October 30, 2007
Assess climate risk, firms urged
SHAWN MCCARTHY
Globe and Mail
October 30, 2007
Corporate executives and directors face a growing threat of investor lawsuits if they fail to assess and mitigate the risk their companies face from climate change, accounting experts warned Tuesday.
The business of climate change is booming – major utilities are investing in efficiency; retailers are demanding energy-saving lighting; and exchanges are launching emissions-trading systems.
But while some companies are leading the charge in anticipation of regulatory and market pressure to act, several chartered accountants warned that too many companies still regard global warming as a mere annoyance, if they think of it at all.
“This is not a social responsibility issue but a business problem,” said Johanne Gelinas, a partner at Deloitte & Touche and a former federal environmental auditor.
Julie Desjardins, a consultant and adviser to the Canadian Institute of Chartered Accountants, said corporate executives have a heightened duty – as a result of the Sarbanes-Oxley Act in the United States and similar rules in Canada – to report all material issues facing the company.
And increasingly, investors such as the Canada Pension Plan Investment Board (CPPIB) or the California Public Employees Retirement System are demanding assessments of companies' exposure to climate change risk – including cost pressures from expected regulatory changes or weather-related issues.
“You have a responsibility to report the information that your investors want,” Ms. Desjardins said of corporate management. “And you have a responsibility to surround that information you are providing to investors with appropriate governance.”
Failure to do so could lead to civil lawsuits against the company, its senior management and directors, she added.
Suppliers to Wal-Mart, for example, need to spell out how they will respond to the retailer's commitment to cut greenhouse gas emissions throughout its supply chain.
Brigid Barnett of the CPPIB said the $120-billion pension fund is now routinely demanding assessment of climate change risk when it makes a big investment in a company.
Ms. Barnett said the board has a mandate to maximize return, and is not looking to make a political statement with its demand for climate change information. It considers such data “only as it affects the potential risk and return of investments,” she said.
The CPPIB recently spent $1.1-billion to purchase a major stake in British utility Anglian Water Group. Before closing the deal, the investment board reviewed the company's statement that it faced potential risks from climate change, including changing rainfall patterns, flooding, competition for resources, and the need to monitor greenhouse gas emissions.
In a speech Tuesday, Duke Energy Corp.'s chief strategist, Keith Trent, said his North Carolina-based company has determined it has a duty to its shareholders to spend more than $15-billion (U.S.) over the next decade to drive down its greenhouse gas emissions.
“Taking action on climate change is good for our business, good for our customers and good for the environment,” he told a conference on business and climate change.
Mr. Trent said his company – one of the major coal users in North America – has recognized that climate change regulations are going to become more onerous over the longer term. And as one of the largest emitters on the continent, Duke had to plan its response.
He said the company will invest $1.5-billion a year in energy efficiency – so long as regulators allow it to recoup a return on that investment from ratepayers. It is also a leader in research for cleaner-burning coal, and is set to seek a licence to build a nuclear reactor in South Carolina.
“We are a big part of the problem,” Mr. Trent said. “It makes sense for our business to be involved in the solution.”
Oil sands seen as 'threat No. 1,' as U.S. may target dirtier fuels
SHAWN MCCARTHY
Globe and Mail
October 30, 2007
Canadian oil sands producers should brace for further bad news - this time from south of the border, as the U.S. government moves toward a national climate change policy that could target dirtier fossil fuels such as the oil sands bitumen, a former U.S. energy official said yesterday.
His warning was issued yesterday at a conference on Canada as an energy superpower, and came as a new poll suggests Canadians want to protect the country's natural resources from voracious U.S. demand for energy.
David Pumphrey, a former official in the Department of Energy and now a senior fellow at the Centre for Strategic and International Studies, said that prominent U.S. environmental groups have identified the oil sands as "threat No. 1" in North America's growing battle against greenhouse gas emissions.
There are more than a half-dozen bills before Congress that would introduce a national system to cap greenhouse gas emissions and establish a market for emissions credits.
Mr. Pumphrey said he does not expect President George W. Bush to sign such legislation, but added the next administration mostly likely will.
Several of those bills would "penalize" energy sources like Alberta's oil sands, which produce far more carbon dioxide emissions than conventional, lighter crude, he said. (California has already announced a "low-carbon fuel standard" that would penalize refiners for using tar sands and other heavy oil.) Mr. Pumphrey said the Canada and U.S. governments should ensure that their climate-change strategies are complementary and that emissions trading can be carried on across borders in order to reflect the continental nature of energy markets.
Oil sands producers have recently faced new federal and provincial regulations that require them to manage their greenhouse gas emissions, but new projects face no set limit and existing ones only have to reduce their emissions per barrel of oil produced.
The climate change challenge is only one of several "above ground risks" facing the oil sands projects, which nonetheless represent a promising source of additional crude oil for North American markets, the conference heard.
Panelists pointed to Alberta Premier Ed Stelmach's decision last week to raise the royalty rates on oil sands and on conventional oil and gas production, and to federal and provincial tax changes that eliminated the lucrative tax incentive, the accelerated capital cost allowance.
Matthew McManus, an energy official in the State Department, said the U.S. perceives the Canadian oil and gas sector as one of "near zero political risk" and enormous investment opportunity.
He said the two governments are working to remove barriers that impede the efficient operation of the marketplace.
But 20 years after the Canada-U.S. free-trade agreement enshrined that market approach, Canadians remain leery of the growing U.S. dependence on natural resources from its northern neighbour, pollster Greg Lyle said.
In a poll released yesterday, Mr. Lyle found that two-thirds of respondents agreed that Canada should use its vast oil and natural gas resources to protect consumers from world markets and keep domestic prices as low as possible.
More than three-quarters agreed with the statement that Canada must "protect its natural resources from the insatiable energy appetite of American consumers."
October 19, 2007
Power Plant Rejected Over Carbon Dioxide For First Time
By Steven Mufson
Washington Post
Friday, October 19, 2007
The Kansas Department of Health and Environment yesterday became the first government agency in the United States to cite carbon dioxide emissions as the reason for rejecting an air permit for a proposed coal-fired electricity generating plant, saying that the greenhouse gas threatens public health and the environment.
The decision marks a victory for environmental groups that are fighting proposals for new coal-fired plants around the country. It may be the first of a series of similar state actions inspired by a Supreme Court decision in April that asserted that greenhouse gases such as carbon dioxide should be considered pollutants under the Clean Air Act.
In the past, air permits, which are required before construction of combustion facilities, have been denied over emissions such as sulfur dioxide, nitrogen oxides and mercury. But Roderick L. Bremby, secretary of the Kansas Department of Health and Environment, said yesterday that "it would be irresponsible to ignore emerging information about the contribution of carbon dioxide and other greenhouse gases to climate change and the potential harm to our environment and health if we do nothing."
The Kansas agency's decision caps a controversy over a proposal by Sunflower Electric Power, a rural electrical cooperative, to build a pair of big, 700-megawatt, coal-fired plants in Holcomb, a town in the western part of the state, at a cost of about $3.6 billion. One unit would have supplied power to parts of Kansas; the other, to be owned by another rural co-op, Tri-State Generation and Transmission Association, would have provided electricity to fast-growing eastern Colorado.
Together the plants would have produced 11 million tons of carbon dioxide annually, nearly as much as a group of eight Northeastern states hope to save by 2020 through a mandatory cap-and-trade program they plan to impose. The attorneys general from those states had written a letter opposing the permit.
The proposed Holcomb plants had become the center of a political dispute in Kansas, inflaming traditional tensions between the eastern and western parts of the state, dividing labor unions and posing a test for the energy policies of Gov. Kathleen Sebelius, who is head of the Democratic Governors Association and is believed to harbor aspirations for federal office.
Kansas, long a conservative Republican stronghold, is not generally considered to be on the leading edge of environmental causes. The GOP leadership in both the state Senate and House of Representatives endorsed the project. Although the regional United Steelworkers union opposed the plant, the state AFL-CIO supported it.
"Now the Sebelius administration rockets to the forefront of the states [working] to solve the global warming crisis," said Bruce Nilles, a Sierra Club lawyer.
Like many governors, Sebelius has been promoting the expanded use of renewable energy, especially wind. In her state of the state address this year, she said: "The question of where we get our energy is . . . no longer just an economic issue, nor solely an issue of national security. Quite simply, we have a moral obligation to be good stewards of this state."
But she said she was leaving the air permit decision on the Holcomb plants to Bremby, her close political ally.
Tri-State and Sunflower spokesmen sharply criticized the decision and said they were examining their legal options. Bremby's decision "has no basis in law or regulation," said Steve Miller, a Sunflower spokesman. "We still believe fiercely that this is the right project, that this is the right thing to do for customers and that the secretary has made a horrible error."
Miller said that Sebelius had pledged not to oppose the plants but that her position was clear after her "moral steward" remark. "That implies that we're not moral stewards of the land, which we don't appreciate one bit," he said.
Lee Boughey, a spokesman for Tri-State, said Bremby had disregarded his own staff, which had recommended issuing the permit.
The plants' powerful supporters included the speaker of the state House, Melvin Neufeld, who had earlier gathered the signatures of 46 GOP members, including key committee chairmen, for a letter to Bremby. The letter said, "Without your approval of the permit as proposed by Sunflower, our state and its citizens will lose access to the low-cost energy source and millions in economic development." Thirty-one Republican House members declined to sign the letter.
Neufeld said the plants would bring in new tax revenue, create hundreds of jobs, prompt the expansion of transmission lines that could also be used for wind power and keep energy costs low for Kansans by producing enough power to export to other states.
But the plants had aroused strong opposition, especially in the half-dozen eastern counties from Topeka to Kansas City, which have enough voters to carry statewide elections.
Bob Eye, a former state legislator, said of yesterday's decision: "Is it without precedent? Yes, as far as I know, in this state or any other." But he argued that "CO{-2} . . . is a pollutant, not just because the Sierra Club says it, but because the Supreme Court said it."
Holcomb's previous claim to fame had been the savage murders that Truman Capote described in his book "In Cold Blood." Holcomb was a place, Capote wrote, that stood "on the high wheat plains of western Kansas, a lonesome area that other Kansans call 'out there.' "
But Eye argued that wind projects were building a new constituency for renewable energy resources even "out there" among the people who were supposed to be the biggest backers of Sunflower's plans. FPL Group, a Florida power firm with a wind farm in Kansas, said it is making payments to about 30 landowners there.
