Canada Gazette, Part I, Volume 153, Number 24: Order Declaring that the Provisions of the Regulations Respecting Reduction in the Release of Methane and Certain Volatile Organic Compounds (Upstream Oil and Gas Sector) Do Not Apply in British Columbia

June 15, 2019

Statutory authority

Canadian Environmental Protection Act, 1999

Sponsoring department

Department of the Environment

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Order.)

Issues

The British Columbia (B.C.) Oil and Gas Commission has introduced amendments to the Drilling and Production Regulation (the B.C. Regulation) to manage methane emissions from the oil and gas sector in a manner equivalent to the Regulations Respecting Reduction in the Release of Methane and Certain Volatile Organic Compounds (Upstream Oil and Gas Sector) [the Federal Regulations]. footnote 1 In addition, the Oil and Gas Activities Act has been amended to include provisions equivalent to those in sections 17 to 20 of the Canadian Environmental Protection Act, 1999 (CEPA). The Minister of the Environment is recommending that an order in council be made that would declare that the provisions of the Federal Regulations do not apply in British Columbia, on the basis that the B.C. Regulation meets the requirements for an equivalency agreement as set out in CEPA. An order in council is required to avoid regulatory overlap and administrative burden, and allow the government of British Columbia to regulate methane emissions in the oil and gas sector in a manner that best suits its particular circumstances, while ensuring equivalent environmental outcomes.

Background

In April 2018, the Government of Canada enacted the Federal Regulations. The Federal Regulations introduced control measures (facility and equipment standards) to reduce fugitive and venting emissions of methane and volatile organic compounds (VOCs) from the upstream oil and gas sector. These control measures included requirements respecting fugitive emissions, compressors, and well completions, which come into force in 2020, and routine venting, pneumatic controllers and pneumatic pumps, which come into force in 2023. The well completion requirement does not apply in Alberta or British Columbia.

On December 17, 2018, the B.C. Oil and Gas Commission approved a final amendment to the existing B.C. Regulation, which contains requirements for methane emissions reductions. footnote 2 The B.C. Regulation requires control measures to reduce fugitive and venting methane emissions from the upstream oil and gas sector. This Regulation contains regulatory standards for the same sources as the Federal Regulations with additional standards for glycol dehydrators, which are used to remove moisture from produced gas. The B.C. Regulation differs from the Federal Regulations in that control measures are more stringent for new facilities beginning in 2021 and most requirements for existing facilities come into force in 2022. In addition, the B.C. Regulation requires a lower leak detection frequency at some facility types and contains less stringent routine venting requirements. However, these standards apply to a greater number of facilities.

Equivalency agreements under the Canadian Environmental Protection Act, 1999

Protection of the environment is a shared jurisdiction between the Government of Canada and provincial and territorial governments. Section 10 of CEPA authorizes the Governor in Council, on the recommendation of the Minister of the Environment, to make an order to declare that the provisions of a regulation made under certain subsections of CEPA do not apply in a province or territory. For this to occur, the government of the province or territory must enter into an equivalency agreement with the Government of Canada. An equivalency agreement is a written agreement signed by the Minister of the Environment and representatives of the province or territory where there are in force provisions made under laws that are equivalent to the Federal Regulations, and provisions that are similar to sections 17 to 20 of CEPA establishing a right to require the investigation of alleged environmental offences. Under subsection 10(8) of CEPA, an equivalency agreement has a maximum term of five years from the date on which it comes into force, and may be renewed. An equivalency agreement may also be terminated before this time subject to notice. At the end of that agreement, a new agreement may be concluded.

British Columbia equivalency agreement

The Government of Canada and the Government of British Columbia have published a draft equivalency agreement entered into on the basis of equivalent provisions of the Federal Regulations and the B.C. laws and comparable methane emission reductions (in carbon dioxide equivalent [CO2e]) for the oil and gas sector in British Columbia and on the basis of similar provisions to sections 17 to 20 of CEPA for the investigation of alleged offences, set out respectively under the B.C. Regulation and the B.C. Oil and Gas Activities Act. This agreement would come into force on the date of registration of the associated order standing down the application of the Federal Regulations in British Columbia. This agreement would end five years after the date of its coming into force, unless terminated early by either party with at least three months’ written notice. The agreement is planned to be reviewed annually. A new agreement may be concluded at the expiry of the agreement. This draft equivalency agreement was published in the CEPA Registry and a notice of its availability was published in the Canada Gazette, Part I, on March 30, 2019.

