North American Energy Integration Assessing Oil and Gas Policy Issues ahead of NAFTA Renegotiation
Alan J. Krupnick, Amin Asadollahi, Juan Carlos Belausteguigoitia Rius, Kristin Hayes, Isabel Echarte, Philip Gass, and Daniella Echeverria with contributions by Charles Mason, Alfredo Orellana Moyao, and Barry Rodgers
AUGUST 2017
North American Energy Integration: Assessing Oil and Gas Policy Issues ahead of NAFTA Renegotiation Alan J. Krupnick, Amin Asadollahi, Juan Carlos Belausteguigoitia Rius, Kristin Hayes, Isabel Echarte, Philip Gass, and Daniella Echeverria with contributions by Charles Mason, Alfredo Orellana Moyao, and Barry Rodgers
Abstract Further integration of energy markets and policies across the three North American countries can only contribute to economic development and may well improve its sustainability. This report reviews a number of key policy areas, including NAFTA, related to oil and gas development in and across the three major North American countries and explores opportunities for enhanced trilateral and bilateral cooperation and policy alignment. It contains descriptions of existing policies, legislation, and regulations on transportation, climate change, royalties and fiscal structures, decommissioning and abandonment, water, and environmental safety, as well as more detailed discussions of harmonization opportunities in each of those areas. The report also highlights several fundamental differences in the broader regulatory frameworks across the three countries, as these have an impact on efforts to harmonize. An October 2016 workshop attended by major stakeholders and held by Resources for the Future— in concert with the Department of Energy’s (DOE’s) Office of Energy Policy and System’s Analysis (EPSA) and two partners in Canada and Mexico (the International Institute for Sustainable Development and Instituto Tecnológico Autónomo de México)—significantly contributed to this report. The workshop had several purposes: first, to identify gaps, best practices, and inconsistencies with economic and environmental regulations and markets across the three countries; second, to inform the creation of legal, regulatory, and policy roadmaps for harmonizing regulations and markets; and third, to bring together individuals who can help implement greater harmonization, and also others who can offer helpful input. This report places the discussions at this workshop in the context of the three countries’ regulations and policies as well as current political climates to summarize both the workshop participants’ and the authors’ reccommendations for harmonization. The recommendations include action items for different levels of government in the three jurisdictions, research groups, academics, stakeholders, and others to move toward greater harmonization of policies and markets affecting the oil and gas sector.
The authors are grateful to the US Department of Energy and Natural Resources Canada for their generous support of the research and stakeholder dialogue underlying this report. The authors also thank the participants of an October 2016 experts’ workshop on North American oil and gas harmonization, who provided a rich set of ideas for consideration, along with Drew Nelson of the Environmental Defense Fund. Disclaimer: This report was prepared by a third party and sponsored by an agency of the US government. Neither the US government nor any agency or employee thereof makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any information, apparatus, product, or process disclosed, or represents that its use would not infringe on privately owned rights. Reference therein to any specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply its endorsement, recommendation, or favoring by the US government or any agency thereof. The views and opinions of authors expressed therein do not necessarily state or reflect those of the US government or any agency thereof. This report does not reflect the views of the government of Canada. Neither the government of Canada nor its employees make any warranty, express or implied, or assume any legal liability or responsibility for the accuracy or completeness of any information contained in this report, or process described herein, and assume no responsibility for anyone’s use of the information. The government of Canada is not responsible for errors or omissions in this report and makes no representations as to the accuracy or completeness of the information. © 2017 Resources for the Future (RFF). All rights reserved. No portion of this report may be reproduced without permission of the authors. Unless otherwise stated, interpretations and conclusions in RFF publications are those of the authors. RFF does not take institutional positions. RFF is an independent, nonpartisan organization that conducts rigorous economic research and analysis to help leaders make better decisions and craft smarter policies about natural resources and the environment.
Contents Abbreviations ...... iii Executive Summary ...... 1 Harmonization Opportunities for Oil and Gas Policy in North America ...... 5 1. Introduction ...... 6 1.1. Overview of Legislative Frameworks ...... 6 1.2. North American Energy Trade at a Glance ...... 8 2. Fuel Transport, Infrastructure, and Safety ...... 9 2.1. Canada...... 9 2.2. United States ...... 13 2.3. Mexico ...... 15 2.4. Harmonization Opportunities for Transportation, Infrastructure, and Safety ...... 17 3. Climate Regulations ...... 18 3.1. Canada...... 19 3.2. United States ...... 21 3.3. Mexico ...... 23 3.4. Harmonization Opportunities for Climate Regulations ...... 25 4. Royalties and Fiscal Regimes ...... 25 4.1. Resource Ownership and Tenure ...... 26 4.2. Royalty and Fiscal Structures ...... 27 4.3. Harmonization Opportunities for Royalties and Fiscal Policies ...... 30 5. Decommissioning...... 31 5.1. Canada...... 32 5.2. United States ...... 32 5.3. Mexico ...... 33 5.4. Harmonization Opportunities for Decommissioning ...... 34 6. Water Regulations ...... 34 6.1. Canada...... 36 6.2. United States ...... 37 6.3. Mexico ...... 38 6.4. Harmonization Opportunities for Water Regulations ...... 39 7. Recommendations and Conclusions ...... 40 References ...... 45 Appendix A. Suggested Criteria for Evaluating Recommendations ...... 52 Appendix B. List of Key Oil and Gas Relevant Legislation, Regulations, and Resources ...... 53 Appendix C. Harmonization Opportunities: A Workshop Report ...... 56
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Abbreviations
ASEA National Agency for Industrial Security and Environmental Protection (Mexico) BLM US Bureau of Land Management BOEM US Bureau of Ocean Energy Management BSEE US Bureau of Safety and Environmental Enforcement CCS Carbon capture and storage CDM Clean development mechanism CENAGAS National Center for Natural Gas Control (Mexico) CNH National Commission of Hydrocarbons (Mexico) CONAGUA Comisión Nacional del Agua (Mexico) CRE Regulating Energy Commission (Mexico) DEP US Department of Environmental Protection DOE US Department of Energy EIS Environmental impact statement EPA US Environmental Protection Agency FERC Federal Energy Regulatory Commission (United States) GHG Greenhouse gas IISD International Institute for Sustainable Development INDC Intended Nationally Determined Contributions ITAM Instituto Tecnológico Autónomo de México LGCC Ley General de Cambio Climático LNG Liquefied natural gas NAFTA North American Free Trade Agreement NEB National Energy Board (Canada) Pemex Petroleos Mexicanos RFF Resources for the Future SEMARNAT Ministry of Environment and Natural Resources (Mexico) SENER Ministry of Energy (Mexico) UNFCCC United Nations Framework Convention on Climate Change VOCs Volatile organic compounds
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Executive Summary toward harmonizing energy-related North America’s three major countries— regulations (including many on environmental Canada, Mexico and the United States—have safety and climate change) across the North some of the most significant fossil energy American continent. This harmonization – and resources in the world, both individually and we use this term in the broadest sense -- has collectively. Technological advancements in taken a number of forms, ranging from data unconventional gas and oil development, oil and technology sharing to full-fledged sands production, and deepwater drilling have planning and policy alignment, and has been led to levels of oil and gas production on the driven by a desire to reduce regulatory continent that have not been seen in decades, complexity, foster additional cross-border as well as to declarations of North America as transport of resources, address potential a new world energy powerhouse.1 economic complications due to unaligned markets, and collaborate on shared objectives. As production has grown, so has the interconnectedness among the three countries’ The most comprehensive statement of energy sectors. Figure 1 provides just one policy coordination came at the North example of this increasing interconnectedness American Leaders’ Summit in June 2016, over time, showing the rapid growth of US when then-US president Barack Obama, natural gas exports to Canada and Mexico Canadian prime minister Justin Trudeau, and over the past 10 years. Mexico’s energy sector Mexican president Enrique Peña-Nieto jointly reforms were in many ways predicated on the announced several goals, including reducing availability of lower-cost fossil fuels from its methane emissions from the oil and gas sector neighbors—particularly American natural 40–45 percent by 2025 and 50 percent clean gas—and on continued robust economic ties power generation by 2025 (White House among the energy sectors of the three 2016c). countries. The political landscape shifted A broader illustration of US oil and gas significantly later in 2016, however, with the trade relationships appears in Figure 2, which election of Donald Trump to the US highlights the relative value of four key oil presidency. Throughout his campaign and into and gas flows across the Canadian, US, and the opening days of his administration, Mexican borders. The United States is President Trump has indicated a distinct currently a customer for Canadian and change in attitude toward both federal energy Mexican crude oil, petroleum coke, and and climate policy and relations with the natural gas, while trading all of these products, United States’ North American neighbors. The in addition to motor gasoline (including momentum behind North American energy blending components) and distillate fuel oil, interconnectedness is strong, as market forces back to Mexico and Canada. All told, in 2015, continue to move the three countries toward this trade was valued at $200 billion. further cooperation. But politics are quite likely to be a major factor as to whether, in Reflecting this close relationship, in recent what directions, and to what extent further years the governments of Canada, the United policy harmonization occurs—at either the States, and Mexico have increasingly worked federal or subnational level. And though we
1 https://energy.gov/articles/secretary-monizs-remarks- north-american-energy-powerhouse-ihs-energy- ceraweek-2015.
www.rff.org | 1 Resources for the Future | Krupnick et al. understand that some of the current opportunities in each of those areas (sections administration’s goals conflict with Mexican 2–7). The report also highlights several and Canadian environmental policy objectives fundamental differences in the broader (as well as with some aspects of oil and gas regulatory framework across the three policy harmonization itself), we believe there countries, as these have an impact on efforts is some common ground in the shorter term for harmonization. and in the longer term, the realities of climate The report concludes with several change and sustainable development will align recommendations that draw on the policy these countries more closely. review, the workshop proceedings, and Against this backdrop, this report reviews (ultimately) the authors’ own judgments of a number of key policy areas related to oil and what might be beneficial or reasonable in gas development in the three major North terms of future harmonization efforts. American countries and explores opportunities Although federal cooperation on climate for enhanced trilateral and bilateral issues is improbable in the short-term, there cooperation and policy alignment. It contains may be opportunity for alignment at the extensive descriptions of existing policies, federal level on issues salient to all three legislation, and regulations on transportation, countries, such as infrastructure needs, climate change, royalties and fiscal structures, comparing how permitting processes in the decommissioning and abandonment, water, three countries and across their borders differ and environmental safety, as well as more and making appropriate reforms. detailed discussions of harmonization FIGURE 1. US NATURAL GAS (PIPELINE, LNG, AND CNG) EXPORTS, 1973–2016
Source: Authors calculations based on 2016 US Energy Information Administration (EIA) data.
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FIGURE 2. RELATIVE VALUE OF FOUR KEY NORTH AMERICAN OIL AND GAS FLOWS IN 2016
Source: Authors calculations based on 2016 US EIA data. See Table 1 for the amounts of imports and 2016 average prices that informed this figure. Note: The minimal oil and gas traded between Mexico and Canada directly are excluded from this chart. This chart also excludes a number of other energy products traded focusing on the four most salient for this discussion. The relative widths of lines indicate the relative values of these fuels exchanged in 2016.
TABLE 1. VOLUMES AND PRICES OF FUELS TRADED BY THE UNITED STATES WITH MEXICO AND CANADA, 2016 Imports from Exports to Fuel Price (US$) Mexico Canada Mexico Canada Crude oil 213,079 1,191,578 110,115 $43.33/bbl* (Mbbl) Natural gas, 1,385,089 771,304 pipeline, and 917 2,611,932 $2.515/Mcf†
LNG (MMcf) Finished motor 11,354 120,336 11,050 $1.40/gallon‡ gasoline (Mbbl) Distillate fuel 220 38,005 66,686 11,962 $10.86/MMBtu§ oil (Mbbl) Source: EIA. Note: bbl = barrels; Mbbl = thousand barrels; Mcf = thousand cubic feet; MMcf = million cubic feet; MMBtu = million British thermal units * West Texas Intermediate. †Average of 2016 import and export average prices. ‡ 2016 refiner wholesale price. § Power generation fuel cost in 2016.
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On fiscal policy, simplifying some Finally, creating energy technology policies, such as those affecting royalty rates, innovation exchanges and leveraging funding could provide the public with a more among the three countries could drive down transparent process and fair returns while both public and private costs for research and functioning more efficiently during periods of development. low oil prices. Moreover, a number of Ultimately, the fates of the Mexican, opportunities exist for cooperation on phasing Canadian, and US energy sectors are out fossil fuel subsidies given the G20 intertwined and appear likely to be so for commitment and an agreement among the years to come. This interdependence comes three countries to do so. with risks—but fewer than with isolation. The Further, there are quite a few opportunities three countries would best be served by for subnational governments to explore continued and strengthened collaboration on harmonization of policies, rules, and oil and gas development, with credible signals regulations. In particular, subnational that they will continue to provide each other governments have an incentive to work with secure supply while addressing together to harmonize rules around methane environmental concerns. venting, flaring and leaks, and black carbon. Significant energy trade growth has Approaches to improve quantification of occurred within the NAFTA framework, methane emissions provide low-cost, high- arguing that NAFTA is not a major reward opportunities. By standardizing and impediment to energy trade. Nevertheless, improving emissions reporting, governments President Trump’s signaled commitment to can ensure that regulations target high- renegotiating the North American Free Trade opportunity areas and improve compliance. Agreement (NAFTA) presents an interesting Cooperation could also help in the opportunity to solidify energy trade development of cost-effective and innovative relationships. As of July 2017, however, it technologies and approaches to identifying appears that the Trump administration will methane “superemitters.” renegotiate NAFTA and, based on the There may be opportunities for the three “Summary of Objectives for the NAFTA countries to work together to set coordinated Renegotiation” released by the Office of the standards on decommissioning, water use and US Trade Representative, the emphasis will be disposal, and safety. It should be noted that on furthering energy-market access and many of these rules are either shared between “support[ing] North American energy different levels of government or fall strictly security.”2 This area is ripe for future research within the purview of subnational and thought leadership, both across disciplines governments. The three federal governments (economics, law, policy) and across nations. could facilitate this multi-stakeholder dialogue by bringing together subnational regulators and policy departments to share information and best practices.
2 Summary of Objectives for the NAFTA Renegotiation (https://ustr.gov/sites/default/files/files/Press/Releases/ NAFTAObjectives.pdf).
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Harmonization Opportunities for Oil Develop risk-based safety and and Gas Policy in North America environmental inspection systems to Describe ways the three countries are address the Gulf of Mexico holistically already collaborating on energy and in the spirit of the US-Mexico climate issues, and maintain all Transboundary Hydrocarbon Reservoirs nonduplicative interactions. Agreement. The Gulf is one ecosystem, and nature does not recognize borders. Define what constitutes a subsidy to the Expand existing coordination to address oil and gas sector, harmonize this more issues, and look for areas where definition among the three countries, and goals and objectives overlap. continue action to eliminate fossil fuel subsidies. Make changes in rules across the three countries in two identified target areas: Examine the extent to which decommissioning standards and water infrastructure permitting processes are use and disposal standards. similar or differ across the three countries, specifically as this relates to Study past and present concerns environmental impact statements (EISs). regarding harmonization in NAFTA and what they mean for harmonization in this Improve regulatory alignment and context. Examine areas where NAFTA information sharing regarding methane could be updated. emissions. Provide Mexico with certainty regarding Expand FracFocus, already in place in natural gas and oil products supply, and the United States and Canada, to further policies that provide the three Mexico. countries with increased energy and Continue energy technology innovation economic security. exchanges such as on carbon capture Harmonize CO2 policies where possible, utilization and storage (CCUS), methane particularly at the subnational level in measurements, and water-saving the short term and keeping long-term technologies. Leverage the three goals in mind. countries’ investments through joint funding for research and development.