Sunflower, which already has a smaller coal-fired plant in Holcomb, has portrayed the proposed plants as part of a "bio-energy center" that would include an ethanol plant and an $86 million facility that would use a still-experimental algae process to capture carbon dioxide emissions from the proposed generating units. But one investor in the center had pulled out before yesterday's decision.
Even without yesterday's permit denial, the Holcomb project faced economic challenges. A proposal to build a third new unit there was dropped earlier. Tri-State must also meet a renewable portfolio standard adopted recently by Colorado. (Tri-State supported the measure.) That requires utilities to use renewable energy sources to meet 10 percent of their sales. Because Tri-State's purchases of hydropower do not count, it uses less than 1 percent renewable resources. Two-thirds of its power comes from coal. It is negotiating to acquire some wind power.
© 2007 The Washington Post Company
Little Green Lies
By Ben Elgin
Business Week
October 29, 2007
The sweet notion that making a company environmentally friendly can be not just cost-effective but profitable is going up in smoke. Meet the man wielding the torch.
Auden Schendler learned about corporate environmentalism directly from the prophet of the movement. In the late 1990s, Schendler was working as a junior researcher at the Rocky Mountain Institute, a think tank in Aspen led by Amory Lovins, legendary author of the idea that by "going green," companies can increase profits while saving the planet. As Lovins often told Schendler and others at the institute, boosting energy efficiency and reducing harmful emissions constitute not just a free lunch but "a lunch you're paid to eat."
Inspired by this marvelous promise, Schendler took a job in 1999 at Aspen Skiing Co., becoming one of the first of a new breed: the in-house "corporate sustainability" advocate. Eight years later, it takes him six hours crisscrossing the Aspen region by car and foot to show a visitor some of the ways he has helped the posh, 800-employee resort blunt its contribution to global warming. Schendler, 37, a tanned and muscular mountain climber, clambers atop a storage shed to point out sleek solar panels on an employee-housing rooftop. He hikes down a stony slope for a view of the resort's miniature power plant, fueled by the rushing waters of a mountain creek. The company features its environmental credentials in its marketing and has decorated its headquarters with green trophies and plaques. Last year Time honored Schendler as a "Climate Crusader" in an article accompanied by a half-page photo of the jut-jawed executive standing amid snow-covered evergreens.
But at the end of this arid late-summer afternoon, Schendler is feeling anything but triumphant. He pulls a company sedan to the side of a dirt road and turns off the motor. "Who are we kidding?" he says, finally. Despite all his exertions, the resort's greenhouse-gas emissions continue to creep up year after year. More vacationers mean larger lodgings burning more power. Warmer winters require tons of additional artificial snow, another energy drain. "I've succeeded in doing a lot of sexy projects yet utterly failed in what I set out to do," Schendler says. "How do you really green your company? It's almost f------ impossible."
Barely a day goes by without a prominent corporation loudly announcing its latest green accomplishments: retailers retrofitting stores to cut energy consumption, utilities developing pristine wind power, major banks investing billions in clean energy. No matter what Al Gore's critics might say, there's no denying that the Nobel Prize winner's message has hit home. With rising consumer anxiety over global warming, businesses want to show that they're part of the solution, says Chris Hunter, a former energy manager at Johnson & Johnson (JNJ ) who works for the environmental consulting firm GreenOrder. "Ten years ago, companies would call up and say I need a digital strategy.' Now, it's I need a green strategy.'"
Environmental stewardship has become a centerpiece of corporate image-crafting. General Electric (GE ) says it is spending nearly all of its multimillion-dollar corporate advertising budget on "Ecomagination," its collection of environmentally friendly products, even though they make up only 8% of the conglomerate's sales. Yahoo! (YHOO ) and Google (GOOG ) have proclaimed that by 2008 their offices and computer centers will become "carbon neutral." Fueling the public relations frenzy is the notion that preserving the climate is better than cost-effective. But Schendler, who only a few years ago considered himself a leading proponent of this theory, now offers a searing refutation of the belief that green corporate practices beget green of the pecuniary variety.
EMPTY BOASTING
Charismatic and well-connected among environmental executives, he has begun saying out loud what some whisper in private: Companies continue to assess most green initiatives with the same return-on-investment analysis they would use with any other capital project. And while some environmental advances pay for themselves in time, returns often aren't as swift or large as competing uses of corporate cash. That leads to green projects quietly withering on the vine. More important, and contrary to the alluring Lovins thesis, many major initiatives simply aren't money-savers. They come with daunting price tags that undercut the conviction that environmental salvation can be had on the cheap.
Schendler explains his confessional mood as the result of cumulative frustration: with foot-dragging colleagues, with himself for compromising, and with the entire green movement frothily sweeping through corporations in America and Europe. So far his candor hasn't cost him his job, though rival resorts have groused about Schendler to his bosses. His colleagues tolerate him with a combination of personal affection and periodic annoyance. "We have a very self-critical culture," says Mike Kaplan, Aspen Skiing's chief executive. "We wouldn't have Auden any other way." The company, Kaplan adds, has led its industry on the environmental front.
Schendler grits his teeth over the failure of modest proposals, such as his plan last year to refurbish one of the resort's oldest lodges to use less energy. He estimated the $100,000 project would have paid for itself in seven years through lower utility bills. But the money went for new ski lifts, snowmobiles, and other conventional purchases. "The availability of capital is not infinite," says Donald Schuster, vice-president for real estate.
Beaten back frequently, the environmental executive concedes that he made a mistake last year when he pushed the resort to make audacious green claims based on the purchase of "renewable energy credits." RECs are a type of financial arrangement that companies increasingly use to justify assertions that they have reduced their net contribution to global warming. But the most commonly used RECs, which are supposed to result in a third party's developing pollution-free power, turn out to be highly dubious (BW—Mar. 26). Aspen Skiing relied on RECs in declaring it had "offset 100% of our electricity use." Schendler now concedes the boast was empty.
Aspen Skiing is far from alone in making suspect claims of green virtue. Setting aside questionable renewable energy credits would wipe out the climate-saving assertions of dozens of major corporations celebrated for their environmental leadership. Office products retailer Staples (SPLS ) has used RECs to turn a 19% spike in emissions since 2001 into what it claims to be a 15% decline, the company's sustainability reports show. PepsiCo (PEP ) and Whole Foods Market have employed the credits to make declarations that every bit of pollution from electricity they use is negated. Johnson & Johnson has proclaimed a 17% reduction in carbon emissions since 1990, based largely on RECs. Without the credits, the pharmaceutical giant has seen a 24% increase, J&J executives acknowledge. "Recent corporate moves by J&J and others are pushing in the right direction, but it is still window dressing compared to the problem at hand," says Hunter, the former J&J manager.
Amid the overheated claims, some corporations have made legitimate environmental gains. Wal-Mart Stores (WMT ) helped spark the market for energy-saving fluorescent bulbs by giving them top billing, even though incandescent bulbs are more profitable. Office Depot overhauled lighting and energy in more than 600 stores, contributing to the company's real 10% decline in releases of heat-trapping gases. Dow Chemical (DOW ) and DuPont (DD ) have significantly trimmed their actual emission levels. But there is still reason to worry about long-term commitment. Dow says it invested $1 billion to help achieve reductions of 19% between 1994 and 2005. Because of technological challenges and costs, however, Dow predicts that additional cuts won't occur until 2025, 18 years from now.
Much corporate environmentalism boils down to misleading statistics and hype. To make real progress, genuine accomplishments will have to be sorted out from feel-good gestures. Schendler no longer views business as capable of the dramatic change he thought possible eight years ago, the sort of change that corporations have grown accustomed to boasting about. His own employer is "a perfect example of why this won't work," he says. "We've had a chance to cherry-pick 50 projects and get them done. But even if every ski company could do what we did, we'd still be nowhere."
`TRENCH WARFARE'
Auden Schendler felt nature's pull at the age of 14, when his uncle took him on a backpacking trip through the rugged Bob Marshall Wilderness in northwest Montana. Growing up in the scruffy New Jersey city of Hackensack, he always felt cramped and out of place. He escaped up the Atlantic coast to Maine, where he majored in environmental studies at Bowdoin College. "I became the person I wanted to be: a mountaineer, an outdoorsman." During this period he scaled Alaska's 20,300-foot Mount McKinley and made several trips up treacherous Mount Rainier in central Washington. On another adventure, he trekked alone on skis for nine days across a wintry Yosemite, sleeping in hand-carved snow caves. "I am at my happiest on a fall morning, in a high-mountain campsite, maybe 12,000 feet," he says. "The air is crisp and chilly, and some coffee is brewing on the campfire. What is better than that?"
After college he moved to Aspen and taught skiing and high school math. The state of Colorado provided his first paid environmental job, weatherizing the trailers of poor families to help them save energy. This involved crawling beneath flimsy homes, where he sometimes encountered the decomposing carcasses of raccoons. "It was gritty work," he says, "the trench warfare of climate change."
In 1997, he took a job at the Rocky Mountain Institute (RMI) just outside Aspen, which Lovins had co-founded 15 years earlier. Lovins, a physicist by training, was collaborating with his then-wife, L. Hunter Lovins, and businessman Paul Hawken on a book called Natural Capitalism, which became a best-seller. By rethinking their operations and choosing materials wisely, the book argued, companies could produce far less pollution and earn more. "Auden is terrific," Lovins recalls of his "vigorous, smart, and dedicated" former employee, who did research for Natural Capitalism. An obsession with efficiency pervaded the institute: Schendler recalls being chastised for boiling water in the kitchen without a lid on the kettle. He idolized Lovins and went jogging with Hawken. "Instead of going to graduate school, I went to RMI," he says.
He heard in 1999 that Aspen Skiing, a complex of hotels and ski runs popular with wealthy vacationers, was looking for an environmental director. The job seemed a perfect fit. "When I left RMI, I felt that government was powerful but businesses were nimble enough and motivated enough by profit to make changes that we need," he says. "I was indoctrinated." The ski industry, which gorges on energy to create a fantasy of always-plentiful powdered snow and cozy alpine hideaways, offered an ideal place to put these abstractions into practice.
RESISTANCE FROM WITHIN
Aspen Skiing, privately owned by the Crown family of Chicago, which made billions on its stake in military contractor General Dynamics (GD ) and other enterprises, exudes an earnest concern about nature—not least because its business would melt away if temperatures rose just a few degrees. "My kids say: God, Dad, are we going to ski when we're your age?'" says Kaplan, the CEO. "I have to tell them: I don't know.'"
