‘Who’s going to reap the benefits?’: Analyst believes new carbon capture MOU should ring alarm bells for Alberta taxpayers

A Memorandum of Understanding (MOU) between Alberta, Ottawa, and an alliance of five oil sands producers to advance the Pathways Carbon Capture Project was signed July 2 and made public on Monday. Director of the Pembina Institute's oil and gas program Janetta McKenzie joined Alberta Primetime's Michael Higgins to discuss the elements of the deal.

A Memorandum of Understanding (MOU) between Alberta, Ottawa, and an alliance of five oil sands producers to advance the Pathways Carbon Capture Project was signed July 2 and made public on Monday. Director of the Pembina Institute’s oil and gas program Janetta McKenzie joined Alberta Primetime’s Michael Higgins to discuss the elements of the deal. This interview has been edited for clarity and length.

Michael Higgins: How much do you see government policy having to shift here to land this agreement with the oil sands companies? Janetta McKenzie: There’s quite a bit of shifting policy in this latest Memorandum of Understanding, which is the latest in a series of MOUs designed to unlock additional oil production and pipeline capacity to the west coast. When we look at this latest MOU, the Premier noted a commitment to financial incentives for oil sands companies to increase production and opening the door to additional public support for the Pathways Carbon Capture Project.

On top of the recently announced publicly funded West Coast oil pipeline, it seems like when you put all those things together there’s a pretty large financial package being put together for the oil sands sector and the transportation of that oil. This really does call into question what the benefits are going to be for Albertans, particularly as we start talking about those financial incentives for oil production. MH:

To what degree do you see taxpayers’ dollars being needed to make Pathways happen under this MOU? JM: There’s already quite a bit of financial public support put on the table for the Pathways Project and other carbon capture projects through the federal investment tax credit and the Alberta Carbon Capture incentive program. Which, put together, defray about 62 per cent of the upfront capital cost of a carbon capture project like this.

But included in this latest MOU is a commitment to explore additional support for the operating expenses of this project. Now we’re in a situation where there’s an opening for even more of that cost to shift to the public. Whereas the actual carbon capture project has shrunk quite a bit since the then Pathways Alliance, now Oil Sands Alliance, announced it in 2021.

In 2021 and 2022, we were talking about 22 megatons a year of emissions reductions by 2030. Now we’re talking about six megatons by 2035. It’s a significant scale down in ambition in terms of decarbonization, but an opening for scaling up even more public support for both the carbon capture aspect and the oil production side of things.

MH: What do you feel it says about the feasibility of all that’s involved here? If incentives are needed to increase production?

JM: I think it calls into question the extent to which oil sands companies really want to be increasing production to this extent and at this speed. If we are in the position where we are needing to revisit royalty structures and maybe consider royalty holidays for oil sands firms in order to get them to produce more oil on the timeline that the premier is committed to, I think that’s a pretty big problem and something that should ring some alarm bells for Albertans. The agreement here is that oil and gas firms generally pay royalties for the right to extract and sell a resource that belongs to Albertans.

So when we’re talking about adjusting those structures that perhaps will be foregone revenue for Albertans, that raises a pretty big question about what the benefits of this project are going to be, what this scale up in production is going to be, and who’s going to reap those benefits. MH: Environment ministers from across the country are meeting in Calgary today and tomorrow. Alberta’s minister will be highlighting new results from the annual Oil Sands Greenhouse Gas Emissions Intensity report with results showing a 28 per cent drop in emissions per barrel since 2012.

What do you make of Alberta’s claim that economic growth and emissions reduction can go hand in hand? JM: I think when we’re talking about Oil Sands Emissions Intensity from 2012, absolutely there’s been some pretty impressive emissions reductions when you look in terms of intensity at that timescale. But when you drill in a little bit deeper and you look at the last few years, you’ll see that emissions intensity improvements have really stagnated.

They haven’t continued to make the types of improvements that they were making back in 2012 and in the early 2010s. This is a sector that has improved its emissions intensity over time, but those improvements have really stalled out and there’s not an indication that they’re on a trajectory to pick up those improvements in the near term. MH:

What do you feel Canadians should expect when it comes to Pathways being a viable, successful project and achieving the goals expected of it? JM: I think there’s maybe two things that Canadians should keep in mind here; one is that this is now a much smaller project than it was originally proposed as and apparently is going to need even more public support to get it across the line, as well as a discussion of other financial incentives for other parts of the value chain. At that point, the oil sands sector is the highest emitting sector in Canada.

It has not bent the curve on its greenhouse gas emissions, and now it’s asking Canadians to foot most of the bill not only for building this project but also for operating it potentially. That really raises the question: how much are the oil sands companies going to be asked to clean up their own emissions? And the answer should be quite a bit.

MH: Should Canadians have trust in Pathways being a success? JM: There are some examples of carbon capture projects successfully operating.

Notably in Alberta, the Quest project operated by Shell is an example of an oil sands carbon capture project. But this MOU is non-binding. It says pretty clearly that there are still a lot of details to be worked out.

Whether and to what extent this project will go ahead, I think is still very much up in the air. There does seem to be some agreement to move it forward in some capacity in the next ten years, but there’s a lot of time between now and 2035. This is a non-binding agreement, so still quite a bit of uncertainty as to the extent to which everything in this MOU is going to be delivered on.