal government needed a carbon price of $100 by 2020 to meet their Copenhagen Accord emissions targets of a 17 per cent reduction from 2005 levels by 2020. Going one step further, for Canada to do its part to help keep global temperature rise below of an average of 2 degrees, the models showed Canada needed a $200 carbon price by 2020.

Even with a $200 carbon price, there is “continued expansion of oilsands operations in Alberta, but it occurs with large-scale use of carbon capture and storage,” said the report, Climate Leadership, Economic Prosperity.

Shell’s Carbon Capture Dreams

In her speech to the Economic Club of Canada, Lorraine Mitchelmore, president of Shell Canada said:

“Federal CO2 regulations will add to the pressure to innovate and will signal to the world that Canada is stepping up to do its part.”

Shell is building the first carbon capture and sequestration project in the oilsands for its upgrader near Fort Saskatchewan, Alta.

The company has received federal and provincial money and will also be able to resell the captured C02 for enhanced oil recovery operations. But with a stronger price on carbon emissions, their Quest carbon capture project will yield a greater return on their $1.35-billion investment and could position them to resell their technology if demand for it increases.

A Shell Price?

By introducing new federal regulations to increase the price on carbon emissions, the federal government would be playing catch up to Shell’s established business planning.

Royal Dutch Shell PLC, Shell Canada’s parent company, has for roughly a decade been using a carbon price of $40 a tonne when sizing up potential projects, as a precautionary step to make sure projects make long-term economic sense.

“It’s one of the lenses we would use to stress test a project,” David Williams, Shell Canada spokesperson, said.

Shell joins a growing list of major oil companies and corporations incorporating a carbon price into their long-term planning.

It is likely any starting federal price on carbon emissions aligns with Shell’s planning. The last public announcement by the Alberta government looked to bump their carbon levy up to $40 a tonne for heavy emitters.

The federal government has been promising new regulations since pulling out of the Kyoto Accord in 2012. Back then, they promised to be “working toward draft regulations for 2013.” As 2013 comes to a close, new regulations still have not been introduced.

Kudos For Now

In the polarized conversation around climate policy, Ed Whittingham, executive director of sustainable energy think tank the Pembina Institute, says Shell should be congratulated for welcoming federal carbon pricing.

Shell’s $40-a-tonne carbon price aligns with Pembina’s starting point for carbon pricing, Whittingham said.

“Although Pembina and Shell might not agree on all the points we want in the regulations, the important thing is for the federal government to move forward and introduce these long overdue regs,” he said.

Image Credit: Pembina Institute via Flickr


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2 responses

17 01 2014
Gerry Gagnon

How i wish these companies would grow some balls and confront the fallacy of human-caused “climate change’, instead of just passing on the unnecessary cost to the rest of us…

17 01 2014
One Straw Revolution

Glad to see that you’re reading the Harbinger, Gary. Even though I disagree with you on this point (and probably many others), nonetheless you are welcome to read and comment here.

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