Natural Resources Committee on Feb. 2nd, 2022

[Jan Gorski, Director, Oil and Gas, The Pembina Institute]

This is Jan Gorski. I'm coming to you from Canmore, where it's fairly snowy right now and quite cold.

[The Clerk]

Okay, we're ready to go.

Thank you very much, everybody.

[The Chair, Liberal, John Aldag]

That's excellent. Thank you, everyone, for your patience as we got through that.

We're now going to proceed to our second panel of witnesses today. I don't know if everybody was there at the start.

Briefly, as we go through it, I will give a yellow card when you have 30 seconds left, either in your opening statements or when the allotted time for questioning is up for each of the MPs. That's just a warning. With the red card, when the time is up, don't stop mid-sentence but wrap up your thoughts, and then we can move on to the next person so that everybody gets their fair chance at participating today.

Joining us for this panel, from the International Institute for Sustainable Development, we have Aaron Cosbey, senior associate. As well, from the Pembina Institute, we have Chris Severson-Baker, regional director for Alberta; and Jan Gorski, director of oil and gas. I believe Jan will do the opening remarks for the Pembina Institute. We also have Whitecap Resources, with Patrick Kitchin, director of regulatory and environmental sustainability, joining us.

Thank you, everyone, for making time to be with us today for the study. We will go into opening statements. Each of you will have five minutes, and then we'll get into our round of questions and answers.

Mr. Cosbey, we'll start with your opening statement, for five minutes.

[Aaron Cosbey]

Thanks very much, Chair, and thanks for my opportunity to present the views of IISD to the committee hearings on the ERF.

As a general proposition, IISD has concerns about subsidies to the oil and gas sectors, whether for decarbonization or for other purposes. They have a long history of work in this area, both in Canada and internationally, and Canada unfortunately has a long history of unfulfilled commitments.

To be clear, we support well-crafted subsidies that facilitate the coming industrial transformation. Clearly, the government has a significant role to play in helping Canadian heavy industry to decarbonize on the road to net zero, be that in steel, aluminum, cement or pulp and paper, but oil and gas is not like those other industrial sectors, in three important ways.

First, subsidies to oil and gas may lead to increased viability of industries whose products ultimately we need less of, not more of, if we are addressing the climate change crisis. Second, that means that every dollar spent supporting oil and gas is a dollar not spent supporting the sectors of the future, those that will provide long-term growth for Canadian workers and families. Third, support to oil and gas risks signalling that there's no need to prepare for a time when demand for its products is no longer at its current strength. It risks making the eventual transition more painful for dependent workers and communities, and it risks contributing to the financial crisis of significant stranded assets.

Those problems are significant to subsidies in the oil and gas sector, but they're layered on top of risks and pitfalls that are inherent in any industrial subsidies. It's a long list, but among the key concerns are that they can create vested interests that will advocate for their continuation after the subsidy is no longer necessary. They can blunt incentives to move toward energy transition and, of course, they can violate the “polluter pays” principle.

To help ensure that Canadian taxpayer dollars don't create those kinds of undesirable outcomes, IISD has developed some basic principles, some of which have strong relevance to the ERF. These are in part derived and adapted from a set of guiding principles and recommendations on green spending in the COVID recovery plan, our “Green Strings” report. This was submitted to the government in 2021 with the support of 12 other Canadian environmental organizations.

Of particular relevance here is the principle that no support should be offered that lowers the cost of production for gas and oil installations. No support should be offered to comply with existing or pending regulations. Supports should only go to applicants with credible plans for net zero by 2050. Finally, support must be accompanied by clear signalling on Canada's vision for the future of the sector and meaningful commitment to just transition for affected workers and communities.

Given the pitfalls inherent in subsidies, which we know in some depth, our clear preference would be for strong, effective regulations that reduce methane emissions in the oil and gas sectors. But we don't currently have those, and it may take years to get them, so as a second-best solution we see a role for programs like ERF.

We're happy to see improvements in the ERF in the third intake. Some of them are aligned with the principles I just described. We're particularly happy with the principles that projects have to fully eliminate all continuous sources of intentional routine venting and flaring, that projects must exceed the regulatory requirements, pending and current, and that projects must show a detailed financial case for additionality of the emissions reductions they claim to be financing. All of that is good.