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1. Introduction Resources for the Future (RFF) on October 3– In recent years, there has been movement 4, 2016, called Oil & Gas Development in towards harmonizing environmental and North America: Opportunities for Regulatory climate change regulations and policies among Harmonization. The workshop brought Canada and the United States, and together regulators, practitioners, policy increasingly, Mexico. The term harmonization experts, and civil society groups to discuss is used to convey the full range of possible opportunities for harmonization across the interactions from data and technology sharing sector. This report reviews a number of key through coordination and ultimately aligning policy areas related to oil and gas standards and other rules to be consistent or development in the three major North even identical. During the Obama American countries and explores opportunities administration, the drive to harmonize was for enhanced trilateral cooperation and policy influenced by a desire to collaborate on shared alignment. Sections 3–7 describe existing objectives, such as the announced intentions to policies, legislation, and regulations on transportation, infrastructure, and safety; work together on the implementation of the Paris Agreement and on a host of climate, climate change; royalties and fiscal regimes; energy efficiency, pollution, and natural well decommissioning; and water. In addition, resource issues through the North American fundamental differences in the broader Climate, Clean Energy and Environment regulatory framework across the countries are Partnership signed by all three leaders in June examined, as they have an impact on efforts 2016.3 In other cases, collaboration has been for harmonization. Section 8 reports on driven by a desire to address any potential information, recommendations, and action economic and market barriers due to an items from the workshop. Section 9 concludes unaligned market. For instance, Canada has with recommendations from the authors that adopted an alignment approach with the US may go beyond what was said at the workshop and take into account political realities greenhouse gas (GHG) standards for vehicle efficiency. This change in a harmonization of stemming from the election of Donald Trump, standards across borders (McCarthy 2012) who indicated a distinct change in attitude enabled a smoother market exchange in toward both federal energy and climate policy manufacturing and trade of automobiles. and relations with the United States’ North American neighbors. Against this backdrop, RFF, ITAM, and IISD seek to highlight regulatory issues in the 1.1. Overview of Legislative upstream oil and gas sector in North America, Frameworks focusing on regulatory and legislative In Canada, subnational governments frameworks in the three countries, existing manage oil and gas resources (except on harmonization efforts, and areas that would federal lands), while environmental benefit from future harmonization. regulations fall under both subnational and national jurisdiction. Currently, the National The report is informed by a draft paper and a workshop held in Washington, DC, by Energy Board (NEB) is Canada’s overall regulator for energy transmission as well as oil
3 For more information: https://obamawhitehouse.archives.gov/the-press- office/2016/06/29/north-american-climate-clean- energy-and-environment-partnership-action.
www.rff.org | 6 Resources for the Future | Krupnick et al. and gas development in specific areas.. The Enforcement (BSEE), both within the US NEB’s responsibility is outlined in 17 acts, Department of the Interior (DOI). These including the Canada Oil and Gas Operations bureaus are responsible for updating rules Act, 4 Canada Petroleum Resources Act,5 and governing offshore activities and ensuring Energy Administration Act.6 Joint federal- compliance. In 2016, the Obama provincial boards manage offshore administration published final regulations for developments in the Atlantic region, and there offshore oil and gas (DOI 2016a), which are is a moratorium on development in the Pacific intended to prevent an offshore oil disaster region. The Canadian environmental similar to the Deepwater Horizon event assessment process is one of the fundamental (Davenport 2016). The DOI also plays a role tools for the federal government to assess in safety and environmental protection potential effects of projects on areas of federal regulations. jurisdiction and is primarily overseen by the Mexico’s oil and gas sector had been Canadian Environmental Assessment Agency. under state control until recently. For decades, Subnational governments also conduct the national oil company, Petroleos environmental assessments, and these Mexicanos (Pemex), had sole rights to the full processes are harmonized as much as possible. life cycle of oil and gas activity in the country, Climate change and water impacts are often but in 2013, President Enrique Peña Nieto raised as concerns by groups opposing signed a constitutional energy reform that resource projects and have influenced the opened up the sector to private companies, assessment process. allowing them to bid on contracts and pay In the United States, oil and gas royalties. This was in response to a decline in development is regulated at the state level, the sector and was meant to address the with the major exceptions of federal lands and inefficiencies within Pemex as well as boost offshore development. This state-by-state overall efficiency, productivity, and approach creates variations in how the sector transparency in the sector (Tapia 2013). The is regulated in general, although the federal Ministry of Energy (SENER) is responsible government has a role in regulating through its for policymaking in the sector, including powers on environmental issues, such as air, contractual models for licensing, shared wildlife, and water impacts. In regard to shale production, and services. The National gas, fracking regulations are set at the state Commission of Hydrocarbons (CNH) level and focus on site and well design, provides technical advice to SENER and is drilling procedures, and monitoring and also responsible for regulating upstream handling of material and waste. activities, serving as the administrative body Environmental testing is determined by the for contracts with national and private individual states (ALS, n.d.). Offshore companies. The Regulating Energy development is regulated by the Bureau of Commission (CRE) is responsible for Ocean Energy Management (BOEM) and the regulating mid- and downstream activities in Bureau of Safety and Environmental the sector; this includes administration of
4 Canada Oil and Gas Operations Act (R.S.C., 1985, c. 6 Energy Administration Act (R.S.C., 1985, c. E-6). O-7). http://laws-lois.justice.gc.ca/eng/acts/O-7/. http://laws-lois.justice.gc.ca/eng/acts/E-6/. 5 Canada Petroleum Resources Act (R.S.C., 1985, c. 36 (2nd Supp.)). http://laws-lois.justice.gc.ca/eng/acts/C- 8.5/.
www.rff.org | 7 Resources for the Future | Krupnick et al. contracts to access the transport and storage Mexico’s energy trade with the United infrastructure (CEFP 2014). A new player in States has been changing in recent years. the regulatory framework is the National Mexico used to have a surplus, with crude oil Agency for Industrial Security and exports to the United States dominating. With Environmental Protection (ASEA), which was the fracking revolution in the United States created following the energy reform in 2014. and production problems of Pemex, as well as ASEA serves as the regulator to the sector’s increased Mexican demand for refined industrial security and environmental issues products and natural gas, that surplus has and is a decentralized administrative body of turned into a deficit, with energy exports to the Ministry of Environment and Natural the United States of US$8.7 billion and energy Resources (SEMARNAT).7 imports from the United States of US$20.2 billion in 2016 (EIA 2017c). Underlying part 1.2. North American Energy Trade at a of this turnaround is a 31 percent increase in Glance US natural gas exports to Mexico from the Energy flows among the United States, previous year (see Figure 1 on page 2), along Mexico, and Canada are complicated and with a doubling of gas pipeline capacity from multifaceted (see Figure 2 above). The United five years ago and another doubling forecast States is currently a customer for Canadian one to two years in the future. and Mexican crude oil, petroleum coke, and natural gas, while trading all of these products, These changes in energy production and in addition to motor gasoline (including consumption within the three countries, absent blending components) and distillate fuel oil, political actions, will likely facilitate back to Mexico and Canada. cooperation on energy issues. With these changes, the three countries have even greater In 2015, energy exports from Canada to incentive for increased coordination and the United States totaled US$53 billion, expanded trade, as policies can “effectively almost all of the total Canadian energy exports foster economic growth and technological (EIA 2017b). Canadian oil accounts for 43 development, and have the potential to percent of total US crude oil imports Canadian improve some aspects of environmental natural gas furthermore accounts for 97 protection” (Krupnick, Shawhan, and Hayes percent of US natural gas imports 2016). (Government of Canada 2016a). The United States also exported US$14 billion in energy But politics are likely to be a major factor products to Canada in 2016 (EIA 2017b). This in whether and how harmonization might take volume of trade requires a compatible energy place. Prior to President Trump’s transportation network through the administration, Mexico and the United States development of pipelines and rail access. It is were moving toward integrating their energy expected that energy trade between Canada systems in a way that was comparable to how and the United States will continue to grow in Canada and the United States had integrated their power and gas markets (Lee, Klump, and coming years (Snow 2014). Gronewold 2017). On the one hand, as
7 Ley de la Agencia Nacional de Seguridad Industrial y de Protección al Medio Ambinete del Sector Hidrocarburos. http://www.diputados.gob.mx/LeyesBiblio/pdf/LANSI_ 110814.pdf.
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Mexico is currently reliant on US energy expansions are planned. The 2010 Deepwater imports and is expected to see that dependence Horizon oil spill in the Gulf of Mexico has grow in the short term (Lajous 2017), and as served as a catalyst for discussion of safety President Trump seeks to boost the US energy issues and regulatory reform for the offshore sector, expanding cross-border infrastructure oil and gas sector as well. This incident was in a harmonized fashion could well occur. On furthermore a precursor to greater discussion of March 24, for example, he approved the cooperation (if not harmonization) with the Keystone XL pipeline and called it “the first development of the US-Mexico Transboundary of many infrastructure projects” (Dennis and Hydrocarbons Agreement (DOS 2013). These Mufson 2017). On the other hand, a border issues, in combination with increased trade tax, which the president has discussed, could among the three countries in recent years and prevent such coordination and would increasingly linked electricity markets, make additionally harm the US oil and gas industry harmonization in these areas both more likely and Mexico-US relations more broadly (Lee, and more necessary. Klump, and Gronewold 2017). Mexico, given To better understand oil and gas transport its current reliance on US imports, has a lot to and infrastructure in North America, we lose should the political climate hinder energy examine each country in turn below, noting trade and cooperation. US producers, transport issues and their similarities and however, would likewise be harmed by such a differences across borders. These issues are change. Overall, the three countries have closely related to safety, as the expansion of oil much to gain from continuing existing from the Bakken in particular has placed stress momentum that has occurred due to market on rail networks and led to calls for increased changes as well as cooperation among federal pipeline capacity by some in the United States. and subnational governments. (See US–Canada rail networks for energy trade illustrated in Figure 3.) As explored below, the 2. Fuel Transport, Infrastructure, and response has come in the form of revisions to Safety rules on railcar safety, which led to A number of recent events have made the harmonization of rules to the highest safety issues of safety and infrastructure highly standards across the Canadian and US border. salient, particularly in the United States and Canada. The 2013 Lac-Mégantic rail disaster in 2.1. Canada Canada, which caused 47 deaths following the 2.1.1. Environmental Impact Statements derailment of a train carrying US crude oil, The environmental assessment process in brought to light issues with transporting fossil Canada is controversial, with the development fuels, and safety issues with rail specifically, an of pipelines being a major issue in addition to area where the United States and Canada have oil and gas exploration and development. The aligned their regulations in a nearly identical previous government introduced changes to fashion. Additionally, Trump administration multiple pieces of legislation to streamline the pronouncements notwithstanding, the “keep it review process for major projects. Some in the ground movement” in the United States, stakeholder groups heavily criticized the coupled with concerns over the safety of changes (Adams 2016), indicating that the new pipelines, have complicated the issues of siting process was introduced without meaningful and approval for such infrastructure projects. In stakeholder engagement and minimized the Mexico, rail and pipeline transport have also ability to properly study and understand the become salient with the energy reforms, as potential impacts of projects. safety regulations are revised and infrastructure
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FIGURE 3. CANADA-US RAIL NETWORKS FOR ENERGY TRADE
Source: CAPP (2015). The current government has launched a safeguards to the Fisheries Act8 and the review of environmental and regulatory Navigation Protection Act.9 processes with the intent to restore public trust While this review takes place, projects are in major project reviews. The review is also being assessed under the current legislative focused on modernizing the NEB, restoring framework and interim principles that were lost protections, and introducing modern announced in January 2016.10 The interim principles emphasize that decisions will be
8 Fisheries Act (R.S.C., 1985, c. F-14). http://laws- 10 Interim Measures for Pipeline Reviews. lois.justice.gc.ca/eng/acts/f-14/. https://www.canada.ca/en/natural-resources- canada/news/2016/01/interim-measures-for-pipeline- 9 Navigation Protection Act (R.S.C., 1985, c. N-22). reviews.html. http://laws-lois.justice.gc.ca/eng/acts/N-22/.
www.rff.org | 10 Resources for the Future | Krupnick et al. based on science, knowledge of First Nations, Furthermore, Canada has seen a renewed and other relevant evidence; the views of the focus in railcar standards and safety, public and affected communities will be particularly since the accident in Lac-Mégantic. sought and considered; First Nations will be Changes have been made to Canada’s Rail meaningfully consulted, and where Safety Act to remove from operation railcars appropriate, impacts on their rights and that are particularly vulnerable to leaks or interests will be accommodated; and direct spills.12 Following this move by Canada, the and upstream GHG emissions linked to the US Department of Transportation and projects under review will be assessed. The Transport Canada have collaborated on new government of Canada (2016c) released a rules for transport of flammable liquids.13 14 methodology for estimating the upstream Policy harmonization was a key goal, and the GHG emissions associated with major oil and new specifications are nearly identical. New gas projects undergoing federal environmental tank car specifications have been put in place to assessments in March 2016. require greater strength and reinforcement. At the same time, operating speeds have been 2.1.2. Transportation Infrastructure reduced, and Canada has adopted a more robust Energy transmission infrastructure is an risk assessment and more accurate products identified area of uncertainty for Canada. classification. NEB has the authority to Major pipeline proposals include Keystone regulate pipeline safety in Canada and in 2014 XL (800,000 barrels) and Trans Mountain was granted increased authority to enforce pipeline expansion (590,000 more barrels per safety compliance with the Pipeline Safety day), and Energy East pipeline project (1.1 Act.15 A major focus is an increase in operator million barrels). In 2015, the estimate for oil liability, to Can$1 billion (NEB 2016b), with moved by rail was 140,000 barrels per day of increased inspection and fines for crude oil, roughly 4 percent of western noncompliance. Provincial regulators have Canadian energy production (CAPP 2015). jurisdiction over interprovincial pipeline The safety of this energy trade is also a major regulation. In terms of safety, incident issue (Figure 4). The Transport of Dangerous reporting requirements vary widely across Goods Act and associated regulations cover jurisdictions in terms of the types of incidents rail transportation, including cross-border, reported, the amount spilled before reporting outlining procedures that must be in place for is required, and the types of products that various products, among them energy require reporting. In Alberta, for example, any products such as natural gas and crude oil.11 release of hydrocarbons requires reporting (Alberta Energy Regulator, n.d.a), whereas
11 Amended Transportation of Dangerous Goods Act, 14 Regulations Amending the Transportation of 1992 (June 16, 2009). http://www.tc.gc.ca/eng/tdg/act- Dangerous Goods Regulations (TC 117 Tank Cars). menu-130.htm. (April 30, 2015). http://www.gazette.gc.ca/rp- pr/p2/2015/2015-05-20/html/sor-dors100-eng.php. 12 Railway Safety Act (December 28, 2016). http://laws- lois.justice.gc.ca/eng/acts/r-4.2/. 15 Pipeline Safety Act (S.C. 2015, c. 21). http://laws- 13 49 CFR Parts 171, 172, 173, 174, and 179, Fed. Reg. lois.justice.gc.ca/eng/annualstatutes/2015_21/page- 80(222). (November 18, 2015). 1.html. https://www.federalregister.gov/documents/2015/11/18/ 2015-28774/hazardous-materials-enhanced-tank-car- standards-and-operational-controls-for-high-hazard- flammable.
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Saskatchewan requires reporting for natural which manage offshore resources, oversee gas releases exceeding 30,000 cubic meters implementation of health and safety (m3).16 This lack of harmonization makes requirements. Operators must have comparing the effectiveness of regulations authorization from the boards before across jurisdictions difficult, if not impossible. conducting any activities and must submit safety-related policies and procedures for 2.1.3. Offshore Safety and Infrastructure review (CNSOPB, n.d.). Once operations With regard to offshore oil and gas, begin, the board manages compliance Canada’s Atlantic region is most relevant, as monitoring and enforcement. Related to this, there has been a moratorium on offshore oil any spills must be reported to the boards and gas exploration in place in the Pacific (CAPP, n.d.). region since 1972, and no active drilling is occurring in the Arctic. This moratorium is based on entrenched government policy; no statutory impediments exist. Offshore boards,
FIGURE 4. NUMBER OF RAILROAD INCIDENTS COMPARED TO NUMBER OF RAILCARS USED IN OIL SHIPMENTS, 2009–2013
Source: Calculations by Charles Mason, professor of Petroleum and Natural Gas Economics, University of Wyoming, and H.A. "Dave" True Jr., visiting fellow, Resources for the Future.
16 Directive PNG014: Incident Reporting Requirements. http://publications.gov.sk.ca/documents/310/85293- Directive%20PNG014- Incident%20Reporting%20Requirements%20December %20Final%202016.pdf.