Equivalent environmental outcomes

For the purposes of determining equivalent outcomes between the B.C. Regulation and the Federal Regulations, Environment and Climate Change Canada has estimated the methane reduction outcomes (in CO2e) from the Federal Regulations and the B.C. Regulation using the departmental reference case as published in Canada’s 3rd Biennial Report to the United Nations Framework Convention on Climate Change (UNFCCC). footnote 3

Emission reductions were estimated in a manner similar to that described in the Regulatory Impact Analysis Statement for the Federal Regulations. footnote 4 The analysis was conducted by first developing detailed, bottom-up engineering emissions estimates for the baseline and regulatory scenarios for each emissions source. These engineering emission estimates were then scaled to align with the departmental reference case. The departmental reference case for the oil and gas sector is determined using historic emissions from the departmental National Inventory Report and the production forecast of oil and gas from the National Energy Board (NEB).

Based on these estimates, the B.C. Regulation results in cumulative emission reductions of 3.1 megatonnes (Mt) of methane (in CO2e) from January 1, 2020, to January 1, 2025, which exceeds the Federal Regulations, as summarized in Table 1 below. The B.C. Regulation achieves greater emission reductions than the Federal Regulations due to the increased stringency for new facilities and early implementation dates for some standards. As noted below, the B.C. Regulation is also expected to result in greater emission reductions beyond 2024.

Table 1: Comparison of cumulative methane emission reductions (in Mt CO2e)

Emissions Source

B.C. Regulatory Reductions

Federal Regulatory Reductions

2020–2024 Methane Reductions (Mt CO2e)
Reference Case (2017)

Fugitive emissions

1.23

1.21

Pneumatic devices

1.36

0.98

Compressors

0.37

0.54

Routine venting

0.04

0.05

Glycol dehydrators

0.05

N/A

Surface casing vent flow

0.04

Table 1 note *

Total
(Jan. 1, 2020, to Jan. 1, 2025)

3.10

2.77

Total
(Jan. 1, 2025, to Jan. 1, 2030)

4.97

4.77

Table 1 note(s)

Table 1 note *

Surface casing vent flow is captured in the routine venting requirements of the Federal Regulations.

Return to table 1 note * referrer

Given the greater stringency for new facilities under the B.C. Regulation, the Department conducted a sensitivity analysis to estimate the impact of a low oil and gas price scenario on the emissions outcomes. footnote 5 Lower prices would lead to fewer new facilities subject to the more stringent requirements for new facilities under the B.C. Regulation. Under this scenario, the B.C. Regulation would achieve cumulative methane emission reductions of 2.93 Mt in CO2e, compared to 2.73 Mt CO2e under the Federal Regulations over the period of analysis.

Objective

The objective of the proposed Order is to reduce regulatory overlap and the reporting burden, while allowing British Columbia to achieve equivalent methane emission reductions in the oil and gas sector in a manner that best suits its particular circumstances.

Description

The proposed Order Declaring that the Provisions of the Regulations Respecting Reduction in the Release of Methane and Certain Volatile Organic Compounds (Upstream Oil and Gas Sector) Do Not Apply in British Columbia (the proposed Order) would stand down the application of the Federal Regulations in British Columbia. The provisions of the proposed Order would cease to have effect upon the termination of the equivalency agreement.

Regulatory development

Consultations

Officials from the Government of British Columbia and the Government of Canada have been actively engaged in bilateral discussions throughout the development of the Federal Regulations, the B.C. Regulation, and the proposed equivalency agreement. These discussions have focused on key policy and technical parameters used in support of the determination of equivalent outcomes and to ensure British Columbia has in place environmental legislation containing provisions that are similar to sections 17 to 20 of CEPA for the investigation of alleged offences.

