While Trump backs up on climate change, Canada’s oilsands see upside of reducing carbon

The gutting by Donald Trump of his predecessor’s climate-change initiatives is stirring debate about whether Canadian governments should decelerate their own green agendas, particularly if they make Canadian oil and gas less competitive.

As promised, Trump signed an executive order Tuesday to suspend, rescind or flag for review more than a half-dozen measures in an effort to boost domestic fossil fuel production, which environmental groups are planning to challenge in court, and which they hope Canada won’t follow.

Truth is, Canada’s oilsands sector, until recently the most vilified of fossil fuels, is too far down the road of de-carbonization to back up. Indeed, it’s pushing hard on innovations that reduce greenhouse gas emissions because in many cases they also make the deposits more resilient by reducing costs.

As a recent study by CIBC World Markets put it, there is “considerable impetus” by the industry to improve its emissions intensity.

“The goal for oilsands producers today is to lower supply costs and improve environmental stewardship while supporting oilsands development,” according to the study by Arthur Grayfer, Mark Zalucky and Trevor Bryan.

The efforts reflect broader acceptance by the oil and gas community that it needs to up its game because society’s goals have changed, and if it doesn’t do it, it will be replaced by greener energy sources. As Darren Woods, the new CEO of Exxon Mobil Corp., said during IHS CERAWeek in Houston earlier this month: “We understand the risks associated with fossil fuels, and we think we can help mitigate those risks through technology.”

In the oilsands industry, decarbonization can be achieved by a spectrum of applications, from doing things better with less steel and fewer energy inputs, to radical new recovery schemes, according to the CIBC report.

“Our analysis suggests that in the next five years, greenfield oilsands development will be able to earn a 15 per cent rate of return in a US$50 a barrel oil world, and that Alberta’s emission cap may not hinder development in the next decade as conventional thinking believes, both of which point to the belief that oilsands (and not just higher quality oilsands) will not necessarily be a stranded resource.”

Among the technologies under implementation, Imperial Oil Ltd. will likely be the first to use a combination of steam and solvent at its Aspen project, with a final investment decision anticipated this year, the report says. Suncor Energy Inc. is working on other innovations, including re-engineering SAGD from the ground up to do it more simply and cheaper, and testing driverless trucks in its mining operations, resulting in efficiency gains by improving safety, minimizing downtime, lowering maintenance work and reducing kilometers driven.

Another study by the Canadian Energy Research Institute highlights six emerging technologies that can be deployed in the next five to seven years to significantly reduce costs and GHG emissions in the oilsands, enabling the sector to beat Alberta’s newly implemented emissions cap of 100 megatonnes a year.

Without the technologies — which use various combinations of solvent, CO2, and steam injection — CERI estimates the cap would be reached by 2028. Instead, the institute estimates the technologies have the potential to reduce bitumen supply cost by 34 to 40 per cent, reduce fuel-derived emissions from insitu oilsands production by more than 80 per cent and delay the time until the emissions cap is reached by several decades.

“Emissions and cost-reduction objectives are not adversely related,” the study finds. “For example, by choosing to implement the minimum cost objective configuration, dramatic emissions cuts are made as a result.”

In conventional oil and gas, Canadian operators are implementing their own strategies to stay competitive, by pushing down costs and being innovative.

While prepared to do the work, the Canadian sector’s greater concerns are around government initiatives that are more about appeasing fossil fuel opponents than results — such as increasing the regulatory burden for project reviews, and carbon taxes. Instead, Trump has promised to cut red tape, corporate taxes and could introduce a border adjustment tax that could increase the cost of Canadian oil and gas exported to the U.S.

In a report to clients based on meetings with several major Canadian oil and gas companies last week, Citi analysts said industry executives seem confident the Canadian government will step in if Trump implements a border adjustment tax. And as far as the carbon tax, “there is hope the government could look to revenue-neutral options for the tax to mitigate potential impacts on industry activity and the Canadian economy.”

It’s hard to say which climate-change approach — Trump’s contrarian, or Canada’s conformist — will prevail. The good news is that climate-change outrage is moving south.

Financial Post


For sale: Your private browsing history

The House of Representatives voted today to eliminate ISP privacy rules, following the Senate vote to take the same action last week. The legislation to kill the rules now heads to President Donald Trump for his signature or veto.

The White House issued a statement today supporting the House’s action, and saying that Trump’s advisors will recommend that he sign the legislation. That would make the death of the Federal Communications Commission’s privacy rules official.

The rules issued by the FCC last year would have required ISPs to get consumers’ opt-in consent before selling or sharing Web browsing history, app usage history, and other private information with advertisers and other companies. But lawmakers used their authority under the Congressional Review Act (CRA) to pass a joint resolution ensuring that the rules “shall have no force or effect” and that the FCC cannot issue similar regulations in the future.

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Canadian Coalition for Good Governance threw its support behind a proxy access bylaw two years ago

The shareholder sponsored proxy access bylaw proposals that will be put to the annual meeting of TD Bank on Thursday and Royal Bank next week, emerged, in part, from earlier work done by the Canadian Coalition for Good Governance (CCGG).

It was back in May 2015 that the CCGG issued a 25-page paper titled Shareholder Involvement in the director nomination process: enhanced engagement and proxy access.

At the time, the CCGG said that it “is time for Canadian public companies to focus on enhancing proxy access” – which it defined as “the ability of shareholders to have meaningful input into the director nomination process.” That influence could be either indirect (by being able to influence the nominees) or direct (by actually nominating directors). Under current law, shareholders have no input in the normal course in choosing any director nominees. Instead they vote for/withhold for directors selected, in some cases, by a nominating committee of the board.

But in its report the CCGG said that the nominee slate, “often still tends to reflect the board’s or in some cases still the CEO’s network of relationships and perspectives.”

And the CCGG was a supporter of proxy access.

“It is CCGG’s view that board composition in Canada will benefit from shareholder input into the nomination process and that such input is an essential component of shareholder democracy,” it wrote. “This potential positive impact on boards is becoming more widely recognized,” added the report with supportive comments from the UN Principles for Responsible Investing; from a study by the CFA Institute and from a McKinsey survey of directors.

“CCGG believes that shareholders having meaningful input into the director nomination process is desirable in principle,” it said, noting that “the fundamental tenet of shareholder democracy … should not be interpreted as hostile to management and the board.” Overall the CCGG said that a shareholder’s ability to directly nominate some directors is “an important right” and one that “should not be overly generous to exercise.”

And the CCGG gave its support even though it thought the mechanism would only be used sparingly. And besides proxy access, or a variant, was part of the scene in the U.S., Sweden, Australia, Germany, Italy and Brazil.

In its report, CCGG argued for a two-part system when it came to ownership for a shareholder to submit a proposal: 5 per cent for a company with a market cap of less than $1 billion and 3 per cent for a market cap of above $1 billion. At the time, more than 90 per cent of the companies listed in the TSX and TSX-V had market caps of less than $1 billion.

It also argued that the shareholder director-nominated process should be the lesser of three directors or 20 per cent of the board. It also argued that such nominees “should be set out fairly and on equal footing” with the company’s nominees. It advocated that “reasonable” solicitation costs to get the shareholder nominees elected to the board should be paid by the company and that the shareholder wasn’t to pass a minimum holding period before nominating.

The CCGG was emphatic in its support arguing that “the adoption of a meaningful process for receiving shareholder input on a regular basis about board composition, including the director nomination process along with the adoption of the method of enhanced proxy access offers a practical mechanism that would make the shareholders’ right to elect directors meaningful and will assist in holding boards accountable and in improving board composition and performance.”

Financial Post