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2.2. United States While public attention to rail safety has A number of factors have combined to waxed and waned, pipeline safety has become make the siting and safety of oil and gas a much more substantial issue in the United infrastructure highly salient in the United States than it has in Canada or Mexico, as the States, both for the public and for regulators. United States has 2.5 million miles of oil and The 2010 Deepwater Horizon spill prompted gas pipelines, compared with 10,000 miles in an overhaul in how the United States Mexico and 50,000 miles in Canada (Groeger addresses offshore drilling safety, while the 2012; Pemex, n.d.; NRCan 2014). Whether “keep it in the ground” protest movement has railroad transport is actually safer than made pipelines specific targets. And as pipelines depends on how safety is measured: unconventional oil and gas development has although the risk of a rail spill is about six grown in the United States, domestic rail times higher than that of a pipeline spill, transport has been increasingly used as a pipelines tend to spill more when they do leak method of transport. This increase in rail or rupture, and between 2004 and 2012, pipelines spilled three times more oil than rail transportation is primarily due to exploration and production activity outpacing the did (Tencer 2013; IEA 2014). According to an development of pipeline infrastructure in the IEA study (2014), the age of the US network regions where shale development has (where more than half of the pipelines are flourished. Increased use of rail has resulted in over 50 years old) and the inspection rate a greater number of railroad incidents (Figure (only 7 percent of pipelines are subject to 4), which in turn has drawn more attention to frequent and rigorous inspections) are safety in the sector. outstanding safety issues that need to be considered. Monitoring and upgrading to 2.2.1. Rail and Pipeline Infrastructure improved safety standards are increasingly In particular, the Federal Rail important as the current pipeline network Administration has passed new regulations to ages. improve rail integrity. As Canada has 2.2.2. Pipeline Infrastructure and strengthened rules for railcar safety, this Environmental Impact Statements creates challenges for railcar owners in the United States, which may be using older cars The Federal Energy Regulatory that are being phased out, forcing upgrades Commission (FERC) determines “rate-setting even though they have not yet been federally methods for interstate pipeline companies, sets mandated in the United States. In May 2015, rules for business practices, and has the sole the United States and Canada jointly responsibility for authorizing the siting, announced rules to make transport of construction, and operations of interstate flammable liquids safer (DOT 2015), with a pipelines, natural gas storage fields, and specific focus on harmonization.17 The liquefied natural gas (LNG) facilities” (EIA, resulting rules are nearly identical, as n.d.). The US Environmental Protection Agency (EPA) works with FERC on discussed earlier. environmental aspects of pipelines. FERC also
17 49 CFR Parts 173 and 179, Fed. Reg. 81(157). (August 15, 2016). https://www.federalregister.gov/documents/2016/08/15/ 2016-19406/hazardous-materials-fast-act-requirements- for-flammable-liquids-and-rail-tank-cars.
www.rff.org | 13 Resources for the Future | Krupnick et al. takes the lead on environmental reviews under for pipelines and other projects” (Klump and the National Environmental Policy Act Lee 2017). House Republicans are also (NEPA),18 Endangered Species Act,19 discussing legislation to expedite the National Historic Preservation Act,20 and permitting processes for oil and gas pipelines. Magnuson-Stevens Fishery Conservation and One bill would give FERC more authority to Management Act.21 An important distinction set deadlines for other agencies, both federal is that FERC regulates natural gas pipelines, and state, involved in the natural gas pipeline whereas oil pipelines are regulated on a state- permitting process. Another bill would “place by-state basis. The state-by-state approach on FERC in charge of permitting cross-border oil oil has led to a patchwork of policies and pipelines, eliminating an existing presidential processes for oil transport. Other agencies are review process overseen by the US State also involved, such as the Army Corps of Department. The bill would set a … deadline Engineers for water crossings, the focal point for FERC to approve an oil pipeline border in the Dakota Access protests and crossing after environmental reviews are environmental review process. Importantly, complete, unless it found the border-crossing the US Department of State also has was not in the ‘public interest.’ This review jurisdiction over international pipelines. would replace a more rigorous ‘national President Trump has begun to act on his interest’ test that now applies” (Argus Media promise of increased and faster pipeline 2017). approvals. On January 24, 2017, he signed 2.2.3. Offshore Safety and Infrastructure three separate memoranda regarding approvals Offshore drilling is another area that was for the Dakota Access pipeline, the Keystone subject to new safety rules under the Obama XL pipeline, and pipeline construction in administration. The BSEE was created in 2011 general, requiring pipelines to use American- in the wake of the Deepwater Horizon made materials (White House 2016d, 2016e, explosion and spill with the mandate to 2016f). enforce safety and environmental regulations. One item likely to be addressed by the BSEE has enacted reforms to issues such as Trump administration is the NEPA’s well design, workplace safety, and corporate environmental impact statement (EIS) process, accountability. BSEE (n.d.) highlights the which has come under criticism for its following items as among its most significant complexity, length, and use following the achievements: Keystone XL review in the United States. enhanced well design and casing Congress has also expressed interest in standards; streamlining the permitting process, including the EIS reviews. At a recent oil and gas increased number of and training for industry conference, Senator Dan Sullivan (R- safety inspectors; Alaska) discussed the possibility of a Rebuild promotion of a culture of safety and America Now Act that would aim to continuous improvement; “modernize how the US approaches permits
18 National Environmental Policy Act of 1969. 20 National Historic Preservation Act. https://www.epw.senate.gov/nepa69.pdf. http://www.achp.gov/nhpa.pdf. 19 Endangered Species Act of 1973. 21 Magnuson-Stevens Fishery Conservation and https://www.epw.senate.gov/esa73.pdf. Management Act. http://www.achp.gov/nhpa.pdf.
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enhanced blowout preventer BOEM also increased the liability cap for oil performance, testing, and maintenance; spill damages to US$134 million (BOEM ensuring that operators have access to 2014). subsea containment capability; Other long-standing Acts play an enhanced understanding to support the important role in safety and environmental review and approval of emerging protection for energy transportation. The technologies; and Pipeline Safety Improvement Act requires more stringent regulations for natural gas pipeline operators to implement an exploratory drilling activities in the integrity management program that includes Arctic. risk analysis, inspections, and baseline integrity assessments.24 Coordination between Mexico and the United States regarding offshore safety has 2.3. Mexico occurred in the Gulf of Mexico following the 2.3.1. New Infrastructure Framework US-Mexico Transboundary Hydrocarbons Before its recent energy reforms, the mid- Agreement (DOS 2013). This agreement, and downstream sectors were operated designed to promote responsible stewardship entirely by Pemex, but with the energy reform, in the Gulf of Mexico, provides for joint private companies are now able to participate inspection teams to ensure compliance with (IEA 2017). After the energy reform, the safety laws and regulations, as well as joint National Center for Natural Gas Control review of and approval for agreement (CENAGAS) was created, and in 2015, it governing exploration and development of obtained ownership of Pemex’s natural gas transboundary reservoirs. infrastructure (Oil and Gas Magazine Staff On the final point, the recent Arctic 2014). Its mandate is to ensure the guaranteed Drilling Rule regulations,22 for exploratory “continuity and security of the country’s drilling on the US Arctic Outer Continental natural-gas supply, as well as the integration Shelf, require companies to ensure internal of that supply into Mexico’s national pipeline controls and planning for oil spill prevention, network” (Days 2014). The services provided containment, and responses (DOI 2016b). This by CENAGAS include reception of processed regulation builds on the final well control and natural gas, pipeline transportation, blowout prevention rules issued by the DOI in measurement and analysis of the quantity and early 2016, which established a number of quality of the gas products, and delivery at measures to ensure that the latest technologies designated departure areas. and practices are incorporated, as well as To acquire these services for gas, as well enhances in inspection, monitoring and as for other hydrocarbons, operators are maintenance of equipment and practices.23 The required to obtain a transport permit from rules include design requirements and CRE for open access to storage, operational procedures for control equipment transportation, and distribution of oil and gas (DOI 2016a). In addition to these changes,
23 22 Final Rule, 30 CFR, Parts 250, 254, and 550, Fed. Well Control Rule. https://www.bsee.gov/guidance- Reg. 81(136). (July 15, 2016) and-regulations/regulations/well-control-rule. https://www.bsee.gov/sites/bsee_prod.opengov.ibmclou 24 Pipeline Safety Improvement Act of 2002. d.com/files/federal-register-notice//2016-15699.pdf. https://www.npms.phmsa.dot.gov/Documents/Pipeline_ Safety_Improvement_Act_2002.pdf.
www.rff.org | 15 Resources for the Future | Krupnick et al. products and some petrochemicals. During construction and maintenance, as well as the 2017, 90 percent of Pemex’s oil storage and decommissioning of the entire infrastructure transportation capacity “will be subject to system or a portion thereof and restoration of open season tenders approved by CRE,” and the land to original conditions. The rule does by 2020, Pemex’s transportation activities will not outline specifications for the construction be market-based and regulated as the rest of of the pipeline itself, as it focuses only on the the permit holders are (IEA 2017, 91–92). For surrounding environmental impacts. natural gas transmission pipelines, CRE will 2.3.3. Additional Policy Instruments mitigate Pemex’s market power and avoid barriers to entry in order to regulate the The energy reforms also created two new market. Permit holders that provide natural policy instruments to address the social gas transportation and storage services are impacts of energy projects: the social impact required to grant open access to the assessment and the consultation with infrastructure and services by carrying out an indigenous peoples (which is based on the open season to allocate capacity (IEA 2017). ILO’s Indigenous and Tribal People’s Convention, C169). With more than 70 2.3.2. New Safety and Transportation projects have been held up for social issues Regulations and the close connection between Safety and environmental regulations for environmental impacts and social impacts, these midstream activities fall under ASEA’s these innovations can be seen as something jurisdiction. Railroad safety is governed by the the other countries should consider. Ministry of Communications and 2.3.4. Infrastructure Expansion Plans Transportation (La Secretaría de Comunicaciones y Transportes). The ministry With the energy reform, the government recently published the rule PROY-NOM-021- hopes to expand its pipeline infrastructure, SCT2/2015; however, it makes no specific which has not kept up with the increase in mention of hydrocarbon transportation demand for gas, leading to exceedances of safety.25 ASEA released in 2016 a draft of its maximum capacity and interruptions of gas rule PROY-NOM-018-ASEA-2016, which imports and supply a number of times in the serves as the technical specifications on past several years (IEA 2017). Figure 5 maps environmental protection for activities existing natural gas infrastructure and involving the construction, maintenance, and pipelines under construction (light purple) and operation of transportation systems for future projects (pink dashed line). Expanding 26 hydrocarbons. This rule is specific to this infrastructure will be important for transportation infrastructure located in ensuring energy supply across the country, but agricultural (crops and livestock) and this need must be balanced with safety in wastelands. The rule provides requirements terms of infrastructure and efficiency and mostly specific to biodiversity protection, stability in terms of the transition away from including proper waste management during Pemex ownership.
25 PROY-NOM-021-SCT2/2015. (December 15, 2016). 26 PROY-NOM-018-ASEA-2016. (September 15, http://www.dof.gob.mx/nota_detalle.php?codigo=5465 2016). 556&fecha=15/12/2016. http://dof.gob.mx/nota_to_doc.php?codnota=5452732.
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FIGURE 5. NATURAL GAS INFRASTRUCTURE AND PROJECTS, 2016
Source: IEA (2017). 2.4. Harmonization Opportunities for seen as an opportunity for greater North Transportation, Infrastructure, and American cooperation on energy of all types, Safety which entails a buildout of transportation and infrastructure and provides incentives to In Brief cooperate on environmental protection and Review the EIS process with the goal of safety. These opportunities are particularly increasing certainty for operators and relevant in light of a number of changes taking improving public trust in the process. place in North American energy production Determine and share best practices for and consumption. Given the shale boom, the ensuring pipeline safety and leak United States will become a net energy detection. exporter by possibly 2026, although Canada Continue harmonization efforts in the will likely continue to be a major oil supplier Gulf of Mexico by increasing for the United States, which imports oil on cooperation on safety regulations as net. Mexico became a net importer of well. hydrocarbons in the second half of 2015, becoming particularly dependent on the President Trump’s commitment to become United States for natural gas and diesel energy independent from “the OPEC (Lajous 2017). Although Mexico’s energy [Organization of Petroleum Exporting reform seeks to close this deficit in the long Countries] cartel and any nations hostile to our run, the country will remain dependent on interests” (White House 2017a) can also be imports for the foreseeable future.
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These changes have already spurred first step. Reviewing these processes could cooperation and harmonization in a number of improve environmental and public safety areas highlighted above, and North American outcomes and address indigenous/First governments have a clear role to play in Nations and other social concerns, while also continuing these efforts. Though North standardizing the process, all helping provide America is predicted to become energy certainty for industry. Given President independent from other regions before 2025 Trump’s public statements regarding the (EIA 2017a), the countries can benefit from current approval process for infrastructure reaching this goal sooner or preventing any projects, climate, and other environmental backsliding in the process. Harmonizing issues, some areas, particularly climate, are policies on infrastructure and safety will not likely to become a priority in this process enable this process, reducing transaction costs in the near future. Even so, regulatory and improving safety outcomes as well. certainty for industry could be a goal among Progress in these areas, however, could be the three countries, with further harmonization hindered by a border tax should such a policy in regard to climate and other impacts a goal come to fruition. in the longer run. The countries could see large benefits Overall, oil and gas infrastructure and from harmonizing a number of areas that have safety are likely to remain salient to the public existing momentum. Railcar standards have and, of the larger issue areas discussed in this moved toward harmonization between the document, are also the most propitious for United States and Canada, and safety harmonization efforts in both the short and regulations in the Gulf of Mexico could long term. Furthermore, harmonization on this likewise stem from current US-Mexico front would have long-lasting benefits as the cooperation in that area. Furthermore, as North American countries come to Canada has shown, harmonizing reporting increasingly rely on each other for energy requirements for incidents and other data trade. regarding trade and transportation is an important area for further work.27 Discussions 3. Climate Regulations in RFF’s workshop, however, indicate that Over the past few years, Canada, Mexico, harmonization of oil data is unlikely in the and the United States have cooperated on near future due to the vastly different climate regulations in a number of ways, most definitions used by North American notably through the commitments made in governments. Finally, EISs and permitting June 2016 as part of the North American approval processes are at issue in all three Climate, Clean Energy, and Environment countries—there are opportunities to improve Partnership Action Plan. Among the most the process to provide industry with certainty relevant parts of the action plan to the oil and while also increasing or at least not gas sector are the trilateral commitment to diminishing public trust. reduce methane emissions from the sector by Understanding best practices and lessons 40–45 percent by 2025; interest in continued learned from the three countries would be a technology and data sharing; collaboration on
27 Such work has begun with early steps in a trilateral effort to improve data sharing and publication, projections, and references for terminology and concepts at http://www.nacei.org/en/.
www.rff.org | 18 Resources for the Future | Krupnick et al. implementation of the World Bank’s Zero gas sector, while Mexico covers methane Routine Flaring by 2030 Initiative; and in its plans more generally. phasing out “inefficient” fossil fuel subsidies Canada and the United States both (Obama White House 2016). address energy conservation and Canada, Mexico, and the United States efficiency. also submitted Intended Nationally Despite issues resulting from the US Determined Contributions (INDCs) to the absence of climate leadership following the Paris Agreement under the United Nations 2016 election, earlier momentum through Framework Convention on Climate Change these aforementioned initiatives, discussed in (UNFCCC), though President Trump has the context of each country below, have recently announced he will withdraw the US provided the basis for a perhaps longer-term from the agreement. Because pulling out of form of cooperation among the North the agreement cannot occur before three years American countries as well as subnational after implementation, and a country cannot efforts. exit until a year after its withdrawal is announced, the final decision to exit will be 3.1. Canada left until just before the next US presidential 3.1.1. Carbon Dioxide election in 2020 (Farber 2017). The United Before 2016, the prevailing carbon dioxide States’ INDC, therefore, technically remains emissions mitigation approach rested at the in effect at least until that point, though provincial level, driven by early actors that President Trump presumably will not make had an economic or moral interest in being the efforts to comply. Nonetheless, the three first-in-country. The federal government had countries’ submissions already have some launched policy initiatives focused on carbon notable overlaps and similarities: pricing (most notably, the Turning the Corner All three countries proposed absolute plan in 2008)28 but failed to implement them, emission reductions, with Canada and eventually favoring a sector-by-sector the United States starting immediately regulatory approach. and Mexico projecting peak emissions in In 2016, Canada’s new federal 2026 and declining thereafter. government announced a carbon pricing plan Both Canada and the United States that will be applicable in all provinces and committed to major emissions territories and mandated a price floor for reductions. The US target is 26–28 carbon that will start at Can$10 per ton in percent by 2025, while Canada commits 2018, and climb to Can$50 per ton in 2022 to 30 percent by 2030, both below 2005 (Government of Canada 2016b). Provinces levels. will be given the flexibility to implement their Both Canada and the United States own pricing systems (similar to what would reference planned reductions in have been state implementation under the emissions of methane from the oil and Clean Power Plan in the United States) that will deliver outcomes consistent with the
28 Turning the Corner: Taking Action to Fight Climate Change. (March 2008). http://publications.gc.ca/collections/collection_2009/ec/ En88-2-2008E.pdf.
www.rff.org | 19 Resources for the Future | Krupnick et al. direct pricing plan proposed by the federal repair compressors, set requirements for government. Provinces that do not opt for pneumatic controllers and pumps, and limit developing their own approach will be subject venting. Alberta is in the process of to pricing being imposed by the federal developing its own regulations. Canada is also government in 2018. Provinces that already a signatory of the World Bank Zero Routine have a carbon pricing approach in place will Flaring by 2030 Initiative. This initiative is an be expected to adapt their plans to match or existing area of harmonization with Mexico exceed the stringency of the plan proposed by and the United States (as well as California at the federal government. Respective provincial the state level), which have also endorsed the and territorial governments will determine initiative. how they use the revenues associated with the 3.1.2. Alberta’s Climate Regulations carbon tax. The goal of implementing this pan-Canadian approach is to assist the federal As Alberta is the province responsible for government in meeting the national GHG the greatest percentage of Canada’s oil and reduction target of 30 percent below 2005 gas production, it is worth highlighting its emission levels by 2030. regulations in particular. Alberta has a similar methane reduction target of 45 percent, with 3.1.2. Methane the oil and gas industry representing 70 As mentioned, the federal government in percent of provincial methane emissions. The Canada has also committed to reducing province uses a combination of approaches to methane emissions in the oil and gas sector by reducing methane, including offset protocols; 40–45 percent below 2012 levels by 2025. new design standards; improving Canada published its proposed methane measurement and reporting, including leak regulations for the oil and gas sector in May detection; and regulated standards, to take 2017.29 The proposed rule estimates that from effect in 2020 (Government of Alberta, n.d.c). 2018 to 2035, the cumulative emission Alberta has an emissions limit for the oil reduction from the proposed regulations are sands sector (100 megatons per year) and estimated at 282 Mt CO2e, with net benefits of requires facilities to meet the level of the proposed regulations estimated at $11.7 emissions intensity of best performers in their billion. In parallel, Canada published proposed sector or pay a price on carbon over and above regulations to limit the emissions of volatile such a benchmark. Alberta also has an organic compounds (VOCs) from the economy-wide price on carbon, which came petroleum sector, which could also reduce 30 into effect on January 1, 2017, of Can$20 per methane emissions. ton of emissions, to increase to Can$30 per The proposed approach will set ton one year later (Government of Alberta, requirements for facilities above a certain n.d.c). This roughly translates to a 2018 cost level of production or processing capacity. of Can 8.03 cents per liter of diesel fuel, Facilities will be required to implement leak Can$1.517 per gigajoule of natural gas, and detection and repair (LDAR) programs, Can 6.73 cents per liter of gasoline conserve or flare gas in well completion, (Government of Alberta 2016b).