Then 29, Schendler received a genial welcome at Aspen Skiing's wood-paneled headquarters near the county airport. "Auden came with some great athletic credentials," recalls John Norton, then the chief operating officer. "He's a terrific kayaker and skier, and that's a guaranteed ice-breaker in a ski company." But when it came to spending the company's money, things became complicated.
He first took aim at the 90-room Little Nell Hotel. The luxurious lodge nestled at the base of Aspen Mountain devours so much electricity that Schendler assumed it would be simple to find efficiencies. He told its then-manager, Eric Calderon, he wanted to put fluorescent lightbulbs in all guest rooms. The new bulbs would last 10 times as long, use 75% less power, and pay for themselves in only two years. The answer was no. Calderon, who favors dapper blue blazers and chinos, worried that fluorescent light would suggest a waiting-room ambience, jeopardizing the establishment's five-star rating. "There's always a question of balance between environmental concerns and satisfying expectations of the clientele," he says.
Thwarted on guest rooms, Schendler switched to Little Nell's underground garage. Guests never saw it because valets park all cars. For $20,000, Schendler said he could replace energy-gobbling 175-watt incandescent light fixtures with fluorescent bulbs and save $10,000 a year. Unimpressed, Calderon again balked. If he had $20,000 extra, he would rather spend it on items guests would notice: fine Corinthian leather furniture or shiny new bathroom fixtures.
At the company's next senior management meeting, Schendler brought an unusual display to make his case for new garage lights. He had wired a stationary bicycle to show how much less energy fluorescent bulbs consume. Thirty managers watched as Schendler challenged a burly executive to hop on the bike. Sure enough, it took much more sweat to make several incandescent bulbs glow. But Schuster, the real estate chief, didn't believe the new lights would save money. "I was skeptical on the ROI [return on investment] calculations Auden had presented for the retrofit," Schuster recalls. "One of my concerns was that we were committing capital based on theoretical returns without any real opportunity for a look back on the actual returns."
It took Schendler two years to overcome resistance to the garage-light replacement, and then only after he secured a $5,000 grant from a local nonprofit. He acknowledges the strangeness of a corporation with annual revenue of about $200 million, according to industry veterans (the company declines to provide a figure), seeking charity to reduce its electricity use. With a hint of sarcasm, he notes: "This is the sort of radical action that's needed to get people over ROI thresholds."
WHEN BREAK-EVEN WON'T DO
Larger-scale versions of his lightbulb struggle are playing out at numerous other companies. Hailed as an environmental pioneer, FedEx (FDX ) says on its Web site that it is "committed to the use of innovations and technologies to minimize greenhouse gases." With 70,000 ground vehicles and 670 planes burning fuel, the world's largest shipper is a huge producer of heat-trapping gases. Back in 2003, FedEx announced that it would soon begin deploying clean-burning hybrid trucks at a rate of 3,000 a year, eventually sparing the atmosphere 250,000 tons of greenhouse gases annually from diesel-engine vehicles. "This program has the potential to replace the company's 30,000 medium-duty trucks over the next 10 years," FedEx announced at the time. The U.S. Environmental Protection Agency awarded the effort a Clean Air Excellence prize in 2004.
Four years later, FedEx has purchased fewer than 100 hybrid trucks, or less than one-third of one percent of its fleet. At $70,000 and up, the hybrids cost at least 75% more than conventional trucks, although fuel savings should pay for the difference over the 10-year lifespan of the vehicles. FedEx, which reported record profits of $2 billion for the fiscal year that ended May 31, decided that breaking even over a decade wasn't the best use of company capital. "We do have a fiduciary responsibility to our shareholders," says environmental director Mitch Jackson. "We can't subsidize the development of this technology for our competitors."
Schendler faces the return-on-investment challenge on almost every proposal he makes. Earlier this year, he pushed his employer to bankroll a $1 million solar-energy farm on the outskirts of Aspen. Like most electricity consumers in the Rockies, Aspen Skiing's power comes primarily from coal-fired plants, which emit large amounts of carbon dioxide. With federal tax breaks aimed at encouraging clean energy, the football-field-size solar array might generate a paltry 6.5% return, meaning it would pay for itself in 15 years. It barely got approved, says Chief Financial Officer Matt Jones. "We put this together with duct tape and chewing gum."
Schendler's persistence eventually won him admirers even among executives who didn't agree with his entire agenda. "We were trying to run a very complex set of businesses—four ski areas, three hotels, two athletic complexes, and a golf course—but Auden never let us forget that he belonged in the family portrait," says Norton, the former COO and the man Schendler recruited for the bike-powered lightbulb demonstration. "Usually he elbowed in with good humor, but also sometimes with the grim single-mindedness that's the mantle of a true believer."
`I WAS GETTING KILLED'
Schendler, who is married and has two young children, ranks below top managers at Aspen Skiing but attends most of their important meetings. The company zealously guards salary amounts, and he won't reveal his, but a person familiar with Aspen Skiing estimates that he earns about $100,000 a year. Perpetually on the move, Schendler gets his hands into everything, fiddling with a boiler knob and inquiring why a building's lights were on the previous night. He sometimes seems self-conscious about his East Coast, elite-college pedigree, compensating with gestures like helping rewire a lodge's electrical circuits. Teasing follows him everywhere, he says. "I can't tell you how many times I've heard, Hey, Auden, I recycled a can today.'"
One of his proudest victories is the small hydro-power plant the company spent $150,000 in 2003 to install on one of its ski slopes. It's fed two months of the year by a stream that turns into a roaring creek when the snow melts. The other 10 months it's dormant. Inside the small hut containing the plant's steel turbine, he animatedly describes the hurdles overcome during construction: "We hit an underground gas line. I was over budget. I was getting killed." But it got done.
For all his hard work, however, Schendler began to feel a creeping disappointment. Combined, the hydro and solar projects eventually will generate less than 1% of the company's power needs. His colleagues felt they were stretching to accommodate him, but Schendler knew he was coming up short. Seeking to make an industry-leading gesture, he decided in 2005 to explore renewable energy credits.
Introduced at the beginning of the decade, RECs are supposed to marshal market forces behind wind and solar power. Developers of clean energy sell RECs, usually measured in megawatt hours of electricity, to buyers that want to counterbalance their pollution by funding environmentally friendly power. But often the REC trade seems like little more than the buying and selling of bragging rights, rather than incentives that lead to the construction of wind turbines or solar panels.
Schendler knew that RECs and similar financial transactions were swiftly growing in popularity, as more companies sought green credibility and REC brokers proliferated. He persuaded his superiors in 2006 to spend $42,000 a year, a 2% premium on the company's energy costs, to buy RECs at roughly $2 a megawatt hour. According to commonly accepted REC principles, this investment, less than a third of what it took to build the hydro plant, permitted Aspen Skiing to claim that it had offset all of its use of coal-burning energy.
Colleagues heaped praise on Schendler. In a press release, Pat O'Donnell, then the company's CEO, said: "This purchase represents our guiding principles in action." Accolades arrived from the EPA; local newspapers reported the feat. "It was seen as one of my biggest wins ever," Schendler says.
He spent hours thinking about how to describe the purchase of RECs for marketing purposes. The formulation he came up with was that Aspen Skiing had offset "100% of our electricity use with wind energy credits, keeping a million pounds of pollution out of the air." This wording was plastered on ski lifts, advertising brochures, and countless company e-mails.
But even as he helped launch this campaign, Schendler had a queasy feeling. At some level, he suspected the credits weren't causing any new windmills to be built. They weren't literally offsetting anything. He felt torn. "I'm well aware of what is right and what works and what matters," he says. "I'm also aware of brand positioning. Part of my job is to maintain [Aspen Skiing's] leadership." His industry "was going to do this in a big way. One small resort in California already had, and we needed to move. My solace was the educational value of the move. The discussions it would cause would be valuable, even if the RECs were not."
His prediction proved accurate. In the year and a half since his RECs purchase, more than 50 other ski resorts have made similar buys. No fewer than 28 claim to be "100% wind powered." Enticed by inexpensive green claims, companies in other industries have been equally enthusiastic. The top 25 REC purchasers have bought the equivalent of 6 million megawatt hours this year, nearly quadruple the volume from 2005, the EPA says.
Rather than enjoying his role as an REC pioneer, Schendler felt increasingly anxious. In private, he pushed REC brokers for hard evidence that new wind capacity was being built. Their evasiveness gnawed at him. He asked veterans in the renewable energy field whether his marketing message was legitimate. "They laughed at me," he says.
The trouble stems from the basic economics of RECs. Credits purchased at $2 a megawatt hour, the price Aspen Skiing and many other corporations pay, logically can't have much effect. Wind developers receive about $51 per megawatt hour for the electricity they sell to utilities. They get another $20 in federal tax breaks, and the equivalent of up to $20 more in accelerated depreciation of their capital equipment. Even many wind-power developers that stand to profit from RECs concede that producers making $91 a megawatt hour aren't going to expand production for another $2. "At this price, they're not very meaningful for the developer," says John Calaway, chief development officer for U.S. wind power at Babcock & Brown, an investment bank that funds new wind projects. "It doesn't support building something that wouldn't otherwise be built."
BAFFLEMENT AND IRRITATION
Schendler isn't the only environmental executive aware of the problem. In 2006, Johnson & Johnson spent $1 million on credits it says are equivalent to 400,000 tons of emissions. Based on this purchase, the company claimed to have shrunk its contribution to global warming by 17% since 1990. The World Wildlife Fund and other environmental groups have praised J&J, and the EPA gave the company a Green Power award in 2006. Asked about the doubts surrounding RECs, Dennis Canavan, the company's senior director of global energy, concedes that the credits "aren't ideal." They don't really reduce J&J's pollution, he says, and he hopes the company eventually abandons them. Still, he insists that "somewhere along the line, RECs do encourage new projects." He adds: "For the time being, this is the system available to us to offset CO2."
However, some companies employ more direct methods, like building substantial clean energy capacity themselves. In August, Jiminy Peak Mountain Resort in Hancock, Mass., turned on a new wind turbine standing 386 feet tall and capable of providing half of the resort's electricity. The project took three years to complete and cost $4 million.
