BC’s Clean Infrastructure Royalty Credit Program: a winner for the environment, industry and Alberta?

BC’s unique Clean Infrastructure Royalty Credit Program (CIRCP) is now accepting applications from oil, gas and pipeline companies to recover through royalty credits up to 50% of their capital costs spent on equipment to reduce greenhouse gas (GHG) emissions. The CIRCP is focussed on reducing methane emissions (methane is a potent GHG) through equipment retrofits and replacements and conversions of venting sources at upstream oil and gas sites. The environment and industry are expected to benefit under the CIRCP, as might Alberta if it introduced a similar program.

Oil and gas wells, production and processing facilities and pipelines often use pneumatic devices for process control. Natural gas, which consists largely of methane, is often used in these devices to power process control equipment such as pressure controllers, temperature controllers, liquid level controllers and flow-rate regulators. Using pressurized natural gas from a well is particularly common when the equipment is far from another available energy source, such as power lines. Commonly, these devices are designed to “bleed” or vent the natural gas to the atmosphere.

The CIRCP is focussed on shovel-ready projects with proven technologies. Given the royalty credits, equipment can be deployed at half its capital cost, dramatically reducing payback periods. It is expected that industry will therefore take full advantage of the program.
 

Eligibility

Eligible projects under the CIRCP include high-bleed to low-bleed conversions of pneumatic pumps and controllers, instrument gas to instrument air conversions and vent gas capture projects. For example, an eligible project might include replacing injection pumps with solar-powered pumps.

Leak detection and repair projects, technology deployment to meet regulatory requirements and projects already completed or substantially underway are not presently eligible under the CIRCP.

Each CIRCP application will undergo a comprehensive review by an evaluation committee and will then be ranked using evaluation criteria. Scores are calculated by taking the royalty deduction requested in the application and dividing it by the project’s estimated GHG reductions. Projects with the highest scores are recommended for a royalty deduction of up to 50% of their project costs. If a company is selected it must enter into an agreement with the province in order to receive the royalty credits.

When the project is completed, third-party verification of the GHG emission reductions is required, although there is no minimum GHG emission reduction required. If successful, the allocated royalty deduction is applied by the province to the royalty payor’s account as a whole and is not tied to specific production or wells.
 

Timeline

Applications are being accepted under the CIRCP until October 7, 2016. Following evaluations this winter, agreements are to be signed with the province in the spring of 2017.

The CIRCP is part of BC’s Climate Leadership Plan and is similar to BC’s long-running and successful Infrastructure Royalty Credit Program where royalty deductions are awarded to companies who invest in new or upgraded roads and pipelines.

The CIRCP is the first of its kind in Canada and should be closely watched by Alberta. Under Alberta’s Climate Leadership Program, the government is committed to reducing methane emissions from the oil and gas industry by 45% from 2014 levels by 2025. An incentive similar to the CIRCP was recommended to the Alberta government last year by the Canadian Association of Petroleum Producers. Reducing methane emissions from upstream oil and gas sites is also a key component of the US Environmental Protection Agency’s climate change plan, the Canadian federal government’s plan and the subject of a recent emissions reduction joint pledge by Canada, the US and Mexico.