29 Reglations Respecting Reduction in the Release of 30 Reglations Respecting Reduction in the Release of Methane and Certain Volatile Organic Compounds Volatile Organic Compounds (Petroleum Sector), (Upstream Oil and Gas Sector), Canada Gazzette Canada Gazzette 151(21), Part I, 2157. 151(21), Part I, 2075. http://www.gazette.gc.ca/rp- http://www.gazette.gc.ca/rp-pr/p1/2017/2017-05- pr/p1/2017/2017-05-27/pdf/g1-15121.pdf. 27/pdf/g1-15121.pdf.
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3.2. United States consider climate impacts in environmental assessments with its March 28 executive order 3.2.1. Carbon Dioxide (White House 2016b, 2017b). Agencies were After the well-publicized failure to pass advised to quantify projected emissions and national cap-and-trade legislation in the consider alternatives to reduce vulnerabilities United States in 2009, there has been no in affected communities and make them more substantive effort to develop an economy- resilient to a changing climate. In doing so, wide GHG reduction policy. The result is a the council suggested using “existing patchwork system where the federal information and science when assessing government has sought to address carbon proposed actions” (White House 2016b). emissions through existing legislation such as the Clean Air Act, executive orders, and other In terms of international climate action, regulatory processes, while the states have the Paris Agreement is expected to remain in force irrespective of developments in the pursued their own initiatives. United States. While President Trump has At the federal level, the development of announced he will withdraw from the Paris the Clean Power Plan31 sought to reduce Agreement, the US will remain in the electricity sector emissions under the authority agreement until at least 2020, though he could of Clean Air Act section 111(d), though the still ignore the agreement and the United rule is currently stayed by the Supreme Court, States’ stated goals, or perhaps withdraw from and the Trump administration has requested the UNFCCC in the future. that EPA review the rule and that courts not issue a decision on the rule (White House 3.2.2. State-Level Carbon Pricing Schemes 2017b; Gilmer 2017). The Clean Power Plan, With regard to carbon pricing at the state now facing a very uncertain fate, would have level, only California has an economy-wide set carbon dioxide emission performance rates price on carbon. The basis for this system is for fossil fuel–fired steam generating units the Global Warming Solutions Act (AB 32),32 (including oil- and natural gas–fired electricity which requires California to reduce its generation) (EPA 2016b). The Supreme Court emissions to 1990 levels by 2020. AB 32 ruled in 2007 that EPA had the authority to requires the state to implement regulations to regulate GHG emissions under the Clean Air achieve maximum emissions reductions that Act, given that they endanger public health are feasible and cost-effective. At the heart of and welfare, so simply rescinding the rule this plan is the development of the cap-and- without replacing it could be difficult and trade system that linked through the Western would certainly lead to legal battles (Gilmer Climate Initiative to Quebec and Ontario and 2017). Furthermore, finalized environmental covers emitters of over 25,000 tons of GHG regulations are federal law and cannot be emissions annually. Mexico is interested in removed without a rulemaking process. joining this system as well. The Trump administration also rescinded The Regional Greenhouse Gas Initiative, a the White House Council on Environmental collective of East Coast states, will also Quality guidance calling on agencies to continue to operate an electricity-only cap-
31 40 CFR 60, Fed. Reg. 80(205). (October 23, 2015). 32 Assembly Bill 32, the California Global Warming https://www.federalregister.gov/documents/2015/10/23/ Solutions Act of 2006. 2015-22842/carbon-pollution-emission-guidelines-for- https://www.arb.ca.gov/cc/ab32/ab32.htm. existing-stationary-sources-electric-utility-generating.
www.rff.org | 21 Resources for the Future | Krupnick et al. and-trade system in that region, with current were heavily negotiated with industry, and allowance prices around US$5 per ton in 2016 therefore more likely to remain in place than auctions (RGGI, n.d.). This system does not other climate-related and fossil fuel industry apply to oil and gas, other than electricity use rules, their fate could change, as the March 28 in the sector, and there is no indication that it executive order directed EPA to review the will expand at this point. rule. EPA has also stopped the rulemaking process for regulating methane from existing 3.2.3. Methane oil and gas facilities (Mooney and Dennis The United States began addressing oil 2017). and gas sector methane emissions in 2012 through VOC performance standards that With the Trump administration, initial reduced methane as a co-benefit. In September steps have been taken to also end the US 2016, the US Department of Energy (DOE) Bureau of Land Management’s (BLM’s) venting and flaring regulations for federal awarded US$13 million in funding for 35 projects that would look at cost-effective ways lands by postponing compliance dates. The to reduce methane emissions, including rule was flagged for review in the March 28 multiple projects in Texas, Colorado, and executive order and could be removed through Pennsylvania (DOE 2016). a lengthier regulatory process or through court decisions, though repeal under the The Obama administration developed a Congressional Review Act did not come up number of rules and guidance documents for a vote in the Senate. aimed at reducing methane emissions from the oil and gas sector directly—publishing an 3.2.4. State-Level Methane Regulations EPA regulation for new sources, gathering At the same time, a number of state information to eventually regulate emissions actions are advancing methane regulations. from existing sources, and a BLM rule for oil Colorado, Pennsylvania, California, Utah, and gas operations on federal lands. EPA’s Wyoming and, most recently, Ohio have 2016 federal methane standards for new oil implemented statewide methane regulations and gas sources require a 95 percent reduction (Nelson 2017). Some of these states are in methane leaks from new oil and gas wells.33 Republican-led, indicating bipartisan interest The EPA, under Administrator Pruitt, had at state and local levels to reduce emissions. proposed a two-year delay,34 though a federal Cooperation with state and local governments appeals court blocked the proposed could strengthen harmonization on methane moratorium (Friedman 2017). The standards despite federal inaction. were designed to align with state-specific Following are some highlights of state- requirements and are expected to reduce level actions related to methane regulation: 510,000 short tons of methane, equivalent to 11 million metric tons of carbon dioxide (EPA Colorado was the first state to limit 2016a). Though the rules for new standards methane emissions from oil and gas
33 Final Rule, 40 CFR, Part 60, Fed. Reg. 81(107) (June 35 43 CFR 3170, Fed. Reg. 82(114). (June 15, 2017). 3, 2016). https://www.gpo.gov/fdsys/pkg/FR-2016-06- https://www.gpo.gov/fdsys/pkg/FR-2017-06- 03/pdf/2016-11971.pdf. 15/pdf/2017-12325.pdf. 34 40 CFR 60, Fed. Reg. 82(115). (June 16, 2017). https://www.gpo.gov/fdsys/pkg/FR-2017-06- 16/pdf/2017-12698.pdf.
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wells (Ogburn 2014). The rules of the states that have launched a lawsuit challenging Air Quality Control Commission the EPA approach to limiting methane (AQCC) require oil and gas companies emissions from oil and gas wells and storage to find and fix methane leaks and tanks (Snow 2016). These states consider the capture 95 percent of volatile organic EPA efforts an overreach of the agency’s compounds and methane, similar to the mandate and claim that the cost of the changes federal rule that followed. This was the is harmful to industry. Montana and Wyoming first state-led initiative on methane.36 issued a lawsuit against Obama administration California has released proposed rules rules intended to limit gas flaring at drilling on methane emissions for the oil and gas sites, stating that BLM does not have authority sector that cover both upstream over air quality issues (AP 2016). (producing, gathering and boosting, 3.3. Mexico processing) and downstream (storage and transmission compressor stations) At the national level, the 2012 Ley emissions sources. General de Cambio Climático (LGCC) governs Mexico’s efforts to address GHG Ohio has also taken steps, regulating emissions reductions and its mitigation and VOCs and methane through the adaption to climate change actions.37 And permitting process for compressor under its INDC for the UNFCCC, Mexico’s stations and requiring quarterly checks current emissions reduction target is 22 for leaks (Williams 2017). percent below business-as-usual levels, Pennsylvania introduced rules in 2016 to coupled with a 51 percent reduction of its limit emissions from natural gas black carbon, by 2030 (SEMARNAT, n.d.) development operations, first targeting new sources but then also existing 3.3.1. Carbon Dioxide sources (Williams 2016). The rules Under the LGCC, in 2013, Mexico opened released by the Department of up a voluntary market for emissions trading. Environmental Protection follow the In addition, in 2014, Mexico implemented a federal regulations under the Air carbon tax on the sale and import of fossil Pollution Control Act and EPA’s Oil and fuels; however, natural gas pays no tax on its Natural Gas Sector: Emission Standards emissions. More specifically, the tax covers for New and Modified Sources. Under the additional emissions generated by the use the permitting process, the department of fossil fuels above what natural gas would also has requirements for reducing produce (World Bank, n.d.). The tax is capped methane emissions. Actions were also at 3 percent of the sales price of fuel. taken to establish best practices for Companies paying the tax have the flexibility methane monitoring and prevention of to pay via credits from clean development fugitive emissions from pipelines (PA mechanism (CDM) projects implemented in DEP 2016). On the other hand, some states oppose these regulations. Texas is one of several
36 AQCC Regulation Number 7. 5 CCR 1001-9. 37 Ley General de Cambio Climático. (June 6, 2012). https://www.colorado.gov/pacific/sites/default/files/5- http://www.inecc.gob.mx/descargas/2012_lgcc.pdf. CCR-1001-9_1.pdf.
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Mexico (World Bank, n.d.).38 Specifically for commitments. Reporting on its GHG the oil and gas sector, the LGCC outlines emissions is the responsibility of viable mechanisms that use best practices to SEMARNAT under the Reglamento de la Ley minimize fugitive emissions in extraction, General de Cambio Climático en Materia del transportation, processing, and consumption Registro Nacional de Emisiones (or regulation activities and calls for both mitigation and under the LGCC regarding the national adaptation actions that promote the sustainable emissions registry).39 The responsible body use of these resources (Cámara de Diputados for collecting and registering the GHG del H. Congreso de la Unión 2015). In 2016, emissions is Mexico’s GHG registry and the government of Mexico first announced its reporting system, Registro Nacional de intention to implement a cap-and-trade system Emisiones (ICF International 2015). in the country via a joint declaration with SEMARNAT is the overall responsible Ontario, Quebec, and California on carbon ministry for coordinating with other market collaboration during the Climate government agencies on climate change Summit of the Americas. Following the actions in Mexico. announcement, a pilot scheme was announced 3.3.1. Methane to commence in November 2016, running a 12-month trial and consisting of up to 60 Mexico, a quarter of whose emissions are volunteer companies. Following the trial released by the oil and gas sector, was the period, Mexico is expected to launch its fifth-largest methane emitter in the world in national carbon market in 2018 (Schachar 2015 (Larsen, Delgado, and Marsters 2015; 2016). Zavala-Araiza 2016). Enforcement of methane emissions regulations falls under ASEA. The Two agencies are active in the climate agency’s recently published guidelines for change portfolio for Mexico. The first is on upstream oil and gas activities,40 as well as the the technical side, National Institute for guidelines for unconventional development,41 Ecology and Climate Change, which is the prohibit venting of natural gas except in national agency responsible for evaluating the emergency situations. The flaring of natural outcomes of these actions toward achieving gas is allowed in only three situations: when Mexico’s climate change targets and unforeseeable circumstances cause a safety
40 38 Currently, there are limited number of CDM “Disposiciones administrativas de carácter general projects. The Ministry of Finance is looking at other que establecen los Lineamientos en materia de mechanisms for the sector to use as a way to credit Seguridad Industrial, Seguridad Operativa y Protección companies’ emissions. al Medio Ambiente para realizar las actividades de 39 Reglamento de la Ley General de Cambio Climático Reconocimiento y Exploración Superficial, Exploración en Materia del Registro Nacional de Emisiones. y Extracción de Hidrocarburos” (December 9, 2016). (Octobre 28, 2014). http://www.dof.gob.mx/nota_detalle.php?codigo=5464 http://dof.gob.mx/nota_detalle.php?codigo=5365828&f 908&fecha=09/12/2016. echa=28/10/2014. 41 “DISPOSICIONES administrativas de carácter general que establecen los Lineamientos en materia de seguridad industrial, seguridad operativa y protección al medio ambiente para realizar las actividades de Exploración y Extracción de Hidrocarburos en Yacimientos No Convencionales en tierra” (March 16, 2017). http://www.dof.gob.mx/nota_detalle.php?codigo=5476 643&fecha=16/03/2017.
www.rff.org | 24 Resources for the Future | Krupnick et al. risk, during planned production tests, or for for subnational governments to collaborate. In associated natural gas that is not technically or particular, province- and state-level economically feasible to recover. Operators governments with methane regulations could must report the volume flared and vented, work together to ensure a consistent approach emergency situations that may have led to across the sector at the subnational level. With venting or flaring, the content of hydrogen methane in particular, sharing approaches for sulfide in the natural gas, and weather cost-effective regulation as well as data would conditions during venting and flaring. The aid subnational jurisdictions. Furthermore, US hydraulic fracturing guidelines furthermore states, particularly California, may be able to require operators to detect methane leaks, keep certain national climate policies, suggesting several options for doing so, particularly vehicle emissions policies, from including pressure changes, acoustic or laser backsliding, as the state represents a large detection, and infrared technology, in order to enough market for automakers. There is also repair leaks. an opportunity to have province- and state- level governments commit to the World Bank 3.4. Harmonization Opportunities for zero routine flaring initiative and accelerate Climate Regulations the elimination of black carbon. In Brief While federal harmonization on climate Mexico, collaborating with US states policies is improbable at best in the short- where possible. term, North American governments should not Share approaches for regulating methane lose site of the longer-term opportunities and with the goal of implementing cost- benefits of climate policy cooperation. In the effective regulations to reduce meantime, subnational efforts in the United emissions. States and both federal and subnational Share data and technology regarding undertakings in both Mexico and Canada will methane emissions and reductions. continue North American efforts to reduce greenhouse gas emissions. Consider long-term opportunities for federal harmonization on climate 4. Royalties and Fiscal Regimes policies. Fiscal policies governing the oil and gas Progress on continental-scale GHG sector vary significantly among jurisdictions. emissions policies will be slow in the absence In Canada, the federal and provincial of US climate leadership. That said, there is governments are primary owners of resource no indication that the governments of Canada deposits, whereas in the United States, natural and Mexico will back away from the Paris resource rights are primarily privately held. In Agreement or carbon policies, such as the Mexico, the government both owns the existing carbon pricing system in Mexico, the mineral rights and operates oil and gas announced federal carbon price backstop in production with private sector participation. Canada, subnational carbon taxes and caps in Canadian provinces and some US states, and There are two overarching types of fiscal tighter fuel economy standards in all three regimes for taxation and royalties or severance countries. taxes: sharing of revenues and set levies on the value of goods. Approach, stability, and Although opportunities for increased rate of fiscal regimes can have a significant harmonization on climate policy at the federal impact on the forecast internal rate of return of level are unlikely, there may be opportunities projects and investment attractiveness.