Unfortunately, we predict that the increased stringency is going to mean very few applicants, so very little methane is going to be reduced in the third intake, which is a problem. Other witnesses have stressed the urgency of reducing methane emissions. There are immediate and cheap reductions. We know that from the ERF's experience in this area, and we know that from other international experience. Where does that leave us? I come back to it. It leaves us with strong and effective methane regulations with two primary objectives: eliminating completely intentional venting and flaring; and better accounting for, and reducing, leakage.

The pneumatic gas-actuated controllers, the main source of intentional emissions, have technological substitutes available, and they are cheap. These should be regulated out of existence. All other sources of known intentional emissions should be metered. As it is, we don't know the scale of the problem, so how can we address it? How can we make credible commitments? We need more frequently mandated surveys to find and fix leaks. Those unintentional emissions are a big part of the discrepancy that we see again and again with measured and reported emissions.

In closing, the first best option is strong regulation in this sector. The second best option, until that first best happens, is to make room for the kind of strong regulations that will reduce methane emissions, but this is strictly second best. To deal with the problems of that second best, refer to our principles on how to administer subsidies and support to sectors like oil and gas.

Thank you for your time.

[The Chair, Liberal, John Aldag]

Thank you for your opening statement.

We will now move to Mr. Gorski with the Pembina Institute for five minutes, please.

[Jan Gorski]

Good afternoon, Mr. Chair and members of the committee.

My name is Jan Gorski and I'm the director of the oil and gas program at the Pembina Institute. My colleague Chris Severson-Baker is the Alberta regional director.

The Pembina Institute is a non-profit think tank that advocates for strong, effective policies to support Canada's clean energy transition. We've advocated for methane regulations at the provincial and federal levels since before 2015, and we've informed their development and implementation since then. We've also provided recommendations to Natural Resources Canada on the design of the emissions reduction fund, which were adopted. Pembina has a long history of working on environmental issues in the oil and gas sector, having done this for close to four decades.

In 2021, we saw significant momentum building on reducing methane emissions, both in Canada and globally. Reports from the International Energy Agency, the United Nations Environment Programme and the Intergovernmental Panel on Climate Change all highlighted the urgent need to address methane emissions in 2021. Over 100 countries, including Canada, signed on to the global methane pledge at COP26. This was a clear signal of impending global action.

Recent research confirms that we need to act fast on methane. Cutting global methane emissions from all human sources—including oil and gas, agriculture, waste and others—in half by 2030 would avoid an additional half a degree increase in global temperatures by 2100. This is equivalent to slowing down global warming by almost [Technical difficulty—Editor]. That's a large amount.

The need to act now is made more urgent by the fact that actual methane emissions are much higher than current government estimates. Studies in Canada and the U.S. consistently show that methane emissions from oil and gas could be as much as twice as high as current government estimates show.

Canada needs to get as close as possible to eliminating methane emissions from the oil and gas sector by the end of this decade. A 2019 study from the Canadian Energy Research Institute examined how much oil and gas methane we could eliminate using existing technology. The study found that methane emissions in 2017 could be reduced by 33 megatonnes. Based on our analysis of this report, this translates to almost a 90% reduction from 2012 levels, at a cost of less than $25 a tonne. This is very inexpensive when compared to the carbon price, which will be rising to $170 a tonne.

What this shows is that we have the technologies to drastically cut methane emissions, and they're commercially available and economically feasible.

The federal government has recently set a new target to reduce oil and gas methane emissions by at least 75% by 2030 and is well placed to be a leader in addressing methane, but they must now act quickly to implement policy to meet and exceed that target. Such action must include strong regulations, but they also must address challenges with methane data and infrastructure barriers. There is a lot of uncertainty in the amount of methane emitted by oil and gas operations, as I mentioned, so we need to improve methane data and continue to address the kind of infrastructure barriers that the emissions reduction fund has been addressing.

The fund was implemented during the pandemic to create jobs and economic benefits within the oil and gas sector, while at the same time reducing emissions. At that time, the government's own modelling showed that Canada's regulations were falling short of our 2025 methane reduction target of 40%. The fund was also meant to help bridge the gap to meeting our 2025 target.

