CHOA VOLUNTEER PROFILE

Dr. Bruce Carey is the Sr. Technical Advisor for Peters & Co, an investment institution specializing in the Canadian energy sector In this role, he provides technical analyses and assessments of resources, projects and technologies to support investment decisions across the upstream and downstream, with particular focus on the in situ thermal sector

He is a Chemical Engineer by training, with degrees from Stanford University and the University of Minnesota. Prior to his current role, he spent his career working for Exxon and Imperial for 32 years in a variety of upstream technical and management assignments.

THANK YOU!

Before moving to Canada in 1988, he worked for 10 years in Exxon Production Research Company’s Chemical EOR section, initially as a laboratory researcher, progressing to the manager role. His career with Imperial included assignments as Reservoir Manager for Cold Lake and all western Canadian conventional O&G properties, Research Manager for heavy oil recovery processes, such as LASER, Cyclic Solvent Process and SA-SAGD and Technical Manager for Drilling, Completions and Formation Evaluation.

He has made two presentations at Slugging It Out conferences on The Impact of SAGD Shut-Ins and The Status and Outlook for Solvent Processes.

He enjoys his volunteerism for CHOA on the Editorial Committee and has been a peer technical reviewer for the SPE for several years. He was the original sponsor and designer of the CHOA Project Updates, developed in the belief that CHOA members would find value in such a monthly “one-stop-shop” of news and

Information

Positive feedback from members has supported that belief and made it a worthwhile and satisfying endeavor for him.

In his personal life, he enjoys skiing in the winter, wake surfing at his lake home in Montana in the summer, travelling year-round and being with his family and friends.

TIER Changes Raise Cost Avoidance Incentive, but Not for CCUS

JARED DZIUBA, CFA, ANALYST, RACHEL WALSH, CFA, ANALYST, WILLIAMS AVILA, ASSOCIATE BMO CAPITAL MARKETS

Bottom Line:

Higher stringency introduced to Alberta's TIER carbon tax system substantially raises the level of emissions reductions that oil sands producers are obligated to make, more than doubling average compliance costs. This should provide further cost- avoidance incentive, and underscores the need for more disruptive decarbonization options like Carbon Capture, Use and Storage (CCUS) to achieve industry-government targets. That said, we point out that compliance costs are still well below that of CCUS under the existing federal policy framework, meaning TIER alone is unlikely to promote major deployment without further policy support.

Key Points

Amendments to TIER Effective January 2023. Alberta recently passed amendments to its Technology Innovation and Emissions Reduction (TIER) regulation in order to meet rising minimum standards under the federal Greenhouse Gas Pollution Pricing act. At the heart of the changes are a meaningful increase to the rate at which emitters must reduce emissions to avoid penalties Other changes include the creation of separate Sequestration Credits and Capture Recognition Tonnes to aid in administration, adjustments to credit use limits longevity, as well as decreases to the opt-in threshold for smaller emitters Finally, TIER formally adopts federal carbon pricing in which levies rise from $65/T in 2023 to $170/T by 2030.

Rising Stringency, Cost-Avoidance

Incentive. While a tightening rate of 1% was previously applied to facility-specific benchmarks only, a 2% annual rate will now apply more broadly, and for oil sands rises 4% in 2029 and 2030 This raises the level of mandated reductions from ~20% to 32%, which is beyond what we expect can be met by process-related improvements of producers. As a result, most are likely to face rising TIER costs without more disruptive solutions, like carbon capture. We estimate average costs increase to $1 52/bbl from $0 68/bbl in our base case, and from a credit to a cost of $0.80/bbl under our 'Advanced Technology' scenario.

Underscores the Need for CCUS, but Not the Incentive. Although stricter rules suggest the need for more disruptive options like CCUS to avoid compliance costs, the resulting costs of TIER ($0.80-1.52/bbl) are still well below that of CCUS development for most projects ($1.66-$2.40/bbl w/carbon credits and federal ITC), implying it is not enough to incentivize large scale CCUS without further policy support

Warding

Off Cap-and-Trade?

It is important to note that a 32% implied reduction by 2030 is nearly aligned with the plans of the Pathways project and federal emissions reduction plan, as well as a long-term net zero trajectory. For this reason, we suspect tighter stringency within TIER may be the Province’s attempt to avoid an additional oil and gas ‘cap-and-trade’ system previously floated by federal policymakers.

The Cost Not Shared Equally. Certain producers are least exposed to the risk of rising TIER obligations (or may generate net credits), while others face higher risk, all else equal, as a function of carbon intensity and mature, legacy assets.

Benefits to

Long-term Carbon Market Stability.

One positive side effect is that rising stringency should, in theory, improve the supply/demand balance of offset credits, translating to more stable carbon markets long-term