Carbon Taxes and Incentives for GHG Reductions in Alberta's Oil by malj

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									 Carbon Taxes and Financial Incentives
    for GHG Emissions Reductions
         in Alberta’s Oil Sands
                      André Plourde
     Department of Economics & Faculty of Public Affairs
                    Carleton University
                     Ottawa, Canada


31st USAEE/IAEE North American Conference
Sheraton Austin, Texas

4-7 November 2012
                            Acknowledgements
• I wish the thank the Alberta Departments of
  Energy and of Finance for granting me
  permission to use some of the information on
  which this analysis is based.
• Thanks as well to CERI for copies of some of
  the studies published by the Institute.
• All errors and omissions are my responsibility.

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                             Roadmap
• Context
• Key Assumptions
• Estimated Costs & NPVs
             • Levels & distribution
• Introducing a Carbon Tax
             • Estimated implications
             • Who pays?
• Concluding Remarks

5 November 2012 / Plourde    Carbon Taxes in Alberta's Oil Sands   3
                            Context [1]
• Alberta’s sustained economic prosperity rests in
  no small part on ability to grow bitumen
  production from province’s oil sands deposits
• BUT… “concerns” (in Canada & internationally)
  over associated GHG emissions a key risk
• IDEA…
examine some implications for SAGD development
     & production of introducing a carbon tax

5 November 2012 / Plourde   Carbon Taxes in Alberta's Oil Sands   4
                            Context [2]
• Computer simulation model
      – Key price: US-dollar price of WTI at Cushing
      – Rules of thumb used to derive Canadian-dollar Alberta
        prices of bitumen, natural gas, electricity
      – Key cost assumptions from CERI (2012)
      – Detailed account of oil sands royalty and tax regime
      – Carbon tax…real (2012) $(Cdn) 5 to 50
• FOCUS…
 “financial incentives” to producer from carbon tax

5 November 2012 / Plourde   Carbon Taxes in Alberta's Oil Sands   5
                            Key Assumptions
         Stylized SAGD Bitumen-production Facility: Key Assumptions
                                                                 Beginning of construction   2013
                                                                      End of construction    2018

                                                               First year of production       2016
                                                         First year of peak production        2021
                                                                Last year of production       2045
                                                   Peak production (barrels per day)         60,000
                              Total production over life of project (millions of barrels)      569

                                        Total capital expenditures (billions of 2012$)         3.1
                                   Import content for capital expenditures (percent)           11
      Capital expenditures per barrel of daily peak production (thousands of 2012$)           51.2
                                  Capital expenditures per barrel produced (2012$)            5.40

                                   at a real (2012) WTI price of $(US) 90 per barrel
                                                    Bitumen price (per barrel, 2012$)        60.18
                                      Total operating expenditures (billions of 2012$)        9.0
                                 Operating expenditures per barrel produced (2012$)          15.80
                Total capital and operating expenditures per barrel produced (2012$)         21.20
5 November 2012 / Plourde              Carbon Taxes in Alberta's Oil Sands                            6
                                      Estimated Total Costs & NPVs
                                      12000

                                      10000
   billions of end-2011 Cdn dollars




                                       8000

                                       6000
                                                                                                          Total Costs
                                       4000                                                               NPV

                                       2000

                                          0
                                              20 30   40 50    60 70      80 90 100 110 120 130 140 150
                                      -2000
                                                  WTI price in real (2012) US dollars per barrel



5 November 2012 / Plourde                                       Carbon Taxes in Alberta's Oil Sands                 7
                Distribution of Estimated NPVs
          60

          50

          40

          30
percent




          20

          10

           0
               50   55 60   65   70 75   80 85    90 95 100 105 110 115 120 125 130 135 140 145 150

                                   WTI price in real (2012) US dollars per barrel

                                           Producers          Alberta        Federal


5 November 2012 / Plourde                  Carbon Taxes in Alberta's Oil Sands                        8
                                     Carbon Taxes as Estimated Per-barrel
                                   2.5
                                                    Costs                tax=5
                                                                         tax=10
                                                                                                                   tax=15
                                                                                                                   tax=20
                                                                                                                   tax=25
                                    2                                                                              tax=30
real, end-2011 $(Cdn) per barrel




                                                                                                                   tax=35
                                                                                                                   tax=40
                                                                                                                   tax=45
                                                                                                                   tax=50
                                   1.5



                                    1



                                   0.5



                                    0
                                         75   80        90       95
                                                   85 WTI price in real (2012) $(US) per barrel 115
                                                                          100    105     110           120   125



           5 November 2012 / Plourde                             Carbon Taxes in Alberta's Oil Sands                    9
Estimated Carbon Tax Borne by Producer
  1.4
                                                                                                 tax=5
                                                                                                 tax=10
                                    1.2                                                          tax=15
                                                                                                 tax=20
 real, end-2011 $(Cdn) per barrel




                                                                                                 tax=25
                                     1
                                                                                                 tax=30
                                                                                                 tax=35
                                    0.8                                                          tax=40
                                                                                                 tax=45
                                                                                                 tax=50
                                    0.6


                                    0.4


                                    0.2


                                     0
                                          WTI price in real (2012) $(US) per barrel
                                      100
                                      105
                                      110
                                      115
                                      120
                                      125
                                      130
                                      135
                                      140
                                      145
                                      150
                                      50
                                      55
                                      60
                                      65
                                      70
                                      75
                                      80
                                      85
                                      90
                                      95




5 November 2012 / Plourde                                  Carbon Taxes in Alberta's Oil Sands        10
 Estimated Share of Carbon Tax Borne
          60 by Producer                                                                                        tax=5
                                                                                                                tax=10
                                                                                                                tax=15
                                                                                                                tax=20
                                                                                                                tax=25
                                                                                                                tax=30
                                                                                                                tax=35
          55                                                                                                    tax=40
                                                                                                                tax=45
                                                                                                                tax=50
percent




          50




          45                    WTI price in real (2012) $(US) per barrel

               5 0 5 5 6 0 6 5 7 0 7 5 8 0 8 5 9 0 9 5 1 00 1 05 1 10 1 15 1 20 1 25 1 30 1 35 1 40 1 45 1 50
5 November 2012 / Plourde                         Carbon Taxes in Alberta's Oil Sands                                    11
                    Concluding Remarks [1]
• Overall, estimated increase in per-barrel cost
  due to introduction of carbon tax…
    – 1% to 10% - for tax rates of $5 to $50
    – 46% to 56% of increase “borne” by producer
           • Rest borne by public (mostly Albertans) in form of lower
             royalty and CIT revenues

    – Share estimated borne by producer inversely
      related to assumed WTI price…until about $(US) 95
           • (almost) Constant at higher prices

5 November 2012 / Plourde   Carbon Taxes in Alberta's Oil Sands     12
                    Concluding Remarks [2]
• Think of these estimated effects as “financial
  incentives” to producer associated with
  introduction of carbon tax
      – IDEA…
             • Modelling approach does NOT allow behavioural
               reaction on part of SAGD producer…
             • In reality, producer would compare estimated effect of
               tax with cost of abating emissions & either pay tax or
               reduce emissions, whatever is in producer’s best
               interest

5 November 2012 / Plourde    Carbon Taxes in Alberta's Oil Sands    13

								
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