As Pembina recommended, the fund was designed to go beyond incremental reductions and to encourage the complete elimination of methane emissions, which is something that's not required by current regulations. Setting this ambitious target was the only way the fund would achieve reductions above and beyond current regulations. In that respect, the fund was successful, in that 97% of the money went to projects that eliminated methane.

Given the urgency of the climate crisis and the need to act quickly on methane, the fund should be kept for the remainder of 2022 to eliminate as much methane as possible.

We are also still in the dark about progress towards Canada's 2025 methane reduction target, because the federal government's recent progress report has not included promised updates to the national inventory or the most recently available data on the real levels of methane emissions. There's a need to calculate what reductions from the fund were on top of regulations, meaning that they went above and beyond regulatory requirements. This information is key to evaluating Canada's progress towards the 2025 target.

The federal government also needs to publicly release more detailed information from the ERF showing the types of projects, costs and emissions reductions that were funded. This data will help inform future policy design.

To wrap up, Canada has an opportunity to be a leader in addressing methane. Doing so is critical to addressing emissions from the oil and gas sector. The government must waste no time and act quickly to implement policy to exceed our 2030 methane target.

Thank you very much.

[The Chair, Liberal, John Aldag]

Thank you for those opening comments.

We'll jump right into the opening statement from Whitecap Resources.

Mr. Kitchin, it's over to you for five minutes.

[Patrick Kitchin, Director, Regulatory and Environmental Sustainability, Whitecap Resources Inc.]

Thank you, Mr. Chair, for the opportunity to speak with your committee today about Natural Resources Canada's emissions reduction fund.

As you mentioned, I am the director of regulatory and environmental sustainability here at Whitecap Resources, an oil and gas producer with assets across the four western provinces. We are the operator and majority owner of Canada's largest carbon dioxide sequestration project, the Weyburn Unit, which has permanently sequestered roughly 38 million tonnes of carbon dioxide to date.

Our company sits among the leaders in our industry for carbon intensity and emission reductions. Over the past few years, we have consolidated facilities, expanded pipeline networks, upgraded over 1,000 venting devices and installed solution gas capture equipment, just to name a few examples of how we're reducing the carbon footprint of our assets.

In early 2021, Natural Resources Canada approved an emission elimination project submitted under this program by Highrock Resources, a company acquired by Whitecap in July. This project eliminated the company's largest emission source through the construction of a 10-kilometre pipeline to transport previously flared solution gas for processing and sale.

The scope of the approved project did not include additional development, nor any facility upgrades, and it was completed in early December 2021 for approximately $1.4 million. It is estimated to have eliminated 36,500 tonnes of carbon dioxide equivalent in the first 12 months, and it would not have been completed at this time without the funding, as the economics were below our internal hurdle rates.

The execution of this project, located in southeast Saskatchewan, directly benefited 19 third party service companies that we engaged for engineering work through to construction. It also directly benefited many local landowners, who were compensated financially for surface right-of-way access during construction. The $1.4 million incurred by Whitecap helped to sustain jobs during a period of reduced activity for our sector, directly supporting those businesses and local residents.

Highrock applied for this funding because it presented an opportunity to execute a large emission reduction project that surpassed the minimum requirements of the provincial methane regulations, with a lower cost to the company during a period of significantly depressed energy markets.

As we look to the third intake period, we began building applications for multiple projects in late 2021. Following the program changes implemented in response to the findings of the audit conducted by the Office of the Auditor General of Canada, we are still moving ahead with these projects in our application.

Currently, they are all solution gas conservation projects, and the associated emission reductions are estimated to be over 250,000 tonnes of carbon dioxide equivalent in the first year. These reductions would be directly attributable to the emissions reduction fund, as the assets involved are in compliance today with provincial methane regulations.

The emissions reduction fund was released at a time when the oil and gas industry was struggling due to sharp and sustained declines to commodity prices. Service companies shouldered a significant burden, as upstream producers exercised prudence by cutting capital development programs to protect their balance sheets through the downturn.

Completion of the approved projects directly supported numerous service companies, contractors, communities and landowners during a period of uncertainty and need. Generally speaking, these projects will also lead to ongoing work with third party contractors for services such as equipment maintenance and repairs.