Environmental non-governmental organizations (ENGOs) have publicly expressed concerns regarding the data used by both the Department and the B.C. Oil and Gas Commission to estimate methane emissions. The ENGOs emphasized that a field study currently being conducted by the B.C. Oil and Gas Commission could yield updated emission reduction estimates that result in the B.C. Regulation falling short of the emission reductions achieved by the Federal Regulations. However, given similar requirements across emissions sources, and the expected emission reduction exceedance by the B.C. Regulation, the Department views the equivalent outcomes determination to be robust and a potential divergence from this determination to be unlikely. The Department will continue to integrate new data into its modelling as it becomes available.

ENGOs have also expressed concerns related to leak detection frequency and routine venting requirements in the B.C. Regulation. Current modelling by the Department demonstrates that broader facility coverage by the B.C. Regulation effectively compensates for the reduced leak detection frequency at some facilities. In addition, due to the low number of oil facilities in British Columbia, routine venting requirements are not expected to be a significant source of emission reductions under either regulation. The Department met with ENGOs to explain the quantification methodology used to determine equivalent environmental outcomes between the Federal Regulations and the B.C. Regulation.

Industry stakeholders are expected to be broadly supportive of the proposed Order. In comments submitted to the Government of British Columbia, industry was largely supportive of the B.C. Regulation but challenged the cost-effectiveness of the leak detection frequency required.

Upon publication of the draft equivalency agreement, the Department continued to proactively engage interested stakeholders to discuss questions and concerns. Discussions will continue beyond prepublication of the proposed Order, as needed.

Modern treaty obligations and Indigenous engagement and consultations

In 2017, there were three Indigenous groups identified to whom there is a potential application of the Federal Regulations. The objective of the proposed Order is to declare the Federal Regulations not applicable in British Columbia, on the basis that the scope and effect of the B.C. Regulation are equivalent to the Federal Regulations. No modern treaty obligations associated with the proposed Order have been identified. National Indigenous organizations were notified and invited to provide comments on the proposed equivalency agreement; their input will also be sought upon publication of the proposed Order.

Instrument choice

An order in council is the only regulatory instrument under CEPA for the Governor in Council to declare that the Federal Regulations do not apply in British Columbia. Application of this instrument for this purpose is in line with the Government of Canada’s international commitments to reduce GHG emissions.

Non-regulatory options, such as a voluntary option or a code of practice, are therefore not suitable tools for achieving the objective.

Regulatory analysis

Benefits and costs

Given that industry would be regulated with a similar degree of stringency under both regulations, and that the B.C. Regulation is designed with the specific characteristics of the B.C. oil and gas industry in mind to achieve reductions at the lowest cost possible, the proposed Order is not expected to lead to incremental costs to industry.

While equivalent environmental outcomes are determined based on methane emission reductions, less stringent requirements in the B.C. Regulation for routine venting are estimated to result in an increase in VOC emissions of 70 tonnes in the January 1, 2020, to January 1, 2025, time period. This increase represents 1% of the total VOC reductions that are expected in British Columbia under the Federal Regulations. Given the challenges in modelling small changes in VOC emissions, particularly in remote areas, the expected cost due to human health and environmental impacts of this increase in emissions has not been estimated. However, any associated cost is expected to be negligible.

Oil and gas facilities in British Columbia are expected to realize incremental cost savings as a result of the standing down of administrative requirements related to the Federal Regulations. In addition, the federal government is expected to realize incremental cost savings of about $80,000 over a five-year period footnote 6 related to enforcement, compliance promotion, and administration of the Federal Regulations in British Columbia.

Small business lens

The proposed Order is not expected to result in costs to industry, and thus is not expected to result in cost impacts to small businesses.

One-for-one rule

The proposed Order would reduce administrative costs imposed by the Federal Regulations on oil and gas facilities and result in an “out” under the one-for-one rule. Oil and gas facilities in British Columbia would no longer need to comply with the administrative requirements associated with the Federal Regulations, resulting in average annualized cost savings of $70,647. The average administrative cost savings per business will be approximately $785 per business. footnote 7

Regulatory cooperation and alignment

Protection of the environment is a shared responsibility in Canada. The use of equivalency agreements, together with an order in council standing down the application of a federal regulation in a jurisdiction, is set out in section 10 of CEPA as a tool for avoiding regulatory duplication.