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Multinational companies, in particular, pay the power to sever the surface and subsurface special attention to fiscal policies when (mineral) estates. Surface and mineral assessing the jurisdictions in which to invest properties are recognized as real property, and capital. Analogous to the private sector, the mineral property owner has a right of governments are cognizant of their (the surface access. public’s) return on granting permits for Retention of oil and gas rights on both US resource extraction. state and federal lands is based on well Fiscal regimes cannot always be directly productivity—whether the well is actually compared, given their inherent differences; producing after a given period of time. This nevertheless, this section provides an contrasts with Canada, where the requirement overview of fiscal regimes in the jurisdictions is only that the well has the potential to reviewed in this study. produce. Although this is likely a relatively minor difference when viewed in full context, Although regulatory burden on the oil and gas sector could in theory be reduced by it is an example of a practice that may have harmonizing fiscal regimes, given the implications for trade or leveling the playing differences noted above, not only would field. Movement across borders could occur, harmonization be difficult, but it also may not distorting the market, because of inefficiencies result in optimum fiscal outcomes. In our or market failures introduced by such a policy. October workshop, participants further stated Another example may relate to cross- that they did not believe harmonization was border pooling. Newfoundland and Labrador needed or would necessarily improve settled a boundary dispute with France a outcomes. The three countries have, however, number of years ago that would affect committed to phasing out “inefficient” fossil offshore resource development. Similarly, fuel subsidies by 2025, discussed further increasing investment prospects in Mexico’s below. offshore have increased the importance of Because of the nature of fiscal policies cross-border pooling between the United affecting oil and gas development, we look at States and Mexico. two broader issues within this policy area: 4.1.1. The US-Mexico Transboundary resource ownership and tenure; and royalty Hydrocarbon Reservoirs Agreement and fiscal structures, including property taxes If the host rock is sufficiently permeable, and corporate income taxes, among others. hydrocarbons can flow across political And though harmonization may not be needed jurisdictions. In such a setting, extraction on (or desirable) in this area, two case studies one side of the border can adversely impact highlight best practices for the countries to extraction on the other side. In the Gulf of consider for improved fiscal oil and gas Mexico, this is likely to occur. A moratorium policies in the future: Alberta’s successful area existed—1.4 miles on each side of a 135- royalty simplification efforts and the US- mile-long section of the maritime border— Mexico Transboundary Hydrocarbon until the US-Mexico Transboundary Reservoirs Agreement. Hydrocarbons Reservoirs Agreement became 4.1. Resource Ownership and Tenure effective in 2014. Land tenure governing the oil and gas The agreement recognizes the possibility sector varies significantly among jurisdictions, that a reservoir may exist across the as noted above. In the United States and continental shelf boundary in the Gulf of Canada, the owner of the mineral rights has Mexico and establishes a framework for
www.rff.org | 26 Resources for the Future | Krupnick et al. developing such resources cooperatively. The nearby plots; this spillover benefit is essentially a agreement encourages arrangements such as public good, and its presence creates an unitization agreements, under which the firms incentive for firms to wait and see how nearby extracting from the pool—collectively referred to projects pan out. On the other hand, in those as the unit—all agree to have one party take instances where exploratory results are less charge of decisions regarding extraction by transparent, agents can use the information firms in the unit. In this way, the common gleaned from their efforts to speculate on pool delivers an aggregate level of revenues. related assets. One important example of such These revenues are then distributed among the speculation relates to land; here the concern is participating firms—for example, in proportion that developers will underpay for additional to their share of landholdings—which eliminates prospects, relative to the true value. In such any motivation to extract rapidly (so as to pull instances, excessively large levels of exploration resources away from a nearby firm). Unitization are likely to result. These levels will likely agreements on cross-border resource deposits deliver smaller (and possibly negative) net could be an important arena for harmonization social benefits. of standards. When the “landowner” is society, as when If a unitization agreement cannot be reached, the deposits are located on state or federal however, the agreement allows for unilateral land, lease arrangements offer the opportunity production with a limit up to the amount of to ensure that the public receives fair compensation hydrocarbons that exist on that side of the for the deposits it implicitly owns. In addition, boundary. the leasing process presents the opportunity to assess the potential developer’s expertise and 4.2. Royalty and Fiscal Structures financial resources, ensuring that the developer Finding the economically appropriate level can competently proceed with resource of development of hydrocarbon resources is development and will be less likely to disappear an issue of comparing benefits with costs. from the scene in the event that trouble arises Leasing arrangements have an important role (for example, if an oil spill occurs). in this calculation. At one level, leasing arrangements are simply a means of transferring In addition to benefits associated with potential wealth from landowners to resource economic activity of resource development developers, with compensation provided by and leasing, governments collect fees for the latter to the former. But at a deeper level, covering future liabilities and collect taxes they can create efficient incentives to explore against profits and royalties for the amount of for, and extract, hydrocarbon deposits. resource extracted. Governments may have royalty, severance, and other tax schedules Exploration is a form of investment: a firm that are sensitive to individual circumstances, expends resources before extracting any such as for low resource prices, small business, resource in the hope that the efforts will lead dry holes, or declining production volumes. to a profitable venture. From society’s Local governments in some states have the perspective, the level of effort undertaken by ability to levy property taxes on oil and gas the leaseholder can depart from socially optimal levels in the presence of two externalities. In some instances, particularly with conventional oil and gas projects, knowledge that a particular hydrocarbons project has been successfully developed raises the value of
www.rff.org | 27 Resources for the Future | Krupnick et al. operations.42 Governments also provide technical and economic terms are established various subsidies and tax expenditures. All in by SENER and the Ministry of Finance all, determining the effective tax rates for any (ITAM 2016). The first auction was Round one jurisdiction, let alone a comparison among Zero, which took place in August 2014, and countries and subnational governments, is only Pemex was asked to participate. From exceedingly difficult and beyond the scope of this first auction, Pemex was granted 83 this report. Notably, although there clearly are percent of Mexico’s probable reserves and 21 significant differences across governmental percent of Mexico’s prospective reserves. boundaries, industry attendees at our Though private companies were not able to workshop did not consider such differences take part in this auction, Round Zero opened particularly important for harmonization the doors for private companies to get purposes or particularly influential in their involved in exploration and production in the investment decisions. Table 2 on the following country by leaving room to participate in both page gives some idea of gross differences. probable and prospective reserves. Moreover, following Round Zero, Pemex moved to Alberta applies royalty rates to net, not gross, revenues and further adjusts rates for change some of its existing service contracts the prices of oil and gas. In the United States, to profit-sharing contracts with private for oil and gas activity on federal lands, the companies (Seelke et al. 2015). These are government typically applies a royalty rate of called “farm-out agreements,” with one 12.5 percent (DOI, n.d.) and 18.75 percent for objective being to help foster knowledge- offshore activities. Montana has a state-level sharing and technology transfers between corporate tax of 6.75 percent.43 For Mexico, Pemex and private companies to help improve the royalty rate is set at a minimum of 7.5 Pemex’s performance (SENER 2016). percent on oil prices under US$48 per barrel, Since this time, there have been five more with ⅛ percent increase in the royalty rate for bidding events (labeled rounds 1.1-1.4 and every US$1 increase in the price of oil 2.1), the last of these in mid-June and round (Bentein 2015). In 2016, the Ministry of 1.4 being the first to auction deepwater tracts. Finance announced that an additional royalty Indeed, some degree of harmonization in was added to the offshore exploration and leasing arrangements has already occurred production of oil and gas contracts taking between CNH/SENER and BOEM, where the place in the Gulf of Mexico, with the latter put larger, regionwide Gulf of Mexico minimum rate set between 1.9 and 3.1 percent blocks for lease in acknowledgment of (Forbes Staff 2016). Mexico’s similar practice.44 Because Mexico’s leasing process is so new, it is worthwhile to note that the tender process is conducted by the CNH, and the
42 Some US states, however, such as Texas, define 43 Montana Corporate Income Tax. property to include the discounted present value of the https://revenue.mt.gov/home/businesses/corporation_lic physical oil and gas. In these cases, the property tax can be more significant, perhaps equating to a 1–3 percent ense. royalty. 44 See https://www.eenews.net/energywire/2017/03/13/stories/ 1060051341.
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TABLE 2. COMPARISON OF OIL AND GAS FISCAL LEVIES
Federal Canada United States Mexico Tax rate 10–15% 15–35% 30% Royalty/ 7.5– severance 1–30% 12.5–18.75% 20% State/ province AB NS NL CA CO MO WY PA TX Tax rate 12% 16% 15% 8.84% 4.60% 6.75% n/a 9.99% 1% 12.5– 12.5– 20– Royalty 0–40% 2–35% 1–50% 16.67% 16.67% 16.67% 16.67% 18% 5% 4.6– Severance n/a n/a n/a $0.14/bbl 2–5% 9% 11.5%* negligible 7.5% Source: Barry Rodgers, Rodgers Oil and Gas Consulting, Edmonton, Alberta, Canada. *Includes property tax at 6.5%. US royalty rates are for federal and state lands.
4.2.1. Alberta’s Royalty Modernization decrease once a well reaches the “maturity Alberta stands out in regard to simplifying threshold,” shown in Figure 6 (Government of its royalty scheme, increasing transparency, Alberta, n.d.a). efficiency, and, the government of Alberta This royalty modernization effort began in argues, “the value Albertans receive for [their] 2015, when the government of Alberta created resources over time” (n.d.b). The old royalty an advisory panel to review the royalty scheme was “rigid” and did not adjust for framework. This effort was undertaken in the changes in costs or productivity of wells. context of increasing competition from the Additionally, it distinguished between oil and United States, low oil and gas prices, gas wells, which a review panel found to be increasing development costs in the province “no longer meaningful,” and it did not provide compared with other jurisdictions, and Albertans with an optimal return. Finally, the expectations of better environmental review panel found the previous scheme to be regulation. The panel engaged in extensive nontransparent (Government of Alberta outreach, including both industry members 2016a). The new royalty framework levies a and others. The goals of this effort were to single royalty for crude oil, natural, and encourage investment, provide Albertans with liquids (excluding oil sands) that is optimal returns, motivate diversification (e.g., comparable with a revenue-minus-cost system innovation, value-added processing), and that is likewise able to account for different promote more responsible resource levels of costs for operators as well as development (Government of Alberta 2016a). different oil and gas prices. As Figure 6 The modernization effort has largely been shows, this royalty is a flat 5 percent rate until seen as successful. For example, the new costs are recovered, then the company pays a framework was scheduled to take effect for higher fee that depends on the resource and wells drilled beginning January 1, 2017, but prices. As the well ages and production rates companies were asking to opt in earlier (Wood decline, the royalty rates will likewise 2016).
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FIGURE 6. ROYALTY STRUCTURES OVER THE LIFE CYCLE OF A WELL
Source: Government of Alberta (n.d.a)
4.3. Harmonization Opportunities for harmonization “fruit.” For example, Royalties and Fiscal Policies maintaining existing fiscal rules and their effects but reducing their complexity can In Brief provide the private sector with more certainty Simplify existing fiscal structures and and the public with more clarity. Certain policies to ensure fair returns to practices or rules should be reviewed for taxpayers while adjusting for potential simplification, such as the rolling start rules changes in operator costs or around the determination of Canadian productivity. depreciation, the US federal tax deduction in Consider the use of agreements determining state tax, and rules around the promoting unitization and pooling to treatment of intangible drilling costs in the develop resources near borders. United States. Following the example of Define what constitutes a fossil fuel Alberta—simplifying the royalty process in a subsidy, work toward parallel schedules manner that accounts for changes in oil prices for phasing out these subsidies, and and also adequately compensates the public— compel Canada to follow United States other jurisdictions could seek to simplify their and Mexico’s lead and initiate the peer royalty processes and also review current review of its fossil fuel subsidies. policies to ensure a fair return to the taxpayers. An opportunity may also exist for Although larger harmonization efforts for harmonization on leasing and royalty rates in fiscal policy may not necessarily be desirable the Gulf of Mexico, where comparable for improving economic or environmental resource deposits and overlapping pools are outcomes, there is some low-hanging
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(or will be) pursued by entities in both the the land surface after the reclamation. The United States and Mexico. rules, however, do not always meet intended And given the three countries’ policy objectives. For instance, the integrity of commitment to phasing out “inefficient” fossil decommissioning may be jeopardized by fuel subsidies by 2025 (Prime Minister’s poor-quality material or workmanship or by Office 2016a), there is an opportunity in the environmental factors that occur after the short term for the three countries to cooperate process is completed. by first defining what constitutes a subsidy to Ongoing monitoring is the best way to the oil and gas sector and then harmonizing ensure proper well decommissioning. this definition. In further cooperation, meeting However, monitoring is often expensive and this goal on parallel schedules would may draw only a one-time conclusion. For minimize inefficiencies in the North American example, a well may not show any methane market. In its election platform, the current leaks at a given point in time but may Canadian government appears to have experience “methane burping” that results signaled its desire to “phase out subsidies for from a buildup and release of methane at the fossil fuel industry over the medium-term” another point in time. To capture this, either and specifically notes, as a starting point, the ongoing monitoring or testing of cement Canadian Exploration Expenses being allowed integrity would be required. for “deduction only in cases of unsuccessful Additionally, there is the issue of exploration” (Liberal Party of Canada 2015). governments taking on increasing liability for In Budget 2017, the government abandoned wells that are not decommissioned. announced two changes, including adjusting Although most jurisdictions require a bond, exploration expenses for successful oil and insurance, or resources set against liability, gas exploration and modifying development operators continue to abandon projects prior to expenses through flow-through shares decommissioning—leaving “orphaned” wells. (Department of Finance Canada 2017). The number of orphaned wells across North Although momentum for such efforts in the America is in the hundreds of thousands, with short term have slowed in the United States, the backlog of wells to be reclaimed under there are still opportunities for further work— state-funded programs (Ho et al. 2016). With a first, defining subsidies, and second, for decline in the price of oil, it is foreseeable that Canada to follow Mexico and the United this liability could grow. Governments do not States in opening its subsidies for peer review. have the funding set aside to cover all liability borne by oil and gas operations. 5. Decommissioning Another issue may occur when wells are At the end of their productive lives, oil and temporarily abandoned rather than gas wells are supposed to be decommissioned. Muehlenbachs (2017) found decommissioned—a process referred to as that wells throughout Canada are typically left abandonment—and the land reclaimed. Rules in temporary status for many years, as regarding this process vary significantly opposed to being capped and reclaimed. among countries and jurisdictions within Presumably the same thing happens in other countries but follow a common underlying jurisdictions, with the consequences that principle. Proper decommissioning and environmental risks are larger than they reclamation seek to prevent contamination of otherwise would be. In Firestone, Colorado, ground and surface water; prevent leaks, the recent explosion of a residence and two including methane leaks; and allow for use of
www.rff.org | 31 Resources for the Future | Krupnick et al. deaths from a gas leak was attributed to a The province’s Mine Financial Security temporarily abandoned well.45 Program applies an asset-to-liability approach, While there is little momentum for giving a value to the asset. If a project has harmonization on funding and rules around assets three times the value of the liability, no liability, a better understanding of scope of the additional financial contribution to the problem at hand would help inform program is required. government policies across jurisdictions and For offshore wells, Canada’s two Atlantic can support all jurisdictions in strengthening offshore boards require that well completion their rules in ways that meet their local isolates the hydrocarbon and prevents circumstances. That said, there is significant pollution from escaping the well. It also room for governments to harmonize on requires that the seafloor be cleared of all underlying principles for oil and gas project equipment. These requirements are the same decommissioning. for both boards. 5.1. Canada 5.2. United States In Canada, well abandonment is primarily A 2016 RFF report provides a detailed regulated at the provincial level. For example, review of regulatory approaches to Alberta’s Directive 020, released in March abandoning and decommissioning wells in the 2016, sets fairly prescriptive requirements for United States (Ho et al. 2016). The study well abandonment, with the intent to complete reports that the United States has 3 million an open-hole well to protect nonsaline inactive wells but notes a lack of data on the groundwater.46 To this end, the province breakdown by categories. Furthermore, about provides the Groundwater Protection Query 12 percent of inactive wells in 13 major oil Tool.47 The province sets minimum length and gas producing states have not been requirements of 30–60 meters for zones decommissioned (Ho et al. 2016). covered. For oil sand zones, thermal cement is BLM oversees abandonment rules for oil required for the entire length of the plug. For and gas operations on federal public lands, oil sands mining, reclamation requirements while at the subnational level, regulations and will result in more upland than wetland requirements vary from state to state. creation and could result in liability related to According to the RFF review of state-level tailings ponds for about 10 years beyond mine regulations, 18 of 22 states examined contain life. prescriptive requirements for different plugs For orphaned wells, Alberta collects a levy (Ho et al. 2016), but the authors also find from industry based on liability determination, inadequate financial assurances to cover which, in principle, is funded by the industry. liabilities and recommend bonds that take into Alberta recently increased the liability account all costs. They also find that management ratio to twice the value of individual states and BLM (in charge of producing wells over the cost of abandonment federal lands) have very different approaches and reclamation when acquiring new wells. for regulating these wells, particularly in terms
45 See https://www.wsj.com/articles/colorado- 46 Directive 020. (March 15, 2016). explosion-in-april-blamed-on-leak-near-anadarko-well- https://www.aer.ca/documents/directives/Directive020. 1493766071 pdf. 47 See https://dds.aer.ca/BGP/UI/BGP-Main.aspx.
www.rff.org | 32 Resources for the Future | Krupnick et al. of stringency and comprehensiveness of these 5.3. Mexico policies. As discussed earlier, Pemex was a state- The RFF report recommends that run enterprise and the sole oil and gas “bonding amounts should vary according to developer before the energy reform, so the the major factors influencing costs, such as costs related to abandonment would have well depth.” The authors “report that many fallen to the government in any case. Now that states already do this, to varying extents. We private companies are able to conduct therefore recommend that other states consider production and exploration activities, this approach to bonding” (Ho et al. 2016, 16). however, the Mexican government should Harmonization could therefore be explored take note of the best practices of its northern across US states as well as across the three neighbors to avoid challenges that both countries. Additionally, some best practices Canada and the United States have faced in can be gleaned by comparing states’ minimizing the costs of reclaiming and regulations. For example, with states that have plugging orphaned wells. policies that are less protective of the The recently published guidelines for environment, “shortening the time a well can upstream oil and gas operations mandate that be temporarily abandoned and raising the bar wells should be abandoned within one year for proving a well should stay in that after the well has been declared dry, condition would help reduce the likelihood unsuccessful, saturated with water, or not that inactive wells will create environmental commercially productive and requires externalities” (Ho et al. 2016, 16). Such operators to use two barriers, including one practices can inform future decommissioning mechanical barrier, to plug the well, for both policies in states with weaker regulations as temporarily or permanently abandoned well as Canada and Mexico. wells.48 The regulation states that well plugs Another area in which such policy could should protect aquifers and that authorized be explored is in the decommissioning of third parties will ensure compliance. offshore infrastructure. In February, BOEM Two policies dictate and regulate the steps rescinded its earlier requirements for ensuring necessary to plug wells in more specific areas. that taxpayers do not foot the bill for cleaning NOM-115-SEMARNAT-2003 regulates wells up after bankrupt offshore oil and gas that fall under agricultural, farming, or unused companies, but the agency still plans to go areas (though not protected areas), and it ahead with a program to address the issue, as stipulates that any well at the end of its the liabilities in the outer continental shelf production should be plugged according to the alone could be as high as US$40 billion, technical requirements of the regulation.49 though industry states that the actual amount is much lower (Gronewold 2017).