Overall, I believe this program has been successful in supporting progress towards our national emission reduction targets and—most notably for the first two intake rounds—supporting a sector that was in severe financial duress.

As noted in the audit findings, uptake in the first two rounds was lower than expected, likely due to a short application window that was very difficult for most companies to meet. With a much longer application window for intake three, I would expect there to be many more projects submitted and an opportunity for the federal government to continue progress towards its climate targets and exceed reductions attributed to existing policy frameworks.

While the economy is recovering and commodity prices today are stronger, the emissions reduction fund can still provide a substantial benefit to Canadians by enabling even deeper emission reductions earlier than they would have been achieved otherwise.

Thank you again, Mr. Chair, for the opportunity to speak with your committee today and share our experience with Natural Resources Canada's emissions reduction fund.

[The Chair, Liberal, John Aldag]

Excellent. We'll move on.

Thank you to each of the three of you for your opening statements.

With that, we'll move right into our round of questioning. First up, for six minutes, I have Mr. Maguire.

Mr. Maguire, it's over to you.

[Larry Maguire, Conservative, Brandon—Souris, MB]

Thank you, Mr. Chair.

Thank you to all of our presenters today for their fine presentations in regard to the study we're doing here on the emissions reduction fund and its efficiencies.

Thank you, Mr. Cosbey, for your presentation. I just want to note that I was the environment critic in Manitoba. I used to do quite a bit of work with the IISD as well. I appreciate your presentation today, too.

Mr. Kitchin, your company, as you've just pointed out, has shown that it's possible to reduce both fugitive and intentional methane gas emissions, flares and others with the funds you've received. Can you summarize a little bit for our committee what exactly your company did to reduce methane emissions? You mentioned Highrock Resources and others as well.

[Patrick Kitchin]

Thank you, Mr. Chair. That's a great question for us.

The project that was approved by Highrock Resources is the only project we have submitted in the first two rounds to the ERF and have executed. For that project in particular, it was completed at an oil production facility in a region of southeast Saskatchewan that currently has limited gas pipeline infrastructure in place.

Prior to completing the project, we did not have a method to economically conserve the solution gas that was being produced. It was previously venting off multiple devices at the facility, which we were routing to a flare for destruction to help limit the emissions. Our project redirected that vented solution gas into a brand new 10-kilometre pipeline so that it could be processed and utilized.

[Larry Maguire, Conservative, Brandon—Souris, MB]

The carbon capture technology you're talking about is required for Canada to help meet our international agreements. Do you agree with that? Do you think it's very responsible to use that to help meet our international agreement targets, like the UN sustainable development goals and the Paris climate accord?

[Patrick Kitchin]

Yes, I absolutely agree that carbon capture is and will be a key tool for society to meet our commitments under international agreements such as the Paris Agreement. We will require society to make large and rapid emissions reductions at scales we haven't seen in the past. This is a very effective way to meet those. It's been highlighted by many institutions, such as IPCC, that in order to meet our targets, carbon capture will have to be a key part of that solution.

[Larry Maguire, Conservative, Brandon—Souris, MB]

I got into politics as a farmer to try to expand the exports of products, but here's another industry that has great technologies. You've introduced some of them. I've long believed that Canada should be exporting best practices and even selling equipment and green technologies to countries that are less rigorous in their environmental management.

We heard earlier this week, on Monday, from Mr. Lakeman of Edmonton Global's hydrogen initiative. He noted the wide array of innovation regarding emissions reductions, including carbon capture. Are there environmental and economic opportunities, then, in carbon capture that we could seize by further developing the technology and selling it abroad?

[Patrick Kitchin]

Thank you, Mr. Chair. That's another great question.

I feel that we should be proud as Canadians that we have been a pioneer in carbon capture and a global leader in this space. Arguably, many of the leading experts in carbon capture are Canadian. We've seen multiple IEA and IPCC reports that state that carbon capture will be required to meet our global ambitions.

We believe our focus should be, first, on further developing this technology here in Canada to process it at lower costs, demonstrating first-hand the positive benefits it can have. It presents a great opportunity for Canada to share its experience in this space and benefit financially from sharing the knowledge and technology with international partners.

