A lot of ink is currently being spilled over the federal government's upcoming decision to approve — or not — Teck Resources' Frontier oilsands mine project.
Premier Jason Kenney and members of his cabinet insist that the Frontier project iscritical to Alberta's economic prosperity. The Mining Association of Canada's Pierre Graton stresses that Teck completed a "world-class, independent and rigorous assessment" and that the project was determined to be in the public interest by the joint review panel (JRP) that reviewed it.
Environmental groups argue that approval is fundamentally inconsistent with Canada's climate change commitments.
The project is being framed as both a test of Prime Minister Trudeau's resolve to combat climate change, and a referendum on the federal government's support for Alberta's economic interests and its commitment to national unity.
Our purpose here is not to take sides, but rather to lay out the facts and relevant legal context as clearly as possible so that Albertans — and indeed all Canadians — can come to their own informed views about the desirability, or not, of this project and what, if any, larger importance to attach to the federal cabinet's eventual decision on the future of the mine.
The JRP did indeed conclude that Frontier is in the "public interest," but that conclusion speaks only to the provincial side of the story.
Under the federal regime enacted by the previous Conservative government (the Canadian Environmental Assessment Act, 2012), the JRP was restricted to determining whether the project is or is not likely to result in "significant adverse environmental effects."
The JRP concluded that such effects are likely, and further, that they "weighed heavily" upon its assessment.
'Justified in the circumstances'?
Although Premier Kenney has said that approval should have been automatic, the legislation plainly requires that cabinet first determine whether such effects are "justified in the circumstances."
How significant are the adverse environmental impacts?
Frontier is among the most destructive oilsands projects assessed to date.
The project is large, both in production and surface disturbance, and the JRP concluded that numerous significant adverse environmental effects were likely, including on wetlands, old-growth forests, wetland and old-growth reliant species at risk (including Canada lynx and woodland caribou), the Ronald Lake bison herd, and the asserted rights, use of lands and culture of Indigenous groups who use the project area.
Further, these effects will be exacerbated when combined with other existing, approved and planned projects in the area.
Both its surface water management and mine closure plans are currently prohibited by Alberta'sWater Act, in addition to being based on unproven long-term solutions.
Frontier's remediation and reclamation plans, which like all of its predecessors must address the contentious issue of the project's tailings, are marked by a high degree of uncertainty.
Teck's plan would see 240 million cubic metres (about 100,000 Olympic-sized swimming pools) of fluid fine tailings accumulate on the landscape by 2037.
Tailings ponds and other oilsands reclamation liabilities are a serious problem in Alberta. The JRP acknowledged these concerns and the possibility that, without regulatory reform, "the province is at risk of having to pay substantial amounts of public money."
Substantial is right.
Billions in liability, even after end of mine's lifespan
Teck estimates that reclamation liabilities on the site will peak at $4.3 billion in 2037, and that $2.9 billion of reclamation liability will remain when the mine ceases production in 2066.
Teck's reclamation plan requires "45 to 65 years or more" of post-closure care. Sixty-five years after the mine's expected closure would be the year 2131.
These plans are directly relevant to cabinet's decision, since tailings ponds affect migratory birds and endangered species, and are known to seep into groundwater and adjacent waterways, all of which fall under federal jurisdiction.
Teck's mine closure plans also call for end-pit lakes to remain on the landscape. These lakes, filled with water drawn from the Athabasca river, are expected to be completely integrated into the local water system, including discharges into the Athabasca River that would require federal permits.
The problem is that we still don't know if this is going to work.
In what can only be described as a traditional oilsands shrug, the JRP found that the information provided by Teck was sufficient "given end-pit lakes are many years away for the Frontier project and the understanding of end-pit lakes is improving with ongoing research."
One read of the recent Alberta Energy Regulator decision for Syncrude's Mildred Lake Mine tailings plan will tell you that our understanding is indeed improving, but not always in a positive way: "The sustainability of [one of the end-pit lakes on the site] with or without tailings placed in the pit is uncertain," the regulator found. Hope is not an environmental management plan.
Greenhouse gases will also weigh heavily on cabinet's decision.