48 “Disposiciones administrativas de carácter general 49 NOM-115-SEMARNAT-2003. (August 27, 2004). que establecen los Lineamientos en materia de http://www.profepa.gob.mx/innovaportal/file/1326/1/no Seguridad Industrial, Seguridad Operativa y Protección m-115-semarnat-2003.pdf. al Medio Ambiente para realizar las actividades de Reconocimiento y Exploración Superficial, Exploración y Extracción de Hidrocarburos.” (December 9, 2016). http://www.dof.gob.mx/nota_detalle.php?codigo=5464 908&fecha=09/12/2016.
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There are a number of low-cost policies In addition, all equipment used during operations is to be removed from the area and jurisdictions could adopt to improve the site restored its original conditions. NOM- environmental outcomes and reduce financial 149-SEMARNAT-2006 focuses on abandoned risk. Most important, jurisdictions should wells in marine areas.50 This regulation notes require bonding amounts that reflect the actual that all wells need to be plugged when cost of plugging wells. Other best practices, operations have ended and must be such as the potential for idling and applying or temporarily suspended following the rules of reapplying for temporary abandonment status, petroleum work construction (Reglamento de could minimize the environmental harm Trabajos Petroleros). caused by temporarily inactive wells. Canadian provinces and US states can learn 5.4. Harmonization Opportunities for from these best practices. And Mexico, as it Decommissioning transitions from having the government be In Brief solely responsible for managing these wells to involving private enterprises, can implement Share policies that minimize the regulations to avoid many of the issues potential for environmental damage due Canada and the United States have had as a to temporarily abandoned wells or result of inadequate regulation. Furthermore, improperly constructed wells and plugs. as the United States seeks to address its own Share best practices for decreasing decommissioning issues offshore, Mexico and liability related to the costs of the United States could cooperate in the Gulf decommissioning orphaned wells using of Mexico to harmonize policies to decrease cost-effective methods. liability. Cooperate on policies that minimize environmental impacts and decrease 6. Water Regulations liability of offshore infrastructure, There are two primary considerations at particularly in the Gulf of Mexico. the intersection of water and oil and gas In regard to decommissioning regulations, production: the amount of water used (which one area stands out for its utility, given the varies considerably across the sector) and how current state of policy in this area: the sharing wastewater is handled. According a 2014 of best practices. Each jurisdiction could still study, Canada used nearly 845 million cubic 3 3 set its own rules, but through collaboration, meters (m ), the United States used 3,684 m , 3 best practices could be transferred from one and Mexico used 667 m of water in fossil fuel jurisdiction to another. Lessons learned from energy production in 2008 (Spang et al. 2014) Alberta’s new Directive 020, for example, (note that 2008 was a period when fracking could be shared across jurisdictions. Variation was ramping up). The wastewater (including in the stringency and comprehensiveness of processed water and fracking fluid), requirements in different US states could depending on the mixture and what it comes likewise inform other jurisdictions of best in contact with, will have varying toxicity. practices. Produced water could contain heavy metals, hydrocarbons, and salts, which, if not properly
50 NOM-149-SEMARNAT-2006. (January 31, 2007). http://www.profepa.gob.mx/innovaportal/file/1338/1/no m-149-semarnat-2006.pdf.
www.rff.org | 34 Resources for the Future | Krupnick et al. handled, could have environmental impacts. example, there are two primary approaches: Figure 7 illustrates the amounts of water used EPA’s holistic approach used in the Gulf of by consumption and withdrawal of different Mexico, which focuses on what comes out of sources. the pipe using toxicity testing, and Norway’s Specific oil and gas rules are lacking for precautionary approach used in the North Sea, water use and disposal of waste. The three which assesses and emphasizes control of all jurisdictions could explore opportunities in the chemicals used in the well and during this area from a number of different treatment. Most countries choose one of these perspectives. For regulating produced water two approaches. Mexico’s new regulation is discharges from offshore platforms, for
FIGURE 7. FOSSIL FUEL PRODUCTION WATER CONSUMPTION
Source: IEA (2012). Note: Ranges shown are for “source-to-carrier” primary energy production, which includes withdrawals and consumption for extraction, processing and transport. Water use for biofuels production varies considerably because of differences in irrigation needs among regions and crops; the minimum for each crop represents nonirrigated crops whose only water requirements are for processing into fuels. EOR = enhanced oil recovery; toe = tonne of oil equivalent. For numeric ranges, see http://www.worldenergyoutlook.org. * The minimum is for primary recovery; the maximum is for secondary recovery. ** The minimum is for in situ production; the maximum is for surface mining. *** Includes CO2 injection, steam injection, alkaline injection, and in situ combustion. **** Excludes water use for crop residues allocated to food production.
www.rff.org | 35 Resources for the Future | Krupnick et al. being drafted by ASEA, but previously, the earthquake above an M4.0 occurs (Alberta country regulated water discharges from Energy Regulator, n.d.b). offshore platforms under a number of rules Environment and Climate Change Canada and regulations, including NOM-149- is responsible for the Petroleum Refinery SEMARNAT-2006 under the Ley General Liquid Effluent Regulations, which were para la Prevención y Gestión Integral de los 53 51 52 introduced in 1973. Similar guidelines exist Residuos (LGPGIR). Overall, all three in the United States to regulate the discharge countries would benefit from increased of effluents from refineries, but they have not efficiency and data sharing in this regard, been updated since 1985. particularly in water-scarce regions. NEB and the Canada-Newfoundland and 6.1. Canada Canada-Nova Scotia offshore petroleum Provincial governments have the boards provide guidelines on the management responsibility of regulating water use and of waste from offshore petroleum activity.54 disposal. That said, under the Fisheries Act, The guidelines provide guidance on both best the federal government can regulate activities practices and approaches to meeting that may result in harm to fish and prohibit the regulatory requirements set under each of the deposit of deleterious substances unless board’s governing acts. authorized by a regulation. Furthermore, the When it comes to flowing bodies of water, federal government can enforce rules to intake during low-flow periods could have control discharges of toxic substances and to adverse effects on fish ecology. Alberta’s protect species at risk and migratory birds. Lower Athabasca Region Surface Water Provinces, as they regulate most aspects of oil Quantity Management Framework for the and gas activity, are also in charge of Lower Athabasca River sets indicators and regulating induced seismicity related to these triggers to manage water withdrawal in oil operations. Much of the induced seismicity sands areas. Two companies’ operations have related to oil and gas operations in Canada is grandfathered water licenses that would allow associated with hydraulic fracturing for withdrawals that are likely to be above operations rather than wastewater disposal, freeze protection limits. Oil sands operations however. Jurisdictions such as Alberta have require unique water-use technologies. That implemented “stoplight” regulations, which said, cross-border collaboration can help provide more stringent compliance advance scientific knowledge on the requirements for operators, dependent on the determination of minimum low-flow triggers, magnitude of the earthquake, such as reporting which remains a contentious issue, and their seismic events above M2.0 and invoking impacts on fish habitats. Alberta could also response plans but ceasing operations if an lead by establishing better practices to both
51 NOM-149-SEMARNAT-2006. (January 31, 2007). 53 Petroleum Refinery Liquid Effluent Regulations http://www.profepa.gob.mx/innovaportal/file/1338/1/no (C.R.C., c. 828). http://laws- m-149-semarnat-2006.pdf. lois.justice.gc.ca/eng/regulations/C.R.C.%2C_c._828/p 52 Ley General para la Prevención y Gestión de los age-1.html. Residuos. (May 22, 2006). 54 Offshore Waste Treatment Guidelines. (December http://www.aguascalientes.gob.mx/PROESPA/pdf/LEY 15, 2010). %20GENERAL%20PARA%20LA%20PREVENCI%C http://www.cnlopb.ca/pdfs/guidelines/owtg1012e.pdf. 3%93N%20Y%20GESTI%C3%93N%20INTEGRAL% 20DE%20LOS%20RESIDUOS.pdf.
www.rff.org | 36 Resources for the Future | Krupnick et al. monitor and minimize tailings seepage into minimized with the least inconvenience for the watershed. To this end, Canada could operators (ODNR, n.d.). establish tracing technologies that could Also, few, if any, states require recycling inform future regulations. or the elimination of tailings ponds, though 6.2. United States Texas in 2013 introduced a new law to There are no nationwide standards for encourage the recycling of wastewater, water use and disposal of wastewater, and relieving “waste producers and recyclers of even within states, notable differences exist. tort liability for damages that occur once the The differences in regulations within and waste is transferred to a recycler or third party between jurisdictions create opportunities for for subsequent use” (Watson 2014, 352). regional harmonization. For example, the Generally, there is a lack of policies that Susquehanna River Basin Commission, induce companies to recycle wastewater in the United States (Small 2015), but depending on created by the US Congress and the states of New York, Pennsylvania, and Maryland, local circumstances, economic incentives can oversees water consumption along the be adequate. Susquehanna River and its tributaries. Wastewater regulation is another area Approvals are subject to low-flow conditions where collaboration could result in improved (SRBC 2012). Similar bodies with equivalent rules around recycling, and Alberta’s Tailings regulatory responsibilities do not exist in other Management Framework could inform river basins. regulatory development at the state level.55 The majority of Marcellus shale The provincial regulator could host a wastewater is recycled to make new frac workshop to inform interested states on its fluids, with most of this activity done on site approach to tailings management. Although (Veil 2015). In other areas of the country, unique to oil sands operation, the principle such as Texas and Oklahoma, the majority of beneath the framework could initiate cross- fracking-related waste water (almost entirely border discussion on non–oil sands tailings in “produced” water that is accompanied by the sector. small amounts of frac fluid) is injected into The federal government regulates the disposal wells, as the fluids are too briny for discharge of pollutants through the Clean economic reuse. These wells have been linked Water Act.56 Some state-level governments to increases in seismic rates in the region, but (e.g., California, Colorado, Ohio, several jurisdictions in the United States, and Pennsylvania) require predrill water quality in some Canadian provinces discussed above, testing, while others (e.g., Texas) have no have also implemented stoplight regulations. such requirement (Bozquez et al. 2015). It is Ohio stands out for its ability to monitor not clear whether EPA could provide liability seismic (and microseismic) data in real time protection or whether such an approach would so that the risk of felt seismicity can be violate state-level requirements. There are likely more opportunities to harmonize water
56 Federal Water Pollution Control Act (Clean Water 55 Lower Athabasca Region: Tailings Management Act). http://www.epw.senate.gov/water.pdf. Framework for Mineable Athabasca Oil Sands (TMF). (March 13, 2015). https://www.aer.ca/about- aer/spotlight-on/alberta-tailings-managment- framework.
www.rff.org | 37 Resources for the Future | Krupnick et al. testing requirements and disposal rules than construction or other upstream activities that for water consumption. might affect water quality. Flowback water, for example, must be temporarily stored in 6.3. Mexico metal tanks rather than pits until it can be Mexico’s National Water Commission recycled, sent to a treatment facility, or (Comisión Nacional del Agua, or injected for disposal. The unconventional oil CONAGUA) oversees the use of federal and gas development guidelines60 likewise waters for industrial purposes. Under its Ley encourage the recycling of water, particularly de Aguas Nacionales, CONAGUA also as the country’s unconventional resources are regulates contamination and disposal of largely located in water-scarce areas. ASEA’s water.57 Before drilling, companies are guidelines notably require that companies required to report the predrilling publish the additives as well as their amounts environmental state of the bodies of water. in the hydraulic fracturing fluid used. The This requirement is fulfilled when companies agency went a step further than most are undertaking their environmental impact jurisdictions with unconventional assessments as mandated by the Ley General development and requires that operators del Equilibrio Ecológico y Protección al characterize dangerous compounds in Ambiente, which requires that no flowback fluid within 10 days. Overall, these development or production activity affect any regulations seek to avoid spill and integral function of the ecosystems in the area contamination of subsurface bodies of water and establishes that companies need to follow as well as other types of incidents, providing all provisions of the regulation for the high flexibility for operators. construction, reinstatement, and closing of water extraction wells.58 A number of other regulations likewise apply. According to NOM-138- ASEA’s upstream oil and gas guidelines59 SEMARNAT/SS-2003, maximum allowable regulate hydraulic fracturing fluids and amounts are outlined for hydrocarbons produced water, as well as aspects of well polluting land as well as cleanup measures.61
57 Ley de Aguas Nacionales. 60 “Disposiciones administrativas de carácter general http://www.diputados.gob.mx/LeyesBiblio/pdf/16_240 que establecen los lineamientos en material de 316.pdf. seguridad industrial, seguridad operative y protección al medio ambiente para realizar las actividades de 58 Ley General del Equilibrio Ecológico y Protección al exploración y extracción de hidrocarburos en Ambiente. yacimientos no convencionales en tierra.” (March 17, http://biblioteca.semarnat.gob.mx/janium/Documentos/ 2017). http://www.gob.mx/asea/articulos/publica-asea- Ciga/agenda/DOFsr/148.pdf. lineamientos-de-exploracion-y-extraccion-de- 59 “Disposiciones administrativas de carácter general hidrocarburos-en-yacimientos-no-convencionales. que establecen los Lineamientos en materia de 61 NOM-138-SEMARNAT/SS-2003. (March 30, Seguridad 2005). Industrial, Seguridad Operativa y protección al medio http://tramites.semarnat.gob.mx/Doctos/DGGIMAR/Sir ambiente para realizar las actividades de rep/NOM-138-SEMARNAT-SS-03-29-MAR-05.pdf. Reconocimiento y Exploración Superficial, Exploración y Extracción de Hidrocarburos.” (December 9, 2017). http://www.gob.mx/cms/uploads/attachment/file/17084 0/DACG_Reconocimiento_y_Exploraci_n_Superficial_ _Exploraci_n_y_Extracci_n_de_Hidrocarburos.pdf.
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Voluntary standards have also been released incentivize best practices and technology that describe methods for sampling water, deployment among the three countries. In including NMX-AA-117-SCFI-2001, but particular, in the short term, there are there is no mandatory law or regulation for opportunities for the three jurisdictions to companies to follow.62 For contaminated work toward joint research on improving water, NOM-143-SEMARNAT-2003 is the water use in fossil fuel production. As there is current rule, limiting the amount of variation in the availability of water and needs hydrocarbons in water for disposal and even within countries, a more regional storage.63 In addition, the regulation outlines approach can be used for harmonization. stipulations for temporary storage, Increasing efficiency is one way the three transportation, determining the makeup of the countries could each benefit, given existing water, the maximum amounts of certain and future challenges. For wastewater contaminants for different types of disposal, recycling, for example, companies could share and the specifications of injection wells. With information, and governments could establish future expansion of shale extraction and its rules to incentivize more efficient use, such as rate of wastewater generation, however, these through wastewater sharing or buying and regulations are unlikely to be adequate to selling in markets. Such a measure could save safeguard the environment and local water or mitigate some negative externalities communities. of water disposal (such as the potential for 6.4. Harmonization Opportunities for spills or induced seismicity, depending on the Water Regulations location and disposal method used). Geologic and economic factors drive disposal decisions, In Brief so the government has a clear role to play in Create incentives to increase the assisting with creating proper incentives or, in efficiency of water use and mitigate some areas, technology advancements so that externalities from wastewater disposal. wastewater recycling can increase (Small Coordinate or standardize reporting 2015). One policy recently enacted in Texas requirements for components of (HB-2767),64 for example, seeks to encourage hydraulic fracturing fluid. the reuse of waste by allowing producers to Cooperate on the study of induced sell waste to recyclers that will treat it for a seismicity from oil and gas operations, “beneficial use” by adjusting liability laws and share best practices across (Watson 2014). Such policies could be jurisdictions. expanded to other jurisdictions to promote efficiency and improve economic and Differences in water-use regulations environmental outcomes. across regions can be partly explained by availability and climate. With increased water Other areas where water policy stress due to climate change, a more consistent harmonization can occur offer relatively low- and stringent water-use policy could hanging fruit with potentially large benefits.