Many larger corporations, however, defend their lower-cost approach. Mark Buckley, vice-president of environmental affairs at Staples, defends RECs, saying they "have clearly sent the right signal to the market." His counterpart at PepsiCo (PEP ), Rob Schasel, agrees, adding, "Absolutely, we're changing what's going into the atmosphere." Whole Foods Market (WFMI ) declined to comment.
This spring Schendler concluded that he had to reverse course, persuade his employer to back away from the renewable energy credits he had endorsed just months earlier, and favor more meaningful green projects. His colleagues reacted with bafflement and irritation. "Auden, you are the most confusing human being I have ever encountered," senior marketing manager Steve Metcalf wrote in an e-mail in April. "You have placed on us the responsibility of getting the environment message out—your message—as a company-wide endeavor. We have responded to your bidding and environmental passion with a gusto on the verge of maniacal. As mentioned, you are confusing to the point of complete exhaustion."
Schendler replied: "Relax, brah. I enormously appreciate all the support.... We're on the edge of this thing, figuring it out. If it were simple and easy, someone would have done it already."
THE CONFLICTED CRITIC
The company will continue to buy RECs through at least 2008, when its current contract expires. Executives say they're reluctant to stop any sooner, because they don't want to appear to be backsliding on the environment when competitors claim to be entirely wind powered. The company still touts its RECs purchases in some marketing material.
Schendler, meanwhile, has become a prominent critic of RECs, a potentially confusing role, since his employer buys them. In an April letter to the Center for Resource Solutions, a nonprofit group in San Francisco that certifies credits, he said that RECs have as much effect on the development of new renewable-energy projects as would trading "rocks, IOUs, or pinecones." That statement, which inevitably whizzed around the Internet, stung some in the ski industry who interpreted it as an attack. Schendler's immediate boss, General Counsel Dave Bellack, has heard from competitors asking that he stifle Schendler. Bellack has declined.
Now simultaneously an insider and an outsider in corporate environmental circles, Schendler relishes the notoriety. "I don't think I'm seen as a team player in this industry," he says, "but I don't care. This issue is so much bigger than just the ski industry." In March he told the U.S. House Subcommittee on Energy and Mineral Resources that companies won't make serious progress without regulation of carbon emissions—a departure from his earlier faith that abundant, profitable green projects will transform the way business operate.
His former mentor Lovins says Schendler could find further cost-saving energy efficiencies with more support from his superiors. But this mind-set, Schendler warns, could influence companies to pursue exclusively projects with quick payoffs: "The idea that green is fun, it's easy, and it's profitable is dangerous. This is hard work. It's messy. It's not always profitable. And companies have to get off the mark and start actually doing stuff."
Elgin is a correspondent in Business Week's Silicon Valley bureau
Copyright 2007, by The McGraw-Hill Companies Inc. All rights reserved.
See also:
Another inconvenient truth
Another Inconvenient Truth
By Ben Elgin
Business Week
March 26,2007
Behind the feel-good hype of carbon offsets, some of the deals don't deliver
The organizers of the Academy Awards declare all their celebrity presenters to be "carbon-neutral." Vail Resorts Inc. (MTN ) in Colorado boasts that its chairlifts and lodges are "100% powered by wind." Seattle's municipal utility claims that its net contribution to global warming is zero.
A growing number of organizations, corporations, cities, and individuals are seeking to protect the climate—or at least claim bragging rights for protecting the climate. Rather than take the arduous step of significantly cutting their own emissions of carbon dioxide, many in the ranks of the environmentally concerned are paying to have someone else curtail air pollution or develop "renewable" energy sources (see BusinessWeek.com, 2/1/07, "Ethanol: Too Much Hype—and Corn"). Carbon offsets, as the most common variety of these deals is known, have become one of the most widely promoted products marketed to checkbook environmentalists.
Done carefully, offsets can have a positive effect and raise ecological awareness. But a close look at several transactions—including those involving the Oscar presenters, Vail Resorts, and the Seattle power company—reveals that some deals amount to little more than feel-good hype. When traced to their source, these dubious offsets often encourage climate protection that would have happened regardless of the buying and selling of paper certificates. One danger of largely symbolic deals is that they may divert attention and resources from more expensive and effective measures.
The market for carbon offsets in the U.S. could be as high as $100 million, according to researchers' best guesses. That's up from next to nothing just a couple of years ago. One reason for this growth is that the U.S. remains one of the few industrialized countries that hasn't ratified the Kyoto Protocol, a global agreement setting emission limits by nation. In the absence of a mandatory national cap, some Americans have begun taking action on their own, but without widely recognized standards as to what constitutes a valid offset. As long as there are willing buyers and sellers, almost anything goes. "Right now it's a no-man's land out there," says Jennifer Martin of the nonprofit Center for Resource Solutions in San Francisco.
Hollywood celebrated environmental activism at this year's Academy Awards, and not just by giving an Oscar to the Al Gore documentary An Inconvenient Truth. The Academy of Motion Picture Arts & Sciences promoted the show itself having "gone green," by means of a variety of initiatives. One element: Each performer and presenter received a glass statue representing the elimination of the amount of greenhouse gas associated with a celebrity lifestyle over the course of a year. The offsets were issued by TerraPass Inc., a two-year-old for-profit company in San Francisco that identifies climate-protection efforts and, for a fee, gives its customers the opportunity to buy a piece of the environmental action. Each Oscar favor represented 100,000 pounds of emission reductions drawn from TerraPass' portfolio of offset projects.
One of the largest in its portfolio is a sprawling garbage dump outside of Springdale, Ark., from which TerraPass has purchased thousands of tons of gas reductions. The vast sloping mound of the Tontitown landfill rises near stands of bare-limbed hickory and oak trees, with the blue Ozark foothills in the background. The decomposing trash generates methane, a gas 23 times as potent as carbon dioxide in trapping heat in the earth's atmosphere, melting glaciers and raising ocean levels.
Waste Management Inc., (WMI ) the huge garbage processor that operates the facility, tends nearly 90 wells dotting the trash mountain, each giving off a barely audible hiss as it sucks methane from the depths of the landfill and delivers the gas to a single towering flare. Once torched, the gas is released into the atmosphere as less-damaging co2. But company officials and Arkansas environmental regulators say Waste Management began to burn methane, and continues to do so, for reasons having nothing to do with TerraPass' offsets.
'ICING ON THE CAKE'
Concerned that methane might be contaminating groundwater beneath the landfill, Waste Management first floated the idea for a gas-collection system in early 1999. Arkansas regulators urged the company to pursue this remedy. In 2001 the state increased its pressure by imposing a requirement for "corrective action" at the Tontitown facility. Waste Management promised to make the methane flare operational by late 2001. After probes subsequently detected methane levels exceeding allowable levels, Dennis John Burks, then chief of the Solid Waste Management Div. of the Arkansas Environmental Quality Dept., wrote to Waste Management on June 27, 2001, saying that the state "strongly urges WM to bring the newly installed Tontitown Landfill gas extraction system online as soon as possible."
Asked about Waste Management's response, Gerald Delavan, a supervisor at the Arkansas environmental agency, says: "It started out as a voluntary effort" by the company. "But it ended up being guided by corrective action,'" imposed by the state. Wes Muir, a Waste Management spokesman, says: "We felt a gas collection system was the most effective way to deal with this.... It was a voluntary process."
Regardless of who deserves credit for taking the initiative, one thing is clear: The methane system was launched long before any promise of carbon-offset sales. In other words, it appears that the main effects of the TerraPass offsets in this instance are to salve guilty celebrity consciences and provide Waste Management, a $13 billion company based in Houston, with some extra revenue.
All six other project developers selling offsets to TerraPass that BusinessWeek was able to contact said they were pleased with the extra cash. But five of the six said the offsets hadn't played a significant role in their decision to cut emissions. "It's just icing on the cake," says Barry Edwards, director of utilities and engineering at Catawba County, N.C., which installed a system in 1998 to turn landfill gas into electricity to power 944 homes. "We would have done this project anyway."
A big player in the growing industry of brokers and retailers marketing offsets, TerraPass was the brainchild of Karl Ulrich, a professor at the Wharton School. Ulrich, an environmentalist who bikes to work, became concerned several years ago about the carbon dioxide emitted when he drove to his cabin in Vermont. In the fall of 2004 he gave one of his classes $5,000 and challenged students to create an affordable carbon-offset program.
TerraPass, with a number of Wharton graduates as shareholders, has soared since then. The company now claims 42,500 customers. Tom Arnold, the 30-year-old former Ulrich student who runs the business, says TerraPass has already had a major impact by offsetting more than 117,000 tons of greenhouse gases. Ford Motor Co. (F ) and the travel Web site Expedia.com (EXPE ) collaborate with the offset-retailer to offer customers the option of neutralizing travel-related emissions for an added cost.
TRICKLE DOWN
Arnold concedes that TerraPass hadn't known until approached by BusinessWeek that concerns about groundwater contamination had led to the Tontitown methane project. TerraPass, he says, will now rethink how it evaluates such landfill gas-reduction efforts. But Arnold stands behind the legitimacy of offsets related to the Tontitown dump. He emphasizes that Waste Management acted voluntarily, and he praises an $800,000 upgrade to the methane system last year: "That's behavior consistent with somebody trying to enhance methane capture." He also warns against getting too bogged down in the intricacies of how particular offset projects were conceived. "Let's get the market working well," he says. "That will do a lot of greater good."
As the offset market now works, intermediaries typically pocket a big portion of the money coming in. Consider two projects in the TerraPass portfolio that are run by dairy farmers in Princeton, Minn., and Lynden, Wash. Several years ago, the farmers had installed expensive equipment that uses methane from cow manure to generate electricity. In theory, the promise of offset income encourages farmers to invest in such equipment. TerraPass typically sells offsets for about $9 per ton of carbon dioxide, or the corresponding amount of methane. The company takes a cut of that $9, but won't say what the percentage is. A broker that introduced TerraPass to the dairy farmers also took a cut. In the end, the farmers say they each received less than $2 a ton out of the original $9. Darryl Vander Haak, the farmer in Washington, says he's happy with the $16,000 he earned last year from offset sales. But offsets didn't factor into his decision to start the methane venture, he adds.
TerraPass' Arnold nevertheless maintains that "the [offset] prices out in the market now are changing behavior." The fees intermediaries collect cover costs such as auditing projects and marketing to buyers. "It's much like Starbucks (SBUX )," Arnold says. "What do you think Starbucks pays for a pound of coffee, and how does that translate into a $3.50 latte?"
