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Simon Evans

Simon Evans

19.11.2014 | 2:25pm
PolicyTackling climate while maximising oil extraction: UK-Canada meeting glosses the paradox
POLICY | November 19. 2014. 14:25
Tackling climate while maximising oil extraction: UK-Canada meeting glosses the paradox

Ministers from the UK and Canada came together for a roundtable meeting on energy security on Tuesday to discuss issues including exports from the Canadian oil sands, oil sector regulation and carbon capture and storage.

The Canada Europe Energy Summit was held in the Foreign and Commonwealth Office’s opulent  Locarno Suite. It was sponsored by energy firms including the UK’s Centrica, owner of British Gas, and was attended by chief executives and chairmen of oil and gas players from Europe and North America, as well as Carbon Brief.

Attendees were met by banner-waving  activists protesting against Canadian oil sands production. This prompted some delegates to reflect fondly on the annual event’s more exotic  2011 protest, when a pair of underwear-clad protesters stood on the table and smeared each other with oil.

Themes at the meeting included frustration at “disinformation” spread by environmental groups and a push from Canada for its oil sands to be seen as a stable “baseload” source of oil, able to feed growing demand in a world of growing political instability.

Tackling climate change while maximising oil extraction

The importance of tackling climate change was noted by the UK’s energy minister Matt Hancock and Canadian deputy minister for natural resources Bob Hamilton. Both also emphasised their intention to maximise the exploitation of domestic fossil fuel resources.

Hancock began his speech to the meeting with an unscripted recollection of his youthful expedition to measure Arctic sea ice thickness for the European Space Agency. He went on to say:

“Together with the whole world we must tackle climate changeâ?¦ we need to cut emissions to avoid dangerous climate change.”

However Hancock later added:

“Our aim is to maximise economic recovery of our hydrocarbon reserves, to boost growth, energy security, and jobs.”

He explained how the government planned to do this through regulatory reform of the north sea oil and gas sector. The Department of Energy and Climate Change (DECC) estimates these reforms would release an additional three or four billion barrels of oil over the next 20 years that would otherwise stay below ground.

Ignoring the carbon costs

DECC’s assessment of the costs and benefits of these reforms fails to consider carbon emissions. Hancock told Carbon Brief there was no need to consider the carbon impact of additional production as it could be counted at the point of consumption instead.

This is contrary to official guidance on working out the impacts of reforms, which says the emissions impact of all policies “should” be measured.  Burning the additional barrels of oil would release 1.3 to 1.7 billion tonnes of carbon dioxide, Carbon Brief analysis suggests, although this could be offset if oil production was cut elsewhere in the world.

Official guidance also suggests the financial value of carbon should be measured where possible, based on the cost of mitigating emissions. A rough Carbon Brief analysis using DECC carbon price projections puts the cost of the additional emissions at between £56 and £74 billion.

North sea oil sector reform is expected to benefit UK society by between £21 and £56 billion. If DECC had considered the cost of the additional emissions then it would have more than outweighed this benefit. The additional emissions would also be approximately equivalent to the UK’s economy-wide carbon budget for the five year period from 2023 to 2027.

Providing stable supply in an unstable world

Canadian deputy natural resources minister Bob Hamilton also spoke of the need to tackle climate change and hailed Canada’s 5 per cent emissions reduction since 2005. He did not mention that this leaves his nation well behind the curve needed to meet its promised 17 per cent reduction on 2005 levels by 2020.

Instead Hamilton, like Hancock before him, spoke of a desire to make the most of the economic potential of domestic fossil fuel resources. Hamilton said:

“We have vast levels of [energy] resources ready to be exportedâ?¦ we have 167 billion barrels of oil sands resources aloneâ?¦ We want to be a source of reliable supply to meet growing future demand.”

Other speakers at the event pointed to the world’s other sources of oil and their association with corrupt regimes and violent conflict. Canada, they suggested, could be relied on to provide a stable “baseload” supply of oil.

Burning Canada’s 167 billion barrels of oil reserves would release more than 72 billion tonnes of carbon dioxide, equivalent to around two years of global emissions. At current rates of emissions the world will spend the carbon budget consistent with a two degrees world by around 2040. Given that timescale of 25 years, two years’ worth of emissions is significant.

Building new pipelines is a key requirement for Canada to fulfil its wish to be a reliable “baseload” oil supplier. Plans including the totemic Keystone XL pipeline that would transport oil south to the US, which currently buys more than 95 per cent of Canadian oil.

Other less well-known pipelines are also planned to transport oil to Canada’s Atlantic and Pacific coasts. These would open the way to shipments to Europe, Asia and beyond.

The UK shale revolution may never happen

Hancock’s speech also hailed the potential of UK shale oil and gas resources to increase energy security, jobs and economic growth. But one senior figure played down the prospects for UK shale resources.

Sarwjit Sambhi, managing director, Centrica Energy Exploration and Production told Carbon Brief:

“When people talk about the UK shale revolution, it either isn’t going to happen at all or it’s going to be a long time coming.”

Centrica has applied to drill two onshore exploratory wells in the UK that could eventually lead to shale extraction using the process known as fracking. It also owns 25 per cent of fracking firm Cuadrilla.

Sambhi said the applications for the two wells were disproportionately complex and stacked as high as his knee. An equivalent application in the US would run to three pages, he said.

Sambhi said:

“It’s a quantum difference. Our biggest challenge in the UK will not be the rocks, it will be the surface issuesâ?¦ As it is, we could spend tens of millions and get nowhere.”

Some public opposition to fracking is well-founded

Hancock spoke approvingly of the approach to regulating the fossil fuel industry in Alberta, home of Canada’s oil sands production. Gerry Protti, chair of the Alberta Energy Regulator, spoke of the need for well-balanced regulation and transparency in order to secure public support for sometimes unpopular and controversial projects.

Protti said that when regulators fail, it creates ripples of public opposition that can spread worldwide through social media. He said it should therefore be no surprise that the public has turned against fracking in some parts of the US.

Protti said:

“One of the reasons why Pennsylvania is a hotbed of NIMBYism is regulatory failure in their initial approach to regulating unconventional gas developmentâ?¦ they allowed fracking process water to go into municipal water [treatment] plants. It caused a lot of problems and that got the public upset for extremely good reason.”

“I know the UK’s got big issues with unconventional [gas] and it’s going to take that consistent conversation and demonstration of capability to win people over.”

DECC is planning to send an official on secondment to Alberta’s Energy Regulator “to enhance our cooperation with Canada on shale gas, and to deliver Canadian expertise and experience into our own industry,” Hancock said.

Protti told Carbon Brief it was “a little bit embarrassing” that his organisation was cited as a model by Hancock. The Alberta Energy Regulator is very young, is the result of a fundamental restructuring of regulation in the province and only published its first strategic plan this year. Protti said the success of this new approach to regulating the energy sector could only be tested in a couple of years.

Unburnable carbon

It is tempting to see the UK-Canada summit as a microcosm of arguments around trying to tackle climate change while fully exploiting domestic fossil fuel resources.

While it is economically rational for individual countries like the UK or Canada to try to maximise the economic benefits of their natural resources, about 80 per cent of known global fossil fuel reserves must stay in the ground if we want a good chance of limiting warming to two degrees, according to the Intergovernmental Panel on Climate Change.

Fossil fuels are needed today and they will still be needed for some years to come, but sooner or later we will have to stop extracting them. If everyone takes the UK-Canada approach and attempts to maximise exploitation of fossil reserves, then presumably all the climate targets in the world aren’t going to prevent dangerous warming.

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