[Larry Maguire, Conservative, Brandon—Souris, MB]

I think it's been great for our universities and colleges in those areas and for the industry technology, the industry effort, in that area itself. Your company has brought online a few carbon capture projects, as you mentioned. You've used the emissions reduction program to reduce methane emissions—that's proven.

Do you have any recommendations on what you'd like to see in the design of the soon-to-be-unveiled carbon capture tax credit?

Are there any thoughts you might have on that?

[Patrick Kitchin]

Yes, at Whitecap we believe this incentive should support emitters who face very high costs to decarbonize. We don't think it's necessary for the capital spend on carbon dioxide enhanced oil recovery, or CO2-EOR, to attract the investment credit itself. However, it should support emitters who choose to implement carbon capture regardless of where the CO2 is stored, as long as emissions are being reduced and the carbon is permanently sequestered.

It's important to remember that CO2-EOR projects do target existing depleted reservoirs. The extended life of these reservoirs does help to reduce the surface environmental impacts of new exploration to meet existing and ongoing fuel demand.

While demand is strong, we do believe that Canadians are going to be proud to support the market with lower carbon intensity oil that comes from CO2-EOR, which is estimated by the Clean Air Task Force to have 37% fewer emissions than a conventional barrel.

[Larry Maguire, Conservative, Brandon—Souris, MB]

Yes, I think that's pretty significant with those kinds of numbers. You indicated the 250,000 metric tons to be decreased in the first year, here. I commend you for being a net-zero company, when we're talking about net zero by 2050. You've indicated in the past that the company is already there.

I think your information and answers have been invaluable in keeping with the mandate of exporting technology to help the whole world bring down our emissions.

[The Chair, Liberal, John Aldag]

I'm just going to jump in there. We're out of the six minutes.

Thank you for that exchange.

We're now going to go to Ms. Dabrusin for her six minutes of questions.

[Julie Dabrusin, Liberal, Toronto—Danforth, ON]

Thank you.

Actually, I'd love to pick up from where Mr. Maguire left off, about the importance of innovation, developing Canadian technologies and being able to export them, as well.

The reason I say that is that I believe one of the panellists referred to the issue of methane leaks. In the past few weeks, we've had really great examples of how Canadian technology is at the forefront of trying to address that issue. There was a list that was put out of 100 of the top clean-tech industries in the world. Canada had 13 of those companies. One of them is GHGSat.

I wanted to mention it, because I think it's really important. They have the only satellites in the world with sufficient resolution to isolate small leaks by individual pads so that they can be fixed quickly. In fact, on a weekly basis they actually spot these leaks so that we can jump on that and address that source of methane emission.

I digress. I know we're talking about intentional venting today, but I think it's always really important to say that we're at the forefront of some amazing innovations here in our country. It fits as part of the puzzle. There are bigger pieces of the puzzle, the emissions reduction fund being one piece.

I want to get to the part about intentional venting. Perhaps I will start with the witness from the Pembina Institute, Mr. Baker.

I believe you mentioned that 97% of the projects addressed intentional venting. Is that correct? Do I have that number right?

[Chris Severson-Baker, Regional Director, Alberta, The Pembina Institute]

Yes, and I'll go ahead and let Jan answer that question.

[Julie Dabrusin, Liberal, Toronto—Danforth, ON]

If I read your letter correctly, you mentioned something about—talking about innovation in this piece—the emissions reduction fund being a driver for Canadian leadership in methane abatement technology. I was wondering if you had anything you wanted to add about that.

[Jan Gorski]

The statistic was that 97% of the money from the fund went to eliminate methane from intentional venting. You were correct, there.

Canada absolutely is well placed to be a leader in addressing methane. We have regulations in place right now. To capture that leadership, we need to do well on our 2030 target and now set policy and regulations to achieve even further reductions. That will drive more innovation. It will drive more economic development on the methane side in Canada.

[Julie Dabrusin, Liberal, Toronto—Danforth, ON]

I apologize. It was Mr. Gorski. I had written down the wrong name.

Picking up on that, do you see a value in continuing with the emissions reduction fund, even as the price of oil and gas has increased?

[Jan Gorski]

I think, given that the fund is now in place and we have new rules around how to apply to the fund, it makes sense to continue it for the next year in order to achieve further reductions. Looking past that, we really need to lean on strong regulations to send a signal for companies to start addressing methane.