Seattle, the home of Starbucks, made an astounding announcement in 2005: Its municipal utility, Seattle City Light, had eliminated its contribution to global warming. The power company still annually spewed some 200,000 tons of greenhouse gases. But Seattle said it had negated every last ton by paying other organizations around the country to curtail their emissions. "We can power our city without toasting our planet," Seattle Mayor Greg Nickels declared.
But as in the case of the Oscar presenters, the bulk of the pollution reductions for which Seattle paid would have happened regardless of its offset deal. The city's experience illustrates the difference between more expensive methods of cutting greenhouse gases close to home, vs. more far-flung deals with third parties.
In 2000 the Seattle City Council imposed the long-term goal of Seattle City Light becoming carbon-neutral. At first the utility pursued local projects, such as one in 2003 with Seattle's municipal trucking department. The strategy was to convert 900 diesel vehicles to a more climate-friendly blend of fuel containing 20% biodiesel. The blend was expected to cost an additional 25 cents a gallon, so Seattle City Light agreed to chip in half of the difference. In exchange, the utility has taken credit for the relatively modest 700 to 1,400 tons of annual greenhouse-gas reduction the cleaner fuel allowed. This arrangement, which improved air quality in Seattle, wouldn't have occurred without the financial incentive provided by Seattle City Light.
"Our approach initially was very strict," says Corinne Grande, a strategic adviser to the utility. "The project would only happen if the check came in the mail from us." But Seattle sought to offset hundreds of thousands of tons of gas a year. "We wanted offsets quickly, not offsets coming 10 or 20 years in the future," Grande says.
City officials culled dozens of offers from various middlemen. Several factors drew attention to a DuPont (DD )project reducing emissions at a Louisville (Ky.) plant that manufactures the refrigerant Freon, Grande recalls. DuPont enjoyed a strong reputation for reducing greenhouse gases, and the Louisville plant provided the chance to buy in bulk. Seattle City Light purchased its largest block of offsets in 2005 from DuPont, for nearly $600,000. The 300,000 tons of co2 reductions were enough for Seattle to claim "net zero" emissions for its utility, with plenty left over for 2006. The price, at only $1.95 per ton, was tiny compared with that of the biodiesel venture, which ran as high as $220.
NO DETAILS
DuPont deserved to be rewarded for its climate efforts, says Grande, the adviser to Seattle City Light. The chemical company "took a chance on doing more than they needed to do," she adds. "We'd like to encourage the continued destruction of greenhouse gases."
But Seattle's offset purchase didn't prompt the cleanup of the once-dirty Louisville plant. DuPont had begun researching improvements all the way back in 1995 and installed a more environmentally friendly system in 2000, five years before Seattle began paying DuPont. "We would have continued with these emissions reductions anyway," says Stephanie Jacobson, a DuPont spokeswoman.
In a legal twist, Washington's state Supreme Court ruled earlier this year that the Seattle utility lacks authority to use ratepayer money to fight global warming. The state legislature could counteract that decision, but meanwhile the future of Seattle's offset program is uncertain.
The growing green marketplace offers an alternative to carbon offsets known as renewable energy certificates, or RECs. When RECs work properly, producers of wind-generated power and other "renewable" energy sell the certificates as a way of promoting the creation of additional renewable energy sources.
One RECs buyer is Vail Resorts, which runs ski and vacation destinations in the West. Vail Resorts declares in marketing material that it is now "100% powered by wind." But this claim isn't literally correct. Vail Resorts contemplated building expensive mountaintop wind turbines to power its ski lifts and other operations. But instead it decided last year to enter a multiyear agreement to buy, for a fraction of the cost, RECs representing 152,000 megawatt hours of wind-generated electricity each year, equivalent to its annual use. "We're in the travel business," says Rob Katz, chief executive of Vail Resorts. "We're not in the electricity-generation business." He adds that even if his business obtains its power from a standard utility, which in the Rocky Mountains means relying mostly on coal, "we're helping to push forward development of new wind projects."
Which new wind projects? Katz says he relies on a broker to select appropriate recipients. His broker, Renewable Choice Energy of Boulder, Colo., declines to identify any of the investments it makes on behalf of Vail Resorts or its scores of other clients. Neither party will discuss the price of the RECs. What Renewable Choice will say is that the RECs it buys and sells are confirmed by the Center for Resource Solutions, the San Francisco nonprofit, as representing power not counting toward any government mandate and coming from projects built since 1997. RECs related to more recently built projects are thought more likely to spark development of new projects.
Still, this kind of secretiveness provokes skepticism. "If neither a seller of RECs nor the buyer will provide any details of how, exactly, their transaction is reducing carbon emissions, I would suspect it's vaporware," says Randy Udall, director of the Community Office for Resource Efficiency, an Aspen (Colo.) nonprofit that promotes renewable energy.
Some developers go further, scoffing at the basic economics of RECs, most of which sell for $1 to $3 per megawatt hour—a small fraction of what wind projects can attract in federal tax incentives. Voluntary REC purchases "are pure corporate marketing and image management" for buyers, says Mike O'Sullivan, senior vice-president for development at Juno Beach (Fla.)-based fpl Energy (FPL ), the nation's largest developer of wind power. "The economics of our wind investments have to work without the green credits."
More broadly, the proliferation of suspect RECs and offsets may persuade consumers and businesses that preventing climate change comes cheap, says Anja S. Kollmuss, outreach coordinator of the Tufts Climate Initiative, an advocacy group affiliated with Tufts University. "We cannot solve the climate crisis by buying offsets and claiming to be climate-neutral," she adds. "Nature does not fall for accounting schemes."
Copyright 2007, by The McGraw-Hill Companies Inc. All rights reserved.
See also:
BC Hydro buys and sells Green Power Certificates in much the same way as Renewable Energy Certificates are traded as described in this article.
October 18, 2007
The Peace Prize - Who are the real Winners?
COMMENT: GLOBE-Net provides information about the environmental business market in Canada and around the world. It is an initiative of the GLOBE Foundation of Canada, “a Vancouver-based, not-for-profit organization dedicated to finding practical business-oriented solutions to the world's environmental problems.” John Wiebe (a lower profile Maurice Strong?) runs the operation, and Michael Phelps, formerly of Westcoast Energy, is chairman of the board.
www.globe.ca
The GLOBE Foundation led development of “The Endless Energy Project,” published in January 2007. It describes “a roadmap to energy self-sufficiency” by 2025 for British Columbia primarily from renewables. The scope of this report includes transportation, not just electricity generation.
www.globe.ca/pdfs/GLOBE_EndlessEnReport.pdf
GLOBE-Net appears to recognize the moral imperative – the need to act in response to climate change – and the incredible business opportunities it affords.
Editorial
GLOBE-Net
www.globe-net.ca
17-Oct-2007
The Peace Prize - Who are the real Winners?
VANCOUVER, October 17, 2007 (GLOBE-Net) - The award to former US Vice President Al Gore and the U.N. Climate Panel of the 2007 Nobel Peace Prize last week for their efforts to galvanize international action against global warming signals not only a quantum shift in thinking about the focus of the Peace Prize Award, but also about the seriousness of the crisis facing mankind.
Gore and the United Nations' Intergovernmental Panel on Climate Change (IPCC) won "for their efforts to build up and disseminate greater knowledge about man-made climate change, and to lay the foundations for the measures that are needed to counteract such change", stated the Nobel Committee.
With respect to Gore, the Committee stated "He is probably the single individual who has done most to create greater worldwide understanding of the measures that need to be adopted." With respect to the IPCC "it has created an ever-broader informed consensus about the connection between human activities and global warming".
The Nobel Committee's choice generally has been celebrated, though some have commented on the political dimensions of the award and the scientific validity of the causes of global warming. These debates are as relevant to the situation at hand as would have been discussions on the after deck of the Titanic as to what really was at the root of the problem.
What stands out about the Award itself is the shift in focus away from efforts to quell real or threatened conflict between warring states to the need for global action to deal with an enemy that affects all of mankind, an enemy that knows no national boundaries; that does not discriminate between political ideologies or religions; that assails both rich and poor alike, though clearly the poor will suffer more from its onslaught.
And unlike the mission to secure a 'Peace' that led to award of the same prize to Canada's Lester B. Pearson many years ago, the Peace that must be won today deals more with coming to terms with the realities of climate change and working in common cause to deal with it. This is a mission that of necessity must unite business and governments at all levels, and which must mobilize the efforts of civil societies everywhere.
No one can deny that there will be winners and losers in this campaign; but that should simply strengthen our resolve to ensure that those who are disadvantaged by reason of location, or wealth or by lack of alternative options, do not suffer unnecessarily. If there is one common message that both the IPCC and Al Gore have stressed repeatedly it is that collectively we have the technological capacity, the ingenuity and the resources to make a difference before it is beyond our control.
There can be no finer calling for those engaged in the business of the environment, and our prize will be far more significant than that which will be given to these two winners in December. That prize will be our continued survival as a species on this all too fragile planet.
John D. Wiebe
President & CEO
GLOBE Foundation
October 17, 2007
U.S. LNG imports take bite out of Canada's natural gas sales
Shawn McCarthy
Global Energy Reporter
Globe and Mail
October 16, 2007
Canadian natural gas producers are suddenly finding themselves in competition for lucrative U.S. markets with counterparts in places like Nigeria and Egypt, as imports of liquefied natural gas displaced Canadian exports earlier this year.
In the first eight months of the year, LNG imports rose 56 per cent by dollar value, by $1.8-billion to $5-billion (U.S.). In that same period, Canadian exports declined 9.6 per cent, or $1.8-billion to $17.4-billion, according to figures from the U.S. International Trade Commission.
Greg Stringham, vice-president with the Canadian Association of Petroleum Producers, said the surge in LNG imports was a temporary phenomenon, resulting from price disparity between North American markets and European ones that encouraged producers to ship to the U.S.
But he said the increase in natural gas imports from overseas contributed to a glut of natural gas in storage in the United States, which led to lower prices and fewer exports for traditional Canadian suppliers.
"This is the first inkling we've seen of international competition in natural gas coming in and filling up storage and backing Canadian gas into storage here, and causing the depressed prices to be in place," he said.
Until recently, natural gas was strictly a regional commodity - there was virtually no competition for North American producers except within the continental market itself. But growing volumes of LNG are transforming the clean-burning energy source into a global commodity, though the tanker volumes are relatively modest over all.