62 NMX-AA-117-SCFI-2001. 64 Texas HB No. 2767. http://biblioteca.semarnat.gob.mx/janium/Documentos/ http://www.legis.state.tx.us/tlodocs/83R/billtext/html/H Ciga/agenda/PPD02/DO106.pdf. B02767F.HTM. 63 NOM-143-SEMARNAT-2003. (March 3, 2005). http://www.profepa.gob.mx/innovaportal/file/1337/1/no m-143-semarnat-2003.pdf.
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Data reporting requirements and sharing Overall, improving data, standardizing the among the three countries regarding the approach to reporting, and sharing information components of hydraulic fracturing fluid or provide significant cross-border opportunities produced water, for example, have existing that can support future regulatory momentum and could provide benefits in development. Research and development, as terms of data access and public trust. well as improved data analysis and Specifically, improved disclosure of chemicals management, can enhance and reduce the cost used in oil and gas operations could allow of monitoring over time. Harmonization of governments to better assess and develop water-use regulations and practices would uniform rules on allowed chemicals in the likewise improve efficiency and longer term. In the short term, FracFocus, an environmental outcomes in the three online disclosure portal managed by the countries. Ground Water Protection Council and Interstate Oil and Gas Compact 7. Recommendations and Conclusions 65 Commission, can be an effective tool for Drawing from both the regulatory review improving data availability and could be and the ideas generated in the workshop, we expanded to Mexico as well, particularly as conclude by describing a set of recommended the country now has more stringent reporting priorities for national or subnational action in requirements for hydraulic fracturing fluids North America. These recommendations were than many other jurisdictions in North also informed by a set of prioritization criteria America. The three countries could work (see Appendix A). together to establish a standard approach for assessing, setting standards, and sharing best The following key priority practices for monitoring impact on the recommendations (in no particular order) environment. emerged from this review: Finally, governments could work together 1. Describe ways the three countries are to study the impact of deep-well disposal on already collaborating on energy and seismicity and develop consensus practices climate issues, and maintain all that would enable and promote safe deep nonduplicative interactions. Workshop injection. Exchange of information among participants were all aware of various regulators and development of cross- information-sharing and collaborative jurisdictional practices, such as the stoplight forums across the United States, Canada, regulations used in a few provinces and states, and Mexico, and subnational could prevent or limit major seismic governments, but few, if any, occurrences elsewhere. As the study of participants (including the organizers) seismicity caused by hydraulic fracturing were aware of the full suite of operations in British Columbia and Alberta, as conversations already taking place. well as wastewater injection induced Capturing this information in one place, seismicity in the United States, has increased and characterizing which collaborations the knowledge of these mechanisms and the are already happening in which venues, effectiveness of certain policies, other would be a valuable step toward jurisdictions will be better able to prevent or understanding where the gaps are, which react to instances of induced seismicity. harmonization opportunities might need
65 For more information: https://fracfocus.org/.
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more conversation or structure and currently involved in many of the same which, if anything, are already being international organizations and addressed adequately. It bears saying initiatives focused on reducing methane that continuing these cooperative and emissions, including the Climate and collaborative interactions is important Clean Air Coalition, the Zero Routine for each of the countries’ economies and Flaring by 2030 Initiative, and the their environments. Global Methane Initiative. Sharing 2. Define what constitutes a subsidy to the information on technologies to reduce oil and gas sector, harmonize this methane releases and best practices in definition among the three countries, methane measurement would both and continue action to eliminate fossil improve data collection and also fuel subsidies. In June 2016 at the North potentially enhance opportunities for American Leaders’ Summit, the three cost-effective policymaking. Helpful countries agreed to end “inefficient” information would include how to identify methane “superemitters” and fossil fuel subsidies. This work is difficult to move forward without clearer calculate baselines with which to set information about the types, costs, and industry reduction targets. Subnational performance of various subsidies, and governments have much to add to this generating this type of information is a information. seemingly necessary prerequisite for In achieving the zero routine flaring fulfilling this commitment. commitment, jurisdictions would need to 3. Examine the extent to which develop policies that also eliminate infrastructure permitting processes are routine venting. Regulatory certainty and similar or differ across the three alignment could help industry prepare countries, specifically as this relates to and make appropriate technology and environmental impact statements (EISs). investment decisions. Governments can Infrastructure siting processes, including work together toward a common vision EISs such as those for pipeline of reducing and eventually eliminating approvals, are currently under review or wasteful practices that vent or flare the subject of scrutiny and controversy methane where it could be captured and in the United States and Canada, and sold. They could also align regulatory Mexico plans to dramatically increase requirements to incentivize the use of pipelines within its borders and across best available technologies (e.g., the US border. These processes should electrification or installation of zero be improved and better aligned to bleed pneumatic controllers) and set decrease transaction costs and delays, as standards related to directed inspection well as to better address country and and maintenance to inform leak cross-border environmental and detection and repair requirements. These indigenous/First Nation concerns. These can create skilled labor opportunities reviews should adopt consistent methods while reducing the sector’s to account for the social cost of carbon. environmental footprint. Governments could also work together to address 4. Improve regulatory alignment and growing legacy issues related to information sharing regarding methane abandoned and decommissioned wells emissions. The three countries are that leak methane and, in doing so,
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introduce policies that reduce taxpayer 7. Develop risk-based safety and liability when plugging and environmental inspection systems to abandonment costs exceed bonding address the Gulf of Mexico holistically requirements. in the spirit of the US-Mexico As of March 2017, the Trump Transboundary Hydrocarbon Reservoirs administration has initiated several Agreement. The Gulf is one ecosystem, actions to roll back the federal role in and nature does not recognize borders. data collection and emissions reductions Expand existing coordination to address related to methane. Given that most more issues, and look for areas where regulation of methane emissions happens goals and objectives overlap. ASEA has at the state level in the United States, already made risk-based regulation one however, cooperation at the regional and of its goals for rulemaking following the subnational levels can still be effective energy reform. Continuing collaboration and build on existing efforts, such as the between the United States, through BSEE and BOEM, and ASEA will Western Climate Initiative and the Zero Routine Flaring by 2020 Initiative. ensure that these measures can protect the Gulf—and those working in the 5. Expand FracFocus, already in place in area—as a whole. The US government the United States and Canada, to has learned many lessons in its years of Mexico. FracFocus has been relatively regulating offshore drilling in various well received in the United States and areas, particularly in the Gulf following Canada by industry and has provided the Deepwater Horizon incident; transparency and important access to knowledge-sharing will be particularly data to the public. Expanding the tool to fruitful in this area as Mexico begins to be useful for Mexico would be a regulate deepwater drilling for the first relatively straightforward and proactive time after its energy reforms. step, particularly given that ASEA
mandates that operators disclose and 8. Make changes in rules across the three publicize the additives used in hydraulic countries in two identified target areas: fracturing in the regulatory framework decommissioning standards and water released in March 2017. use and disposal standards. More stringent decommissioning rules could 6. Continue energy technology innovation have local and global environmental exchanges such as on carbon capture benefits. Harmonization could also utilization and storage (CCUS), methane reduce regulatory burden and increase measurements, and water-saving competitiveness. Technologies are also technologies. Leverage the three replicable. Subnational harmonization countries’ investments through joint may also be an option and US state rules funding for research and development. vary widely with little obvious Improvements in technology can drive justification. down both company and consumer costs. Joint funding would also go a long way Given concerns about water use and toward decreasing the marginal cost of disposal, there could be interest at all research and development, benefiting all levels to develop harmonized industry three countries. standards. Technology is replicable, and harmonization could lead to strong local health benefits, reduced costs, and
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marked environmental improvements. has come to rely more heavily on The governments furthermore have roles imports of natural gas and oil products to play in incentivizing (and allowing) (namely, gasoline). Without certainty wastewater sharing among producers to from the United States regarding this promote more efficient use. Workshops supply, Mexico will seek to diversify its on both of these topics could be imports and increase production, productive. decreasing this market for US energy in 9. Study past and present concerns the long run. The United States would regarding harmonization in NAFTA and benefit by having a market for its energy what they mean for harmonization in this products, and Mexico would benefit context. Examine areas where NAFTA from reliability as well as more cost- could be updated. Many, if not all, effective energy options. North America workshop attendees expressed as a whole would benefit from its discomfort regarding the word increased energy independence from the rest of the world. harmonization, in part because of past concerns about “harmonizing” (and 11. Harmonize CO2 policies where possible, potentially weakening) policies during particularly at the subnational level in the NAFTA negotiations. What became the short term. Although opportunities clear during the workshop, however, is for increased harmonization on climate that some relevant lessons can be learned policy involving the US federal from the NAFTA negotiations and government are unlikely in the short implementation. Further, the treatment term, there may be opportunities for of energy issues in NAFTA was in many Canada and Mexico to collaborate and ways reflective of Mexico’s pre-reform also include some US states. US states status, and given current scrutiny of the continuing—or perhaps expanding or agreement in general, there may be implementing—CO2 regulations should opportunities to update its energy consider allowing for cross-state and provisions to reflect current political and perhaps international collaboration economic realities. Finally, if NAFTA within these policies in the absence of proves to be an unwieldy instrument for federal action. California, for example, furthering energy market and regulatory has already linked its cap-and-trade coordination, or if it is scrapped for program with Quebec’s. Furthermore, political reasons, consideration should keeping in mind that further federal be given to what other institutions might efforts on the part of the US are a future be strengthened instead or what might be possibility, allowing or even building in put in its place, though it appears that the opportunities for future trilateral administration currently plans to collaboration would prove beneficial. renegotiate the treaty. Overall, the United States, Mexico, and 10. Provide Mexico with certainty regarding Canada would each individually benefit from natural gas and oil products supply, and harmonizing policies related to the oil and gas further policies that provide the three sector, increasing welfare of both the private countries with increased energy and sector and the public by increasing efficiency, economic security. Trade with the decreasing operating costs, and improving United States has quickly become an environmental outcomes. Significant efforts energy security issue for Mexico, as it have already been undertaken in a number of
www.rff.org | 43 Resources for the Future | Krupnick et al. policy areas related to the oil and gas sector. each of their jurisdictions. North America as Governments as well as private entities have whole stands to benefit from harmonization in contributed to these efforts. Continuing and the energy sector, and maintaining some level expanding on this momentum will provide of trilateral engagement on these issues will be numerous opportunities for federal and important to continue current work and foster subnational governments to improve new efforts in the future. economic and environmental outcomes within
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releases-first-ever-standards-cut-methane- ———. (2016b). Fiscal plan. The Alberta emissions-oil-and-gas-sector. Jobs Plan, budget 2016. ———. (2016b, June 27). Fact sheet: http://finance.alberta.ca/publications/budg Overview of the Clean Energy Power et/budget2016/fiscal-plan-complete.pdf. Plan. Government of Canada. (2016a). Canada–US https://www.epa.gov/cleanpowerplan/fact- relations: Energy relations. Retrieved from sheet-overview-clean-power-plan. http://can-am.gc.ca/relations/energy- Farber, Dan. (2017). A Bitter Pill. energie.aspx?lang=eng. LegalPlanet. http://legal- ———. (2016b). Government of Canada planet.org/2017/06/01/a-bitter-pill/. announces pan-Canadian pricing on Forbes Staff. (2016). Hacienda busca las carbon pollution. regalías adicionales más bajas para aguas http://news.gc.ca/web/article- profundas. Forbes, September 17. en.do?nid=1132149. http://www.forbes.com.mx/hacienda- ———. (2016c). Public consultation process busca-las-regalias-adicionales-mas-bajas- in preparation for the 17th meeting of the para-aguas-profundas/#gs.aiqf=qM. Conference of the Parties to the Friedman, Lisa. (2017). Court Blocks E.P.A. Convention on International Trade in Effort to Suspend Obama-Era Methane Endangered Species of Wild Fauna and Rule. The New York Times. Flora. Canada Gazette 150 (12). https://www.nytimes.com/2017/07/03/clim http://www.gazette.gc.ca/rp- ate/court-blocks-epa-effort-to-suspend- pr/p1/2016/2016-03-19/html/notice-avis- obama-era-methane-rule.html?_r=0. eng.php. Gilmer, Ellen. (2017). Trump order scrambles Groeger, Lena. (2012). Pipelines explained: epic legal standoff. EnergyWire, E&E How safe are America’s 2.5 million miles News, March 29. of pipelines? ProPublica. http://www.eenews.net/energywire/2017/0 https://www.propublica.org/article/pipelin 3/29/stories/1060052250. es-explained-how-safe-are-americas-2.5- million-miles-of-pipelines. Government of Alberta. (n.d.a). Alberta’s Modernized Royalty Framework Gronewold, Nathanial. (2017). Costs of overview. abandoned platforms high on BOEM’s to- http://www.energy.alberta.ca/Org/pdfs/M do list. EnergyWire, E&E News, March RFFactsheet.pdf. 15. http://www.eenews.net/energywire/2017/0 ———. (n.d.b). Modernize the framework for 3/15/stories/1060051476. crude oil, liquids and natural gas. https://www.alberta.ca/royalties- Ho, J., A. Krupnick, K. McLaughlin, C. modernize.aspx. Munnings, and J.-S. Shih. (2016). Plugging the gaps in inactive wells. ———. (n.d.c). Reducing methane emissions. http://www.rff.org/files/document/file/RF http://www.alberta.ca/climate-methane- F-Rpt-PluggingInactiveWells.pdf. emissions.aspx. ICF International. (2015). Economic analysis ———. (2016a). Alberta at a crossroads: of methane emission reduction Royalty Review Advisory Panel report. opportunities in the Mexican oil and http://www.energy.alberta.ca/Org/pdfs/Ro natural gas industries. yaltyReportJan2016.pdf. https://www.edf.org/sites/default/files/cont
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ent/mexico_methane_cost_curve_report.p global methane emissions from oil and df. natural gas systems. Environmental IEA (International Energy Agency). (2012). Defense Fund. Water for energy: Is energy becoming a https://www.edf.org/sites/default/files/cont thirstier resource? Excpert from the World ent/rhg_untappedpotential_april2015.pdf. Energy Outlook 2012. Lee, Mike, Edward Klump, and Nathanial http://www.worldenergyoutlook.org/media Gronewold. (2017). Big oil frets about /weowebsite/2012/WEO_2012_Water_Ex Trump’s border tax, Mexico policies. E&E cerpt.pdf. News, EnergyWire, March 9. ———. (2014). Rail vs. pipelines: How to http://www.eenews.net/energywire/2017/0 move oil. 3/09/stories/1060051191. https://www.iea.org/ieaenergy/issue6/rail- Liberal Party of Canada. (2015). A new plan vs-pipelines-how-to-move-oil.html. for a strong middle class. ———. (2017). Energy Policies beyond IEA https://www.liberal.ca/files/2015/10/New- Countries: Mexico 2017. plan-for-a-strong-middle-class.pdf. https://www.iea.org/publications/freepubli McCarthy, S. (2012). Canada to copy cations/publication/EnergyPoliciesBeyond Obama’s fuel efficiency rules. Globe and IEACountriesMexico2017.pdf. Mail, August 20. ITAM (Instituto Tecnológico Autónomo de http://www.theglobeandmail.com/report- México). (2016). Opportunities for on-business/industry-news/energy-and- economic policy harmonization. resources/canada-to-copy-obamas-fuel- Presentation at Oil & Gas Development in efficiency-rules/article4508608/. North America: Opportunities for Mooney, Chris, and Brady Dennis. (2017). Regulatory Harmonization. EPA halts inquiry into oil and gas industry Klump, Edward, and Mike Lee. (2017). emissions of methane, a powerful Exxon, optimism take center stage as greenhouse gas. Washington Post, March industry gathers. E&E News, EnergyWire, 2. March 7. https://www.washingtonpost.com/news/en http://www.eenews.net/energywire/2017/0 ergy-environment/wp/2017/03/02/epa- 3/07/stories/1060051042. halts-inquiry-into-oil-and-gas-industry- emissions-of-methane-a-powerful- Krupnick, Alan, Daniel Shawhan, and Kristin greenhouse- Hayes. (2016). Harmonizing the electricity gas/?utm_term=.56ba793c3671. sectors across North America. Discussion paper 16-07. Washington, DC: Resources Muehlenbachs, Lucija. (2017). 80,000 inactive for the Future. oil wells: A blessing or a curse? Briefing http://www.rff.org/files/document/file/RF Paper 10(3). University of Calgary School F-DP-16-07.pdf. of Public Policy. https://www.policyschool.ca/wp- Lajous, Adrián. (2017). Del oro negro al content/uploads/2017/02/Inactive-Oil- número rojo: La dependencia de las Wells-Muehlenbachs-1.pdf. importaciones de hidrocarburos de México. Nexos, February 20. NEB (National Energy Board. (2016a). http://www.nexos.com.mx/?p=31468. Constrained oil pipeline capacity. In Canada’s energy future 2016: Energy Larsen, K., M. Delgado, and P. Marsters. supply and demand projections to 2040. (2015). Untapped potential: Reducing
