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It is surely one of the most worn truisms of business: You’ve gotta live up to your commitments. It’s a throwaway line in stock speech at conferences and luncheons, and Shell Canada executives have long known when to employ it. To wit: “We accepted some years ago the need to respond to growing concerns on climate change and set tough goals to reduce our own greenhouse-gas emissions,” said Tim Faithfull, the company’s then CEO, in a 2003 speech. “Of course, we have to deliver on our goals to earn the trust and respect of our stakeholders.”
It’s difficult to argue with such logic. Yet Shell’s former friends believe the company is testing it.
Several years ago, the company signed two written agreements with an umbrella group of environmentalists known as the Oil Sands Environmental Coalition (OSEC). Under these accords, Shell promised to set ambitious targets for reduced greenhouse-gas emissions at two separate oilsands projects. Both projects are now under construction in northern Alberta. In April, though, OSEC accused Shell of repudiating the agreements. Shell, meanwhile, claims it’s always been in “material compliance.”
The squabble marks the bitter end of a long and fruitful relationship between Shell and environmental groups. It also lays bare the failure of Canada’s favoured approach to controlling industrial greenhouse-gas emissions of the past several decades. But will nascent government regulations work any better?
Ever since the late 1980s, when the Canadian government first called for co-ordinated international efforts to fight climate change, the oil and gas industry sought to shape regulations on industrial greenhouse-gas emissions to its advantage. University of Toronto lecturer Douglas Macdonald portrayed this struggle in his 2007 book, Business and Environmental Politics in Canada. “By 2005, federal government negotiations with the oil and gas and other industrial sectors had resulted in a significant relaxation of the targets for industry reductions,” Macdonald writes, “but no law-based regulatory action had been taken.”
Instead, voluntarism prevailed. Since at least the 1990s, provincial and federal governments encouraged industries to reduce emissions of their own accord. Observers have suggested that governments did so because of insufficient resources to regulate GHGs outright, owing to aggressive budget cuts during that decade. And Macdonald argues that lobbying efforts by industry, which emphasized how regulations stifled employment and innovation, were successful. “There is no doubt that voluntarism constituted a relaxation of regulatory pressure,” he writes. “Firms were under no requirement, financial or legal, to change their environmental behaviour, and many chose not to do so.”
Shell Canada stood apart. While some of its competitors actively raised doubts about global warming and promoted contradictory viewpoints, Shell acknowledged it. In becoming the lone Canadian oilsands operator to set explicit emissions targets for greenhouse gases, Shell also became a leading evangelist for voluntarism. “[Shell’s] activities illustrate how a clear set of goals, even when voluntary, encourages innovation and investment that result in reduced greenhouse-gas emissions,” affirmed Linda Cook, Shell’s CEO in 2003. “I do not think we should underestimate the effectiveness of voluntary action—perhaps summed up by the phrase ‘where there’s a will, there’s a way.’”
The Athabasca Oil Sands Project, Shell’s first foray into the oilsands, embodied this philosophy. Completed in 2003, it included the Muskeg River Mine (situated north of Fort McMurray, Alta.) and the Scotford Upgrader north of Fort Saskatchewan, Alta., which processed the mined bitumen into synthetic crude oil. (Shell owns 60% of the operating company, Albian Sands Energy Inc.) Exploiting the advantages afforded by newer technology, it put the decades-old existing oilsands mines of Syncrude Canada Ltd. and Suncor Energy Inc. to shame on environmental performance.
But Shell didn’t stop there. It pledged to slash the project’s emissions by half between startup and 2010, either through improved efficiency or other means, like buying emissions credits. Shell also engaged its critics. It formed a Climate Change Advisory Panel, which included not only company executives but also representatives from environmental groups. Successive Shell CEOs praised the panel not only for helping the company devise its climate-change strategies, but also for holding the company accountable.
Granted, Shell and environmentalists remained awkward bedfellows. Green groups loudly took industry to task on everything from emissions to water use to land reclamation. Climate change was a singular flashpoint: an expanding oilsands industry meant Canada had little hope of reaching its international emissions obligations.
Nevertheless, Shell’s behaviour earned grudging respect. When Alberta’s Pembina Institute (an OSEC member) rated oilsands companies on environmental performance in early 2008, the Athabasca project scored 56%. While hardly a ringing endorsement, it was the best score in the industry. Pembina praised Shell for setting voluntary targets and meeting them. “Shell was traditionally the leader in the oilsands,” says Simon Dyer, Pembina’s oilsands program director. “It understood the greenhouse-gas issue perhaps better than most.”
That goodwill came in handy when Shell waded into the oilsands again. In 2002, Shell proposed another mine east of the Muskeg River site, which it called Jackpine. As with all such projects, Shell needed to secure approval from a joint panel appointed by provincial and federal regulators. But environmental groups and other concerned stakeholders often mount opposition at public hearings. OSEC would be there: an alliance of the Fort McMurray Environmental Association, the Toxics Watch Society of Alberta and Pembina, it harried virtually every major developer during the application process. Jackpine was an obvious target: the proposed intensity of its greenhouse-gas emissions (that is, its emissions per unit of production) was actually higher than that of the original Muskeg River Mine.
Instead of girding for battle, Shell and OSEC compromised. The company promised that at a minimum, Jackpine’s emissions would equal those of imported barrels of oil on a “wells-to-wheels” basis. (Environmental groups often claim that producing a barrel of oilsands crude generates between three and five times as much greenhouse gases as producing a conventional barrel. “Wells-to-wheels” encompasses all emissions associated with a barrel of oil, such as by a tanker transporting it crossing the Atlantic Ocean, or a Chevy pickup’s eight-cylinder engine burning gasoline.) To meet that objective, Shell vowed to develop a plan within nine months of having completed a feasibility study. In return, OSEC mounted no opposition at the regulatory hearings. Influenced partly by this agreement, the panel gave Jackpine a green light.
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