The three largest suppliers to the U.S. are Trinidad and Tobago, Egypt and Nigeria, with the gas-rich Caribbean island providing more than the two largest African suppliers combined, the U.S. International Trade Commission figures show.
The U.S. has seen the expansion of three of five existing terminals that take liquefied natural gas off tankers and re-gasify it to be shipped to markets by pipeline. And construction is under way for four other terminals, with more planned, including several in Canada.
Robert Ineson, an analyst with Cambridge Energy Research Associates, said the decline in exports had more to do with falling production north of the border than the availability of LNG imports.
"Production will continue to fall because of the slowdown in drilling activity" that has been seen in Western Canada in the past two years, he said. "We also expect more gas produced in the region to stay home to be consumed in some of the oil sands projects."
Mr. Ineson said North American consumers will increasingly have to turn to LNG suppliers to compensate for falling production. "In North America as a whole, there's a growing need for additional supply beyond what we can produce in the U.S. and Canada," he said.
Ed Kelly, vice-president for gas and power for Scottish-based consulting firm Wood Mackenzie, said it is still early days for the development of LNG in North America. But he said volumes could double to 4.7 billion cubic feet a day over the next two years, and then double again by 2015.
October 11, 2007
Canada maintains LNG tanker stance despite study
Ottawa unmoved by positive LNG study
Shawn McCarthy, Globe and Mail, 06-Oct-2007
Canada maintains LNG tanker stance despite study
Energy Current, 09-Oct-2007
Unstable Mix: Politics and Liquefied Natural Gas
Rob Annandale, The Tyee.ca, 11-Oct-2007
The proponents:
Downeast LNG Inc.
Quoddy Bay LNG Inc.
Calais LNG
WestPac LNG LLC
The opponents:
Save Passamaquoddy Bay
Texada Action Now
www.texadalng.com
Ottawa unmoved by positive LNG study
Shawn McCarthy
Globe and Mail
October 6, 2007
A federal study has concluded that LNG tankers could navigate Head Harbour Passage off the Bay of Fundy with little risk of accident, but Ottawa continued to insist yesterday that it will bar U.S. tankers from the disputed waters.
Proponents of the competing LNG plants proposed for northern Maine have seized on the study - which was released on an obscure federal website - to argue that the Canadian government has exaggerated the safety concerns in order to favour domestic producers.
The federal government has refused to co-operate with U.S. regulators who are reviewing three separate plans for terminals that will regasify imported liquefied natural gas and pipe it to markets in the U.S. Northeast.
Earlier this year, Canada's Ambassador in Washington, Michael Wilson, wrote to U.S. Secretary of State Condoleezza Rice that the projects "present risks to the region of southwest New Brunswick and its inhabitants that the government of Canada cannot accept."
However, the report by Toronto-based Senes Consultants Ltd. said there have been no serious accidents involving LNG tankers in the nearly 50 years they have been in use.
"While large accidents involving the shipping and handling of LNG are possible, the probability of occurrence is small, especially with Canadian and U.S. regulation in place and enforced," it said.
It added the risk of incidents involving the uncontrolled release of liquefied natural gas is "very small."
Still, the Senes report noted the tricky waters of Head Harbour Passage require extremely careful navigation and that the surrounding eco-system could be severely affected by the discharge of fuel or LNG from tankers.
Dean Girdis, president of Downeast LNG Inc., said the report will be helpful as the U.S. Coast Guard and Federal Energy Regulatory Commission prepare their environmental impact statement, a process that should be completed by early 2008.
"I don't see how the study supports the conclusion that it is unsafe for ships to navigate Head Harbour Passage," Mr. Girdis said in an interview yesterday. "There is nothing in the study that concludes our project should not proceed."
Mr. Girdis said he believes - with backing for some Canadian academics and the U.S. state department - that tankers heading for a northern Maine terminal would have the right to traverse Canadian waters.
"They may maintain their position on no transit but there is no law or regulation which restricts LNG traffic going through Head Harbour Passage," he said. "And according to our lawyers, it's clear that it is Canadian waters, but that you have right of passage through it."
But Veteran Affairs Minister Greg Thompson, the government's senior New Brunswick minister - said the proponents face other hurdles - including opposition to their pipeline routing and lack of sources of LNG. But should they proceed, Canada will oppose all LNG tanker traffic through head Harbour Passage, he said.
"This particular location is not a smart location, it's not a safe location," Mr. Thompson said. "And we consider those internal Canadian waters so we have a responsibility to protect our citizens, protect the environment and protect the economy."
Canada maintains LNG tanker stance despite study
10/9/2007
CANADA: The Canadian government will continue to insist that it would ban U.S. liquefied natural gas (LNG) tankers from traversing Canadian waters despite the results of a consultants' report that concludes that LNG tanker travel in the Bay of Fundy to the proposed Quoddy Bay and Downeast LNG projects in the U.S. could be done, The Globe and Mail reports.
The Canadian government has refused to cooperate with U.S. regulators, including the Federal Energy Regulatory Commission, who are reviewing the Quoddy Bay and Downeast projects proposed for construction in Maine.
Earlier this year, Michael Wilson, Canada's ambassador in Washington, D.C., wrote to U.S. Secretary of State Condoleezza Rice that the projects "present risks to the region of southwest New Brunswick and its inhabitants that the government of Canada cannot accept."
However, LNG plant proponents say the Canadian government is exaggerating safety concerns in order to favor domestic gas producers.
The report by Toronto-based Senes Consultants Ltd. noted that no serious accidents involving LNG tankers have occurred in the almost 50 years in which they have been used.
However, the report notes that traveling the waters of the Head Harbour Passage will require careful navigation. During the study, Senes found that the navigating the Old Sow whirlpool when moving from the Head Harbour Passage to the Western Passage, which requires a 102-degree turn, will be difficult at manoeuvring speed.
Use of the market software "National Manoeuvring Guidelines" supported Senes' concerns by clearly showing that the waterway at its narrowest point near the elbow is barely wide enough to support safe passage of this type of vessel in an autonomous way at normal manoeuvrability speed in light currents and mild winds."
"Given these findings, the transit of an LNG tanker similar to the sample vessel involves a considerable level of risk."
Senes said in the report that it is possible adopt an approach that will allow for risk management and for the application of a number of measures to mitigate risk. However, these measures give rise to additional costs in the implementation and operation of the transportation system. The measures also generate "considerable operational limitations."
Bathymetry indicates that the water depth is suitable for the type of vessel that is expected in this area and does not pose any problems. The topography of the shore and the islands, which provide good reference points for radar navigation, and the Differential Global Positioning System (DGPS) can be used with the DGPS coverage available.
Senes also noted that the surrounding eco-system could be severely affected by the discharge of fuel of LNG from tankers.
Unstable Mix: Politics and Liquefied Natural Gas
Rob Annandale
The Tyee.ca
11-Oct-2007
PM Harper: Opposes LNG shipments through New Brunswick waters. Citing 'safety concerns,' feds fight LNG project back east -- but not along BC's coast.
Chuck Childress moved to "paradise" over 40 years ago. He enjoys nature, but this veteran of the mining, construction and pulp and paper industries is no enviro-fundamentalist.
Read the rest of this article at theTyee.ca:
http://thetyee.ca/News/2007/10/11/LiquifiedNatGas/
October 06, 2007
Paying for No
COMMENT: At the beginning of October, Rainforest Action Network launched its No New Coal campaign against the rush to new coal-fired generation facilities in the United States. As well as targeting the coal companies and the electricity generation utilities and merchant power companies, RAN is aiming its criticism at big banks – the corporations which lend the money, reap profits, but in the main stay outside of the line of fire.
http://tinyurl.com/2vbflh
Following RAN’s announcement, Brett Harvey, CEO of Consol Energy, a major US coal producer, whined about his industry being the whipping boy for environmentalists. Awww.
http://www.sqwalk.com/blog2007/001133.html
Join the dots from projects to the money: you could be standing on a deposit containing all the gold (or oil or uranium or whatever) in the world, but if you couldn’t get financing, you wouldn’t scratch the ground. Track investment dollars back to source and as RAN observes, you often end up at a bank. That’s not always true – sometimes private investment capital is involved, and in the case of the petroleum multinationals, they have so much cash these days that they are beholden to no-one.
Money exerts its influence in a number of ways.
When an industry feels threatened by tax increases or policy changes that might interfere with profitability and shareholder return, its first reaction is the tiresome “investment withdrawal” threat which it brandishes at whomever is proposing the change. We see this happening right now in Alberta.
A royalty review panel in Alberta has recommended increases to the royalties that affect Alberta’s big three commodities – conventional natural gas, conventional oil, and the oilsands. Whining was to be expected, and at the moment the volume is deafening. Just this week Diane Francis of the National Post joined the melee: “oil companies also have the right to not do business in Alberta either.” The oil companies themselves have put numbers on how much investment they’re not going to make: EnCana, $1 billion; Talisman another billion, and just this week, Conoco Phillips: $8.5 billion. Awww.
http://www.sqwalk.com/blog2007/001131.html
http://www.sqwalk.com/blog2007/001120.html
http://www.sqwalk.com/blog2007/001116.html
Let ‘em go. Alberta already has a grossly overheated economy, is skewing labour markets across the country, and is siphoning billions of dollars of common property into the pockets of shareholders and lenders to these companies. Leave the stuff in the ground and get out. A cooling earth might thank you for it.
Except they're not going anywhere. Even if it implements the new royalties (doubtful), Alberta is still too good to leave.
Two interesting related debates are taking place in Oregon right now over two measures to be voted on in a special election on November 6 in the state.
Measure 49, if passed, corrects shortcomings in an earlier Measure 37, and would result in protection of farm and forest land, primarily by limiting the number of homes that can be built on such lands. There’s more to the measure than this, but this appears to be where the line in the sand has been drawn. Providing funds on the No side are the forest companies who, (much like Western Forest Products and others forest companies on Vancouver Island,) are looking at real estate sales and development of private forest lands as an easy revenue source.
Measure 50 calls for an increase in tobacco taxes. No surprise who is opposing this one.
http://www.sos.state.or.us/elections/nov62007/
Here’s a great article from the Oregonian about these measures
Paying for No
David Sarasohn
The Oregonian
Wednesday, October 03, 2007
The old political rule to "follow the money" never makes more sense than in ballot measure campaigns, since ballot measures never grant interviews.