How Frontier actually compares on emissions intensity
The JRP did not make a final determination with respect to the project's greenhouse gas (GHG) emissions, estimated at 4.1 million tonnes of CO2 equivalent per year.
"Determining Canada's ability to meet its international commitments to reduce greenhouse gas emissions is not part of the panel's mandate," we are told. That may well be true, but determining whether these emissions are significant or not definitely was part of its mandate, and its omission here hampers cabinet's decision-making, which is supposed to be informed by the JRP's expertise.
How emissions-intensive would this project be? Teck's CEO Don Lindsay recently claimed that "it's not dirty oil," since "the carbon emissions are half the industry average in North America per barrel."
This claim was quickly picked up by Premier Kenney. Frontier barrels, he claimed, would be "half the carbon emissions of the average North American petroleum project."
These statements are wrong, and mischaracterize Teck's own claims that Frontier will be among the lowest GHG intensity oilsands projects, with a lower emissions intensity than about half of all oil refined in the United States.
A careful read of the evidence directionally supports Teck's claim — Frontier would rank around the middle of the pack for barrels consumed in the U.S. — but both Lindsay's and Kenney's claims that it would be half the intensity of the average barrel consumed are incorrect.
In this case, a middle-of-the-pack ranking means Frontier barrels would be just about "average" emissions intensity, not half the average.
What about the other side of the ledger?
Thousands of jobs, billions in taxes
If built, which Teck itself has admitted is uncertain even with approval, Frontier is estimated to generate $70 billion in government revenues and create 7,000 full-time jobs.
Teck uses highly dubious economic impact analysis to justify the project. That notwithstanding, the same analysis, were it to be re-done today, would almost certainly generate lower values.
The figures in the application are based on 2011 oil market projections, and forecast oil prices have declined significantly since that time. While some have argued that the investment could be viable if average oil prices are above $65 WTI (assuming very small discounts on heavy crude oil), that still positions the project as a multibillion-dollar bet on pipelines being built and oil prices being much higher than we see today for most of the next 50 years.
So what if prices aren't high? Isn't that for the company to deal with? Shouldn't the government let the market sort it out?
Not so fast.
Whether Frontier's significant adverse environmental effects are "justified in the circumstances" appears to depend largely on the positive economic ones. The JRP is explicit: "the economic benefits for Alberta and Canada and the expected social and economic benefits for Indigenous communities outweigh the adverse environmental effects."
The environmental damage doesn't change with the oil price, but economic benefits do. As oil prices change, so do the taxes, royalties and returns to investors that inform the benefit side of the equation.
These likely benefits have dropped — a lot.
Updating those forecasts
Moving from a 2011 oil price forecast to a current equivalent would reduce expected revenues from the Frontier project (all else equal) by about a quarter, while reducing taxes, royalties and return on capital each by about a third.
If oil prices follow the $65 plus inflation break-even cited by the Canadian Energy Centre, that would reduce revenues by almost two thirds, and taxes, royalties and returns to investors by about three quarters.
At today's oil prices, plus inflation, revenues would be reduced by three quarters relative to 2011 forecast levels, and taxes, royalties and returns on capital would be reduced by about 95 per cent.
Cabinet's decision is far from automatic. It must weigh the project's significant adverse environmental effects against its (relatively uncertain) benefits and determine whether the former are justified.
Proponents also expect it to render a decision that will be able to withstand judicial scrutiny in the event of a legal challenge. While Canadian courts generally take a deferential approach to such decisions, the case law does suggest that significant changes in the original circumstances surrounding the project or material defects in the underlying report can undermine cabinet's decision, if not taken into account.
At its core, it's a problem as old as our environmental assessment system itself: elected officials must decide whether a project's benefits outweigh its significant environmental harms. Whatever cabinet decides, we should all be able to agree that we'd be worse off if such decisions ever became merely automatic.
About the Author
Andrew Leach is an energy and environmental economist and is associate professor at the Alberta School of Business at the University of Alberta. His research spans energy and environmental economics with a particular interest in climate change policies. Martin Olszynski is a lawyer and associate professor at the University of Calgary Faculty of Law, where his primary teaching and research interests are in environmental, natural resources, and water law and policy.
Credit belongs to : www.cbc.ca