There are no international agreements, obligations or standards that would be affected by the implementation of the proposed Order, as the B.C. Regulation is projected to exceed the methane emission reductions (in CO2e) of the Federal Regulations. This approach is consistent with international commitments overall to limit Canada’s GHG emissions.

Strategic environmental assessment

The federal Regulations were developed under the Pan-Canadian Framework on Clean Growth and Climate Change. A strategic environmental assessment (SEA) was completed for this framework in 2016. footnote 8 The SEA concluded that proposals under the framework will reduce GHG emissions and are in line with the 2016–2019 Federal Sustainable Development Strategy goal of effective action on climate change. footnote 9 The proposed Order would result in a small increase in VOC emissions; however, the environmental impact of this increase is expected to be negligible.

Gender-based analysis plus

No gender-based analysis plus (GBA+) impacts have been identified for this proposal.

Implementation, compliance and enforcement, and service standards

The proposed Order would stand down the application of the Federal Regulations in British Columbia effective on the day on which it is registered. Once the final Order is registered, only the B.C. Regulation and laws would apply to oil and gas facilities in British Columbia, with the exception of lands under the jurisdiction of the federal Crown.

Contacts

Cam Carruthers
Executive Director
Oil, Gas and Alternative Energy Division
Energy and Transportation Directorate
Environmental Protection Branch
Environment and Climate Change Canada
351 Saint-Joseph Boulevard
Gatineau, Quebec
K1A 0H3
Email: ec.methane-methane.ec@canada.ca

Matthew Watkinson
Director
Regulatory Analysis and Valuation Division
Economic Analysis Directorate
Strategic Policy Branch
Environment and Climate Change Canada
200 Sacré-Cœur Boulevard
Gatineau, Quebec
K1A 0H3
Email: ec.darv-ravd.ec@canada.ca

PROPOSED REGULATORY TEXT

Notice is given, pursuant to subsection 332(1) footnote a of the Canadian Environmental Protection Act (1999) footnote b, that the Governor in Council, pursuant to subsection 10(3) of that Act, proposes to make the annexed Order Declaring that the Provisions of the Regulations Respecting Reduction in the Release of Methane and Certain Volatile Organic Compounds (Upstream Oil and Gas Sector) Do Not Apply in British Columbia.

Interested persons may, within 60 days after the publication of this notice, file with the Minister of the Environment comments with respect to the proposed Order or a notice of objection requesting that a board of review be established under section 333 of that Act and stating the reasons for the objection. All such notices of objection must cite the Canada Gazette, Part I, and the date of publication of this notice, and be addressed to Cam Carruthers, Executive Director, Oil, Gas and Alternative Energy Division, Department of the Environment, 351 Saint-Joseph Boulevard, Gatineau, Quebec K1A 0H3 (email: ec.methane-methane.ec@canada.ca). A person who provides information to the Minister of the Environment may submit with the information a request for confidentiality under section 313 of that Act.

Ottawa, June 6, 2019

Julie Adair
Assistant Clerk of the Privy Council

Order Declaring that the Provisions of the Regulations Respecting Reduction in the Release of Methane and Certain Volatile Organic Compounds (Upstream Oil and Gas Sector) Do Not Apply in British Columbia

Declaration

1 The following provisions of the Regulations Respecting Reduction in the Release of Methane and Certain Volatile Organic Compounds (Upstream Oil and Gas Sector) do not apply in British Columbia:

Expiry

2 The provisions of this Order cease to have effect on the day on which the agreement between the Minister of the Environment and the government of British Columbia entitled “An Agreement on the Equivalency of Federal and British Columbia Regulations Respecting the Release of Methane from the Oil and Gas Sector in British Columbia, 2020” terminates or is terminated pursuant to subsection 10(8) of the Canadian Environmental Protection Act, 1999.

Coming into Force

3 (1) This Order, except paragraph 1(b), comes into force on the day on which it is registered.

(2) Paragraph 1(b) comes into force on January 1, 2023.