Ottawa, Canada - Governments will have to dramatically increase the penalties for emitting greenhouse gases before Canada’s oil sands producers have a financial incentive to invest in carbon capture and storage, says a new study by the Canadian Energy Research Institute.

In a report released yesterday, the Calgary-based institute’s research director David McColl offered “plausible” scenarios under which projects now known for producing “dirty oil” would yield “green bitumen,” with less greenhouse gas emissions than conventional oil production.

“Going green is a challenge that can be met,” Mr. McColl said, citing both carbon capture and nuclear power as alternative technologies.

He noted that Canadian and U.S. jurisdictions are adopting low-carbon fuel standards that will force Alberta’s oil companies to come to grips with the cost of abatement.

But to get there, he said, the industry will need sharply higher crude prices and government support for new technology - as well as a carbon levy more than four times the one currently imposed by the Alberta government. To meet Alberta’s regulatory targets, oil companies can pay $15 per tonne of carbon-dioxide emissions into a technology fund; the province recycles that into support for technology such as carbon capture and storage.

But at $15 a tonne, Mr. McColl said, industry will simply pay to pollute rather than invest billions of dollars for emission reduction technology. The Alberta levy “is just not adequate to stimulate a change in technology,” he said in an interview. To justify those investments, he said, companies need to face compliance costs of at least $65 a tonne, or about $4 a barrel in extra production costs.

He said crude prices would have to rise to at least $90 (U.S.) a barrel to allow companies to invest in emissions reduction technology, while still earning a reasonable rate of return. And if construction costs escalate as they did between 2005 and 2008, crude prices would have to be closer to $110 for the new oil sands projects to go green.

In the study, Mr. McColl outlined two broad options to replace the burning of natural gas, which currently accounts for much of the oil sands’ emissions. The scenarios include:

Using gasification technology to utilize coal and petroleum coke to produce heat and steam, and then capture the CO{-2} and pipe it to sites where it can be injected underground for permanent storage; and/or using nuclear power, including as many as four large power plants and two dozen microreactors such as those that have been developed by Japan’s Toshiba Corp.

The federal government is expected to release its own regulations later this year for targets for large carbon emitters such as oil sands producers. In the past, Ottawa had signalled it would cap compliance costs at $15 a tonne, but it’s not clear whether Environment Minister Jim Prentice will maintain that maximum.

By: Shawn McCarthy - Globe and Mail