And it's never easier than in this year's campaigns against Measures 49 and 50, where the money is coming from very clear places: timber companies against Measure 49 and tobacco companies against Measure 50.
Of course, you do have to follow the money a little distance. That way, you get to what the campaigns are about, instead of what the ads say the campaigns are about.
Monday's campaign finance reports show tobacco companies spending $6.6 million to fight Measure 50 and Stimson Lumber of Portland chipping in $200,000 to the campaign against Measure 49, the Legislature's rewriting of the land-use rollback Measure 37. Stimson, it turns out, is also the state's largest claimant under Measure 37, to drop land-use rules on at least 57,000 acres of its holdings.
As Eric Mortenson reported in The Oregonian Tuesday, two other timber and wood products companies came up with $100,000 apiece for the campaign, with a forest's worth of other timber and wood products companies contributing. As the ads declare their support of the principles of private property, there's a faint whir of chain saws humming in the background.
For the No on 49 campaign, there's a connection between cutting trees and cutting the checks.
In this case, it's not likely to dominate the debate; supporters of Measure 49, environmentalists and environmental organizations, are up to now outspending the opponents. But there's still a big difference between what No on 49 sounds like and what No on 49 spends like.
Out front, this is an effort of small oppressed property owners, wanting only to build a couple of houses on property they've owned for decades. The Web site for stop49.com shows a tormented young couple, not a frustrated timber company.
But apparently, from the campaign's contribution reports, the tormented young couple are agonizing about the status of their 57,000 acres.
Opposing Measure 50, a cigarette tax increase to extend health coverage for Oregon kids, the campaign is ostensibly led by a group called Oregonians Against a Blank Check. No one has actually met an Oregonian against a blank check; the organization is organized and funded by Reynolds American, a group that might more accurately be called North Carolinians Against Making It More Expensive to Smoke.
The campaign, of course, doesn't feature those folks. Instead, its inescapable TV ad shows another tormented couple -- a little older than the couple tormented by Measure 49 -- who are stunned that Measure 50 amends the Oregon Constitution.
Overcome by this, the tormented male finally growls that he's not going to let people mess with the Constitution, and his helpmate nods sorrowfully.
It's touching to find North Carolinians so committed to the timeless permanence of the Oregon Constitution. It means that they, like most Oregonians, have never actually looked at it.
The Oregon Constitution, which goes on for 50 closely printed pages and includes anything the people of the state have thought about and changed their mind about in the last 150 years, has been amended 24 times just since 1999.
Fortunately, when it was proposed in 2004 to remove motor homes from the provisions dealing with taxes and fees on motor vehicles, nobody growled that we shouldn't mess with our constitution.
But of course, that's not Reynolds American's concern about Measure 50 at all, any more than Stimson Lumber is worried about Oregonians' rights to build a second house on 40 acres.
Following the money consistently leads you to what campaigns are actually about, going behind the terribly concerned-looking hired models to the goal that the people financing the campaigns actually have in mind.
Sometimes, following the money leads you to thousands of acres of rural Oregon being legally prepared for subdivision.
And sometimes, it leads you to North Carolina.
David Sarasohn, associate editor, can be reached at 503-221-8523 or davidsarasohn@news.oregonian.com.
Coal "whipping boy" for greens
Last week, Brett Harvey, CEO of coal mining giant Consol Energy, whimpered in a media statement that environmentalists were picking on his industry.
Consol CEO says coal "whipping boy" for greens
Steve James, Reuters, 03-Oct-2007
Harvey was reacting to the introduction by Rainforest Action Network of its No New Coal campaign. More about the campaign, here
Consol CEO says coal "whipping boy" for greens
By Steve James
Reuters
Wed Oct 3, 2007
NEW YORK (Reuters) - The coal industry has become the "whipping boy" of environmentalists who fail to come up with realistic alternatives for energy, the head of one of America's biggest coal producers said.
Brett Harvey, chief executive of Consol Energy Inc also suggested a surcharge on electricity use to help pay for development of technology that makes coal burn off less carbon dioxide and converts the fossil fuel into liquids and gas.
"If you're not going to use coal anymore what are you going to use?" he said he asks anti-coal advocates. "Well, they respond to you: new technology, solar and wind.
"My response is: 'Well, how does that work? and they say: 'I don't know but we need to study it,"' Harvey said in an interview during this week's Reuters Environment Summit.
"Well if it was really that easy, don't you think we'd have already done this? Do you think we would already have avoided the Clean Air Act and everything we've done to clean up coal over the years and gone automatically to that?" said Harvey, whose Pittsburgh-based company produces approximately 70 million tons of coal per year.
"There is a direct relationship between the use of coal and a healthy economy," he said. "When you quit using 50 percent of your electricity then we can talk. If you throttle back the use of coal and drive your base power costs up, you make all the products we make more expensive."
Asked how the industry viewed environmentalists' efforts to stop construction of new coal-fired power plants, which they blame for increasing greenhouse gas emissions, Harvey said: "Well, it's the whipping boy.
"I think the whole mantra of the environmental groups is: don't waste energy and if you make everything more expensive the theory is you use less. That's the underlying basis of their argument, but it's not the nature of the American public or probably anyone in the world," Harvey said.
Coal fuels approximately 50 percent of America's electricity generation, but environmentalists want to replace it with alternative sources, such as wind or solar, to meet future increased power demand.
Harvey said the problem lies also with the public's perception of coal as an outdated, dirty, 19th Century fuel.
"People have disconnected the use of coal from what they do in their everyday lives. They think that's what their grandparents used to do. They don't realize when they hit the light switch they hit Consol Energy."
Harvey said in the 1990's America decided it wasn't going to use coal any more. "The administration said coal would be done in 2005.
"Everybody believed it and natural gas went from a buck and a half a million (BTU) to $10 a million based on throttling back coal and, guess what, now we're on short supply of natural gas, we overbuilt gas generation and you can't replace it with limited fuel sources."
Asked about clean-coal technology, he said: "Should we do something more with coal? Yes. Can we make it cleaner? Yes. But it's going to cost us and it's going to take time.
"This is no different from landing somebody on the moon, if the focus is there and the attitude is there, we'll get it done. What we need is people to agree to solve the problem, not just throw the baby out with the bathwater and say there's an alternative that nobody can describe."
Coal-to-liquid (CTL) technology would require $2 billion to $3 billion in research per year over 10 years, he estimates.
"Probably the best thing to do is take and bill the people who use the coal for power. Tack that as a fee on the use of power for coal and put it in a research institute. It costs the average family about $5 a year and you will have funded the research," he said.
"If you take coal out of the equation and you try to eliminate coal, based on the environment, the people you hurt the most will be poor people," he added.
© Reuters2007All rights reserved
No New Coal
Rainforest Action Network
02-Oct-2007
RAN’s Global Finance team finished up a press conference announcing to the world that we are formally launching a campaign against the world’s two largest banks - Citi and Bank of America. Why? Because they are the top funders of the dirty coal industry - and the crucial link supplying billions of dollars to companies and projects that are destroying communities, our environment and our climate. These two banks account for around $4 trillion in assets - and it’s time we held them accountable for their investments. They hold the necessary capital to transform our economy away from destructive fossil fuels like coal, and towards one based on sustainable, equitable, clean energy.
You can read all about the campaign at the Global Finance homepage, see our press release announcing the campaign, and read our latest report: Banks, Climate Change, and the New Coal Rush. If you missed out on the great conference this morning [02-Oct-2007] - you can listen to the recording here.
The call featured:
* Becky Tarbotton (Director of RAN’s Global Finance Campaign)
* Bill McKibben (Author and founder of Step It Up!)
* Judy Bonds (West Virginia coal-field resident, and founder of Coal River Mountain Watch)
* Leslie Lowe (energy and environment program director at the Interfaith Center on Corporate Responsibility)
Join us in an ambitious campaign targetting the two largest banks in the world to address the world’s largest problem: climate change. Get involved!
Royalty advice: don't act, talk...
Only threat to Alberta is onset of world peace
David L. Yager, National Post, 18-Sep-2007
Beyond royalty hysteria
Diane Francis, Financial Post, 06-Oct-2007
Wall Street to Alberta: Don't be ‘so stupid'
Shawn McCarthy, Globe and Mail, 05-Oct-2007
Energy giant rages against plan to hike Alberta royalties
CBC News, 05-Oct-2007
Only threat to Alberta is onset of world peace
David L. Yager
National Post
Tuesday, September 18, 2007
An outbreak of world peace and respect for human rights would be disastrous for Alberta. Global happiness would bankrupt this province.
It's not obvious how Alberta prospers by the world's misery. Let's connect the dots.
Alberta has earned the dubious distinction of being one of the most expensive places to develop and produce oil and gas. It's a combination of geology and public policy.
Because of our long history in the conventional-oil business, the cheap stuff is increasingly hard to find. All the big fields have been discovered and largely drained. What conventional-oil explorers do find today is heavy, wet, sour or small.
Sadly, our oilpatch is also over the hill for natural gas. Increasingly, we're drilling "resource plays" (a complimentary term for very tight reservoirs that cost a bundle to stimulate) or "non-conventional" supplies like coal-bed methane. The current rig count illustrates that $5.25 per thousand cubic feet for methane is way too low for this basin.
The future of hydrocarbon production is oil so heavy that is must be mined and separated or heated so it will move. High oil prices and massive reserves have made Alberta's non-conventional oil attractive, but right now this is surely the most expensive petroleum to develop in the world.
Politics don't help. While the public debate about whether Alberta charges enough economic rent through the lease and royalty system will go on forever, there are significant but seldom discussed soft costs that continue to drive up finding and development costs.
As people and production get closer together, the inherent conflict of public ownership of subsurface resources and private ownership on top continues to pressure costs. Expenses for public hearings, environmental protection and surface access continue to rise.
As drilling in Alberta remains flat while activity in the United States is flat out, we can't ignore much lower costs stateside for mineral rights and surface access.
What is saving Alberta's bacon right now is surprisingly high oil prices. Although speculation about whether "peak oil" has arrived continues, this subject cannot be fairly studied without factoring in politics. A look around the world leads me to conclude that current crude prices have nothing to do with geology.
There is no shortage of geologically promising places to drill for oil. What our industry is lacking is oil reserves to develop in places where private companies are welcome and our workers are safe.
There's a long list of awful countries with oil. They all suffer from one ore more of the following negative attributes: dictatorships, insurrection, state ownership, civil war, corruption or repressive governments. Not one of them would be classified as a nice place to live.
