British Columbia Is Moving Ahead with Oil & Gas Decarbonization Goals

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Photo by Mike Benna on Unsplash

In March 2023, the government of British Columbia (B.C.) announced a new energy action framework (framework) intended to limit greenhouse gas (GHG) emissions from the oil and gas industry. The framework is the latest move by the provincial authorities to address the climate impacts of the hydrocarbon sector and advance low-carbon projects. The government of the New Democratic Party is working to modify provincial regulatory framework to facilitate energy transition, which is likely to fuel near-to-medium term uncertainty, given the scale of the effort and the ongoing review of related federal regulations. B.C. will likely need to accelerate its regulatory reform to enable hydrogen and CCUS projects and keep up with other Canadian provinces, which already have required frameworks in place. 

The Many Faces of Emissions-Reduction Measures 

The recently proposed framework would expand the set of instruments that B.C. is using to cut emissions from oil and gas operations. Under the amended 2018 Climate Accountability Act, the provincial hydrocarbon sector is mandated to reduce its emissions by 33-38% relative to 2007 levels by 2030. The framework would put a regulatory cap on GHG emissions from the oil and gas industry and establish the method of its allocation, credit trading, and verifiable offsets. A key element of a finalized regulation (expected by the end of 2023) is likely to be its relation to the potential federal regulations. The Liberal Party’s government in Ottawa is developing a nationwide cap on emissions from the hydrocarbon sector in line with the 2030 Emissions Reduction Plan adopted in 2022. The provincial cap is unlikely to be weaker than the federal one, while establishing a more stringent limit could undermine B.C.’s attractiveness relative to other producing provinces that would stick to the federal cap. 

Moreover, the draft framework would encourage emission-reduction from LNG projects in an attempt to bring the development of the LNG sector in line with climate goals. According to the recent announcement, proposed LNG projects in or entering the environmental assessment process would be required to pass an emissions test with a credible plan to become net-zero by 2030. Such facilities would be allowed to deploy best-in-class technologies (potentially, carbon capture and storage) to cut emissions and use verified carbon offsetting projects. The upcoming introduction of additional criteria could further extend the environmental assessment of proposed LNG facilities. In mid-March, the Cedar LNG project received its Environmental Assessment Certificate from the B.C. Environmental Assessment Office following over three years of reviews. The provincial authorities may need to streamline the assessment process to avoid delays that could result in B.C. and companies missing the 2030 target. 

In the meantime, the ongoing review of the provincial methane regulations is likely to lead to new requirements for oil and gas operators to limit venting, flaring and fugitive emissions. According to the Drilling and Production Regulation amended in 2018 and effective from 1 January 2020, the oil and gas sector is to cut methane emissions by 45% relative to 2014 levels by 2025. In late 2021, the B.C. government announced the CleanBC Roadmap to 2030, where it set a 75% reduction target by 2030 relative to 2014 levels and a near elimination of methane emissions by 2035. The ongoing review is likely to factor in the targets from the roadmap. Moreover, the provincial authorities are expected to coordinate the changes with the federal government, which could require an adjusted baseline level: in 2022, the Trudeau government proposed a similar methane emissions-reduction target, but relative to 2012. 

Finally, starting 1 April 2023, the provincial carbon tax rate will increase from C$50 to C$65 in line with the plan to reach a C$170-rate by 2030. However, the provincial government has committed to reviewing carbon tax rate before 2026, which could prompt the introduction of a higher tax, if progress in cutting provincial GHG emissions is deemed insufficient to reach the legislated target. In addition, from 1 April 2024 B.C. will exempt large emitters (including the oil and gas sector) from the carbon tax. Instead, they will be covered by an output-based pricing system (OBPS) that will charge companies for emissions exceeding performance-based limits. The OBPS is expected to be developed by the end of 2023. 

CCUS regulations amended, but uncertainties persist 

The NPD government considers CCUS as an important technology to reach the provincial climate targets and is expected to pursue legislative changes to create a comprehensive carbon capture and storage framework. The latest research findings suggest that formations in northeastern B.C. could store up to 4,230 megatons of carbon dioxide, and a favorable policy and regulatory environment could bolster the province’s competitiveness in the region. In late 2022, B.C. passed the Energy Statutes Amendment Act to modify the Oil and Gas Activities Act and Petroleum and Natural Gas Act.  Under the amended legislation, the government has a right to explore for, access, develop and use storage reservoirs for the purpose of storing or disposing of CO2. This provision also applies to private lands, and the government will pay no compensation for the loss of rights, titles or interest in land that is designated as a storage area.  

In addition, the CCUS framework identifies two types of storage licenses: 

• Storage or Disposal Utilizing a Petroleum and Natural Gas Lease, which could be used to store CO2 associated with petroleum or natural gas exploration, production, or processing; 

• Storage or Disposal Utilizing a Storage Reservoir License, which could be used to store CO2 from any source. 

In both cases, a petroleum and natural gas permit is required to apply for a CO2 storage lease/license. If a company does not have a permit to a prospective reservoir, it can obtain an Exploration License to gather necessary geological, geophysical and any other data that would be subsequently used in an application for a Storage Reservoir License.  

While the 2022 Energy Statutes Amendment Act is an important first step to enable CCUS developments in B.C., there is still a major uncertainty related to the long-term liability. It remains unclear whether the provincial government will assume responsibility for a CO2 storage site after injection ends. Under the current legislation, operators of carbon storage facilities are effectively liable in perpetuity for any related activities. The situation is likely to undermine investor confidence and could become a major obstacle to advancing CCUS projects in B.C., prompting companies to seek opportunities in other provinces or to the south of the Canadian border.  

Momentum is building for hydrogen 

The latest legislative amendments indicate the B.C. government’s strong commitment to developing the hydrogen industry and reforms are likely to continue over the near term to establish a new regulatory framework. In 2021, B.C. was the first Canadian province to adopt a Hydrogen Strategy, which identified 63 measures to be implemented in three stages in 2020-25, 2025-30, and from 2030 onwards that would enable hydrogen production. The 2022 Energy Statutes Amendment Act introduced the concept of ‘energy resource’, which means petroleum, natural gas, hydrogen, methanol or ammonia. Under the act, the definition of ‘energy resource activity’ includes the construction or operation of a facility for manufacturing hydrogen, ammonia or methanol from petroleum, natural gas, water or another substance. Moreover, the legislation renamed the Oil and Gas Commision as the British Columbia Energy Regulator (BCER) with jurisdiction over oil, gas, hydrogen, ammonia, and methanol. A single regulatory body is likely to ensure clear and transparent processes for project developers.  

The provincial authorities would also facilitate the deployment of hydrogen production through the Clean Energy and Major Projects Office, which is expected to be established in the first half of 2023 within the Ministry of Energy, Mines and Low Carbon Innovation. The office would be tasked with helping investors in navigating regulatory issues, accessing provincial programs, and reaching final investment decisions (FIDs). In addition, hydrogen projects can receive support from the CleanBC Industry Fund. In 2022, the fund provided C$8 million for a C$11.25-millon pilot project developed by FortisBC, Suncor and Hazer Group at Suncor’s Burrard terminal in Port Moody. The plant would use methane pyrolysis that does not require carbon capture to produce low-carbon hydrogen. According to the provincial authorities, there are currently 50 proposed projects in the hydrogen sector with over C$7 billion in potential investment, creating a major incentive for the government to accelerate the finalization of the policy and regulatory framework.