Alphabetically they include Azerbaijan, Bolivia, China, Columbia, Ecuador, Iran, Iraq, Kazakhstan, Kuwait, Mexico, Nigeria, Russia, Saudi Arabia, Sudan, Turkmenistan, Uzbekistan and Venezuela. I'm sure this list is not complete.
Each of these countries have two things in common: oil that costs less to develop than Alberta's, and one or more political reasons why Western oil companies aren't actively drilling there.
Everyone professes to support global peace and democracy and an end to human suffering and political corruption. Suppose for a moment these noble improvements to mankind were to miraculously occur.
The start of the world's unprecedented happiness would be accompanied by the end of Alberta's petroleum industry. Multinational oil companies would dump our province in a flash and flock back to Mexico, Russia, Venezuela, Saudi Arabia, Iran or Iraq. The other countries would be close behind.
As Alberta's political leaders discuss public and energy policies, you're not likely to hear them praying for more state ownership of petroleum abroad, or a continuation of the civil wars in places like Sudan, Iraq and Nigeria.
But it's pretty clear what would happen if the world changed. Alberta's oilsands are attractive not because of what they are, but where they are. Oil companies are investing billions in an attempt to make a buck recovering this awful goop simply because there's no place else to go.
Alberta's alleged political stability is brought up frequently by critics of the oil industry. It is used primarily as a reason to further impair development economics by increasing taxes or royalties or introducing more stringent environmental regulations and controls.
Nobody ever acknowledges that much of the so-called "Alberta advantage" is by default. It's not that this province is good, but that the rest of the world is so awful.
Luckily for all of us, an outbreak of world peace and tranquility is highly unlikely.
High oil prices tend to increase the urge to tax or nationalize. Islamic fundamentalist governments in oil-producing countries are on the rise. These regimes have agendas that rarely include producing more oil. Fortunately, both trends decrease investment and depress production.
But all this unhappiness is a questionable foundation for Alberta's energy industry.
David L. Yager is chairman and chief executive of HSE Integrated Ltd. in Calgary and a columnist with Oilweek. © 2007, Oilweek
© National Post 2007
Beyond royalty hysteria
Diane Francis
Financial Post
October 06, 2007
The best suggestion during the Alberta royalty debate has come from Houston-based ConocoPhillips Co. -- that the province not throw its weight around, but rather create a commission of government and oil experts to examine the issues carefully.
On the table is a proposal by a government panel to raise royalties collectively by 20%, and there's screaming and threats from the industry.
But the crux of the royalty issue is whether Alberta is getting as much for its non-renewable resources as oil companies are willing to pay elsewhere.
The panel relied on Pedro van Meurs, a Dutch-born expert who ran an oil company and was a consultant with Alaska. I interviewed him this week.
"What governments around the world do is try to be competitive with one another, taking into consideration cost. They watch each other carefully," he said. "What's important all the time is to make sure a government doesn't overplay its hand. If it does, activity significantly declines. If governments get too greedy, they are punished by the market of course."
He said 20 governments have raised royalties.
"Alaska increased 10% overall and Ireland last week increased the government take by 25%, along with Denmark. The U.S. Gulf of Mexico increased by 10%," he said. "The panel is not being too aggressive."
Here is Van Meurs' comparisons with other jurisdictions: - Alberta versus Texas conventional natural gas: Small wells in Alberta now pay 12% (based on current low prices); medium-sized wells producing 650,000 cubic feet a day pay 24% and big wells of several million feet day are at 29%. In Texas, royalties vary depending upon the landowner, but Dallas experts hired to consult said the average was 25%.
"The proposal would match 25% for smaller wells and raise it to 34% for big ones," he said.
Deep gas, expensive to produce, will still get a royalty holiday of $500,000. "The proposal was silent on this, but I assume it's going to continue, which should protect these wells." - Alberta oilsands versus Alaska heavy oil: "The panel is proposing 64% for the oilsands after they get all their money out, which matches what Alaska gets. The big difference is that oil companies in Alberta pay only 1% until they get all their investment out, plus a good rate of return. In Alaska, oil companies pay a royalty right from the start," he said. "This is important to understand and makes the oil sands is far more favourable than the Alaska jurisdiction. I negotiated the Alaska terms with the oil industry, so I'm extremely familiar with them."
Van Meurs also addressed the hysteria in the United States and elsewhere over raising royalties.
"What Americans don't understand is that the two systems are very different. In the U.S. system, the royalty rate is written in your lease; it's a contractual agreement. In Alberta, that is not the case. An Alberta lease says you shall pay whatever royalty the government decides from time to time."
"Statoil, Shell, Total have good lawyers and know perfectly well that Alberta's royalties can change," he said. "Leases are loud and clear. The province doesn't even have to consult."
Of course, that's all very well and good, but the oil companies also have the right to not do business in Alberta either. That's why an industry-government commission must arbitrate a fair deal.
© National Post 2007
Wall Street to Alberta: Don't be ‘so stupid'
SHAWN MCCARTHY
Globe and Mail
October 5, 2007
After years of carefully cultivating an image as an investors' paradise, the Alberta government is getting a rough ride on Wall Street over proposed royalty changes that would significantly reduce profits for oil companies that invest in the province.
Accustomed to dealing with political risk in places like Russia and Venezuela, investors and analysts are stunned that Alberta – which has sold itself as Texas North – has apparently taken such an aggressive approach to the industry that has spawned so much wealth there.
“The Alberta government is doing a classic ‘shoot yourself in the foot' strategy,” said Fadel Gheit, an influential New York-based analyst with Oppenheimer & Co.
“It's tried and true: If you really want to hurt your economy, start raising taxes on industries that are really basic to the lifeblood of your economy … It's so stupid – I thought these people were more sophisticated than that.”
Mr. Gheit said energy investors will be wary about Alberta, at least until there is some reassurance that the province is not looking to drive down expected returns on investment through higher taxes.
“They should attract investors, not repel investors. They should put out the welcome mat to bring more money into the province, and market themselves as the friendly, open-for-business place.”
That's exactly the message the provincial government has tried to convey over the years, as former premier Ralph Klein and a parade of ministers visited the North American financial capital to prospect for investment in the oil sands.
Two years ago, Mr. Klein and representatives from several Alberta-based companies brought horses and riders from the Calgary Stampede to perform in front of the New York Stock Exchange.
Mr. Klein met with The Wall Street Journal and BusinessWeek and Forbes magazines to tout the potential of the oil sands and the welcoming investment climate in Alberta. He also participated in a conference call with clients and investors at JPMorgan investment bank in which he promoted the “very attractive investment opportunity” that existed in Alberta.
This past May, provincial Finance Minister Lyle Oberg returned to the city to assure analysts and investors that the new government of Premier Ed Stelmach was equally committed to a business-friendly investment climate. “There was never any indication there would be a move like this,” said one American Canada-watcher who was at the lunch.
In an effort to reassure investors, Alberta Energy Minister Mel Knight is scheduled to visit New York and Boston early next month – after the government has responded to the royalty report.
At a Lehman Brothers' energy conference last month, Canadian companies like EnCana Corp., Petro-Canada and Canadian Natural Resources Ltd. presented their rosy prospects to a room full of investors at the Sheraton Hotel in mid-town Manhattan. They gave no indication of the bombshell that would be dropped less than three weeks later.
Several money managers said in interviews that they are re-evaluating their view of Alberta in light of the proposed royalty changes, which comes a year after investors were hammered by the federal government's decision to end tax advantages for income trusts.
“Any time somebody changes the tax regime or the regulatory regime in a meaningful way, it's a negative,” said one fund manager, who spoke on the condition he not be named. “They have pitched themselves as investor friendly, and have sought out investment, and this isn't really the best way to do it.”
The province has yet to decide on a course of action following the review committee's recommendations. And the committee insists the industry will remain highly profitable under the recommended changes, that Alberta is now out of sync with other major jurisdictions on the tax take from its resources sector.
Energy giant rages against plan to hike Alberta royalties
CBC News
Friday, October 5, 2007
Another oil and gas giant has joined the parade of companies warning the Alberta government not to raise royalty rates for gas and oil.
ConocoPhillips President Kevin Meyers said he has written to Premier Ed Stelmach warning that boosting royalties by 20 per cent, as recommended in a recent report, would cost his company an oilsands project worth $500 million next year.
He also said a further $8 billion in projects planned for the next three years would have to be postponed.
A panel appointed by the Alberta government released a report in September that said Albertans are not getting their fair share of energy revenues, and it recommended raising royalty rates by 20 per cent, or $2 billion a year.
A series of oil and gas companies have been coming forward to criticize the suggestion, saying an increase would hurt the province's investment and growth potential.
Last week, EnCana threatened to cut $1 billion from its 2008 investments if recommendations in the report are adopted.
Continue Article
The company said it will cut 30 to 40 per cent of the $2.5 billion to $3 billion it plans to spend next year on Alberta-based activity.
On Tuesday, Crescent Point Energy Trust said it would shift about $150 million in investment from Alberta to Saskatchewan if royalties are raised.
Then, on Wednesday, the former chief executive of Talisman Energy warned Alberta that the company would likely cut around $500 million from its capital program if the proposed royalty hike is approved.
"At current gas prices, I believe it will be difficult for anyone to grow their natural gas production in Alberta, and if you implement these proposals we will see a significant loss of investment, jobs, taxes and the loss of world-class technical expertise," Jim Buckee wrote in an open letter to Stelmach.
The cut would be on top of Talisman's current plan to trim $500 million from its spending in the province due to low prices for natural gas.
Also on Wednesday, Petro-Canada weighed in, saying that royalty rates should increase only for oil and gas prices that rise above current levels. The company also said any royalty changes should be phased in, so producers and investors have time to adjust.
"We want to continue to invest here, so it's important that we find a solution that works for everyone," said Ron Brenneman, Petro-Canada's CEO and president.
Stelmach has promised to consult with the oil and gas companies before making his decision, which is expected later in October.
"No one should be surprised that firms are making noises that they will invest less or build less if royalties increase," energy policy expert Joseph Doucet said Thursday.
"The real question for the government to look at is by how much that might change, in order to make the best decision."
Doucet said the government should be able to strike a balance between increasing rates and maintaining the industry.
"Although there will be a hit on the industrial sector, it won't necessarily be as large as people are predicting," he said.