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https://www.neb- 014/12/cenegas-el-nuevo-gestor-del- one.gc.ca/nrg/ntgrtd/ftr/2016/index- sistema-de-transporte-y-almacenamiento- eng.html#s10. nacional-integrado/. ———. (2016b). Pipeline Safety Act Pemex. (n.d). Transporte por ducto. questions and answers. https://www.neb- http://www.pemex.com/nuestro- one.gc.ca/bts/ctrg/gnnb/dmgprvntnrgltn/pp negocio/logistica/Paginas/ductos.aspx. lnsftctfq-eng.html. PA DEP (Pennsylvania Department of NRCan (Natural Resources Canada). (2014). Environmental Protection). (2016). A Pipeline safety. Pennsylvania framework of actions for https://www.nrcan.gc.ca/sites/www.nrcan. methane reductions from the oil and gas gc.ca/files/energy/files/pdf/14-0277- sector. %20PS_pipelines_across_canada_e.pdf. http://files.dep.state.pa.us/Air/AirQuality/ Nelson, D. (2017). States underscore US AQPortalFiles/Methane/DEP%20Methane methane momentum, latest reason for %20Strategy%201-19-2016%20PDF.pdf. Canada to press ahead. EDF Energy Prime Minister’s Office. (2016a). Leaders’ Exchange (blog), March 8. statement on a North American climate, http://blogs.edf.org/energyexchange/2017/ clean energy, and environment 03/08/states-underscore-u-s-methane- partnership. momentum-latest-reason-for-canada-to- http://pm.gc.ca/eng/news/2016/06/29/lead press-ahead/. ers-statement-north-american-climate- Obama White House. 2016. North American clean-energy-and-environment- Climate, Clean Energy, and Environment partnership. Partnership Action Plan. RGGI (Regional Greenhouse Gas Initiative. https://obamawhitehouse.archives.gov/the- (n.d.) Auction Results. press-office/2016/06/29/north-american- https://www.rggi.org/market/co2_auctions climate-clean-energy-and-environment- /results. partnership-action. Schachar, N. (2016). Mexico announces ODNR (Ohio Department of Natural launch of cap-and-trade pilot program. Resources, Division of Oil & Gas Reuters, August 15. Resources) (n.d.). Shale well drilling & http://www.reuters.com/article/us-mexico- permitting, seismic monitoring. environment-idUSKCN10R00B. http://oilandgas.ohiodnr.gov/shale#SEIS. Seelke, C. R., M. Ratner, M. Angeles Ogburn, S. P. (2014). Colorado first state to Villarreal, and P. Brown. (2015). Mexico’s limit methane pollution from oil and gas oil and gas sector: Background, reform wells. Scientific American, February 25. efforts, and implications for the United https://www.scientificamerican.com/articl States. Congressional Research Service. e/colorado-first-state-to-limit-methane- https://www.fas.org/sgp/crs/row/R43313.p pollution-from-oil-and-gas-wells/. df. Oil and Gas Magazine Staff. (2014). SEMARNAT (Secretaria de Medio Ambiente CENAGAS, el nuevo gestor del Sistema y Recursos Naturales). (n.d). Intended de Transporte y Almacenamiento Nacional nationally determined contribution. Integrado. Oil and Gas Magazine, http://www.semarnat.gob.mx/sites/default/ December 9. files/documentos/mexico_indc.pdf. https://www.oilandgasmagazine.com.mx/2
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SENER (Secretaria de Energia). (2016). An abre-el-petroleo-a-privados-por-primera- update on energy reform in Mexico: vez-en-75-anos/. Regulatory and policy challenges in the oil Tencer, D. (2013). Pipeline spills release three and gas sector. Event at the Mexican times as much oil and rail spills: IEA. Cultural Institute, Washington, DC, Huffington Post Canada, May 14. September 23. Retrieved from Small, Xochitl Torres. (2015). Water use and http://www.huffingtonpost.ca/2013/05/14/ recycling in hydraulic fracturing: Creating pipeline-oil-spills-rail- a regulatory pilot for smarter water use in spills_n_3273725.html. the West. Natural Resources Journal 55: Trump, Donald J. (n.d.). An America First 409–40. energy plan. http://lawschool.unm.edu/nrj/volumes/55/ https://www.donaldjtrump.com/policies/en 2/NRJ-55-2-Torres-Small.pdf. ergy/. Snow, N. (2014). Better transportation seen as Veil, John. 2015. “US Produced Water key to North American energy promise. Volumes and Management Practices in Oil & Gas Journal, November 7. 2012.” Prepared for the Ground Water http://www.ogj.com/articles/2014/11/2014 Protection Council. Veil Environmental, ).better-transportation-seen-as-key-to- LLC. north-american-energy-promise.html. http://www.gwpc.org/sites/default/files/Pr ———. (2016). Texas joins other states’ suit oduced%20Water%20Report%202014- over new EPA oil, gas methane rule. Oil & GWPC_0.pdf. Gas Journal, August 2. Watson, Kirbie. (2014). The emperor’s new http://www.ogj.com/articles/2016/08/texas clothes: Fracking legislation in Texas. -joins-other-states-suit-over-new-epa-oil- LSU Journal of Energy Law and gas-methane-rule.html. Resources 3 (1): 351–74. Spang, E. S., W. R. Moomaw, K. S. http://digitalcommons.law.lsu.edu/cgi/vie Gallagher, P. H. Kirshen, and D. H. wcontent.cgi?article=1053&context=jelr. Marks. (2014). The water consumption of White House. (2016a). Climate action plan: energy production: an international Strategy to reduce methane emissions. comparison. Environmental Research https://www.whitehouse.gov/sites/default/f Letters 9 (10) (supplementary data). iles/strategy_to_reduce_methane_emission http://iopscience.iop.org/article/10.1088/1 s_2014-03-28_final.pdf. 748-9326/9/10/105002/pdf. ———. (2016b). Fact Sheet: White House SRBC (Susquehanna River Basin Council on Environmental Quality Commission). (2012). Low flow releases final guidance on considering protection policy related to withdrawal climate change in environmental reviews. approvals. Policy No. 2012-01. https://www.whitehouse.gov/the-press- http://www.srbc.net/policies/docs/2012- office/2016/08/02/fact-sheet-white-house- 01_Low_Flow_Protection_Policy_Related council-environmental-quality-releases- _to_Withdrawal_Approvals_12. final. Tapia, A. (2013). México abre el petróleo a ———. (2016c). Leaders’ statement on a privados por primera vez en 75 años. La North American climate, clean energy, and Tercera, December 12. environment partnership. http://www.latercera.com/noticia/mexico- https://www.whitehouse.gov/the-press-
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office/2016/06/29/leaders-statement-north- ———. (2017). Under Kasich, Ohio becomes american-climate-clean-energy-and- latest state to reduce oil & gas emissions. environment. Environmental Defense Fund. ———. (2016d). Presidential memorandum https://www.edf.org/media/under-kasich- regarding the construction of American ohio-becomes-latest-state-reduce-oil-gas- pipelines. emissions. https://www.whitehouse.gov/the-press- Wood, James. (2016). Alberta’s revamped oil office/2017/01/24/presidential- and gas royalty scheme ready for early memorandum-regarding-construction- use: Notley. Calgary Herald, July 12. american-pipelines. http://calgaryherald.com/business/energy/n ———. (2016e). Presidential memorandum otley-makes-royalty-announcement-at- regarding the construction of the Dakota investors-forum. Access pipeline. World Bank. (n.d.). Putting a price on carbon https://www.whitehouse.gov/the-press- with a tax. office/2017/01/24/presidential- http://www.worldbank.org/content/dam/W memorandum-regarding-construction- orldbank/document/SDN/background- dakota-access-pipeline. note_carbon-tax.pdf. ———. (2016f). Presidential memorandum Zavala-Araiza, D. (2016). Una clara regarding the construction of the Keystone advertencia para México Acerca de la XL pipeline. contaminación climática de su industria https://www.whitehouse.gov/the-press- petrolera. Energy Exchange (blog), office/2017/01/24/presidential- September 9. Environmental Defense memorandum-regarding-construction- Fund. keystone-xl-pipeline. http://blogs.edf.org/energyexchange/2016/ ———. (2017a). An America First Energy 09/19/una-clara-advertencia-para-mexico- Plan. acerca-de-la-contaminacion-climatica-de- https://www.whitehouse.gov/america-first- su-industria-petrolera/. energy. ———. (2017b). Presidential executive order on promoting energy independence and economic growth. https://www.whitehouse.gov/the-press- office/2017/03/28/presidential-executive- order-promoting-energy-independence- and-economi-1. Williams, Andrew. (2016). Pennsylvania announces plan for strongest methane rules in the nation. Energy Exchange (blog), April 7. Environmental Defense Fund. http://blogs.edf.org/energyexchange/2016/ 01/20/pennsylvania-announces-plan-for- strongest-methane-rules-in-the-nation/.
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Appendix A. Suggested Criteria for conditions that prevent adequate competition. Evaluating Recommendations Bigger market failures or much movement The criteria below are largely taken from a toward ameliorating those failures would 2016 RFF discussion paper “Harmonizing the prioritize an action item over other action Electricity Sectors across North America: items. We think of this criterion as having two Recommendations and Action Items from parts: the impact of the market failure and the Two RFF/US Department of Energy extent to which the effort in question could Workshops” (Krupnick, Shawhan, and Hayes reduce that market failure. 2016), with only minor modifications. 4. What is the value of this effort? 1. Is this effort foundational? Certain recommendations or action items Certain efforts—whether carrying out a do not address market failures but call for the study, building a model, or building a new organization of institutions and so on. We use institution—are important, even critical, this criterion to judge them according to the building blocks for other, longer-term efforts. value we believe they could provide as a They may represent opportunities to fill forum or engine for change. knowledge gaps or may be necessary 5. What is the political feasibility of this precursors to completing other longer-term effort? To what extent is there momentum actions. In other words, it is important to behind this effort that should be capitalized consider which activities are foundational to on? advancing other harmonization efforts. Although often thorny to gauge, this 2. Does this effort have a high value of criterion is perhaps the most practical on our information? list. There is value in considering the related Economists often consider the value of issues of political feasibility and momentum information as an important evaluation when prioritizing next steps; for example, in criterion, and the value of information June 2016, the three countries agreed to joint increases with the probability that the goals related to methane reductions from the information will change decisions. If a oil and gas sector, which arguably boosts the particular high-quality research study simply priority of actions related to methane data adds to the consensus, it has less value than if collection and monitoring. At the same time, it challenges the consensus. Where our field of view is toward long-term information is lacking, a study can have feasibility. particularly high value. 6. What is the cost of this effort? 3. To what degree does this effort The person-hours and other costs of the immediately or ultimately address a market effort may help determine some “low-hanging failure? fruit” worthy of shorter-term action. For example, a relatively low-cost regulatory Economic principles suggest that government should focus on involvements that review that has a high value of information address or limit a market failure. By market might be highly prioritized. At the same time, failure, we mean that an unregulated market is however, projects with higher costs of effort unable to deliver quantities of goods and should not automatically be penalized; in services that are socially optimal as a result of these cases, the large scale of effort simply an inherent characteristic, such as needs to be valued against the other criteria environmental or network externalities, or described here.
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Appendix B. List of Key Oil and Gas Climate and Emissions Regulations Relevant Legislation, Regulations, and Canada Resources Pan-Canadian Framework on Climate Some of these regulations, acts, and resources overlap multiple issues. We included Government of Alberta Carbon levy and legislation, regulation, and resources directly rebates relevant to the discussion in this report; this Government of Alberta Methane list is therefore not comprehensive. For convenience, we have hyperlinked these Reduction Strategy resources, but note that links may expire. United States Transportation and Infrastructure Clean Air Act Canada Clean Power Plan Emission Guidelines for Existing Stationary Sources Estimating upstream GHG emissions Regional Greenhouse Gas Initiative Canada Rail Safety Act Program Design Canada Pipeline Safety Act Western Climate Initiative Program Transport Canada Competency Design Guidelines for Responders to Incidents Leader’s Statement on a North American of Flammable Liquids in Transport, Climate, Clean Energy, and High-Hazard Flammable Trains Environment Partnership Transport of Dangerous Goods Act Strategy to reduce methane emissions United States United States Environmental Protection Natural Gas Act Agency Laws and Regulations US Department of Transportation Final Colorado Oil and Gas Conversation Rule to Strengthen Safe Transportation Commission Hydraulic Fracturing Rules of Flammable Liquids by Rail North Dakota Hydraulic Fracturing US-Mexico Transboundary Standards and Regulations Hydrocarbons Agreement Ohio Department of Oil and Gas Oil and Texas Oil and Gas Transport by Rail Gas Laws Regulations Pennsylvania Department of Regulatory Review of Liquid and Environmental Protection Methane Natural Gas Pipelines in Colorado Reduction and Climate Change Strategies See also general state oil and gas laws in Climate and Emissions Regulations section California Global Warming Solutions Act (AB 32) overview Mexico Texas Commission on Environmental Ley General De Cambio Climático Quality: Oil and Gas Activities Lineamientos en materia de Seguridad National Conference of State Industrial, Seguridad Operativa y Legislatures Summary of State Methane Protección al Medio Ambiente, para el Policies transporte terrestre por medio de Ductos Mexico de Petróleo, Petrolíferos y Petroquímicos Ley General De Cambio Climático
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Royalties and Fiscal Terms Montana Administrative Rules (Section 36.22.502) Canada Ohio Administrative Code (Section Offshore Petroleum Royalty Act (Nova 1501:9-11) Scotia) Pennsylvania Environmental Protection Royalty Regulations (Newfoundland and Performance Standards at Oil and Gas Labrador) Well Sites Modernized Royalty Framework Texas Administrative Code (Rule 3.14) (Alberta) Mexico United States NOM-115-SEMARNAT-2003 Mineral Leasing Act NOM-149-SEMARNAT-2006 Lineamientos de Exploración y Mexico Extracción de Hidrocarburos en Ley de Ingresos sobre Hidrocarburos Yacimientos No Convencionales Decreto por el que se expide la Ley de Lineamientos en materia de Seguridad Hidrocarburos y se reforman diversas Industrial, Seguridad Operativa y disposiciones de la Ley de Inversión protección al medio ambiente para Extranjera; Ley Minera, y Ley de realizar las actividades de Asociaciones Público Privadas Reconocimiento y Exploración Dispociciones Administrativas de Superficial, Exploración y Extracción de carácter general que establecen las reglas Hidrocarburos para el requerimiento mínimo de seguros Water Regulations a los Regulados que lleven a cabo obras o actividades de exploración y Canada extracción de hidrocarburos, tratamiento Fisheries Act y refinación de petróleo y procesamiento de gas natural Species at Risk Act Lower Athabasca Region Surface Water Decommissioning and Abandonment Quantity Management Framework Canada United States Directive 006: Licensee Liability Rating Safe Drinking Water Act (LLR) Program and Licence Transfer Process (Alberta) Mexico Directive 011: Licensee Liability Rating Ley de Aguas Nacionales (LLR) Program (Alberta) NOM-138-SERMANAT/SS-2003 Directive 075: Oilfield Waste Liability Ley General para la Prevención y (OWL) Program (Alberta) Gestión Integral de los Residuos United States Health and Safety Regulations Reorganization of Title 30: Bureaus of Canada Safety and Environmental Enforcement and Ocean Energy Management Canada Rail Safety Act (sections 250.1700-1754) Canada Pipeline Safety Act California Statutes and Regulations for National Energy Board Onshore Pipeline Conservation of Oil, Gas, & Geothermal Regulations Resources (Sections 1723 and 1745) Canada-Nova Scotia Offshore Petroleum Colorado Oil and Gas Conservation Board Health and Safety Commission Rules and Regulations Canada-Nova Scotia Offshore Petroleum (Section 300) Board Regulations
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Canada-Newfoundland & Labrador National Agencies Offshore Petroleum Board Health and Safety Canada Canada-Newfoundland & Labrador National Energy Board Offshore Petroleum Board Regulations Natural Resources Canada United States Canadian Environmental Assessment Agency Arctic Drilling Rule Environment and Climate Change Well Control Regulations to Ensure Safe Canada and Responsible Offshore Oil and Gas Development Transport Canada National Environmental Policy Act United States North American Energy Infrastructure Federal Energy Regulatory Commission Act Department of Energy STREAM (Supporting Transparent Regulatory and Environmental Actions Department of Transportation Pipeline in Mining) Act and Hazardous Materials Safety Pipeline Safety Improvement Act Administration Comprehensive Environmental US Department of the Interior Bureau of Response, Compensation, and Liability Land Management Act Department of Industrial Relations Environmental Protection Agency (California) Petroleum Safety Orders – Energy Information Administration Drilling and Production Bureau of Ocean Energy Management Well Control Rule Bureau of Safety and Environmental Pipeline Safety Improvement Act Enforcement See also state-specific oil and gas regulations in Climate and Emissions Regulations section United States Department of Labor Occupational Safety and Health Mexico Administration: Oil and Gas Extraction PROY-NOM-018-ASEA-2016 Mexico NOM-EM-003-ASEA-2016 Agencia de Seguridad, Energía, y Criterios interpretativos que establecen Ambiente las reglas para el requerimiento mínimo de seguros a los regulados que lleven a Secretaría de Medio Ambiente y cabo obras o actividades de exploración Recursos Naturales y extracción de hidrocarburos, Comisión Nacional de Agua tratamiento y refinación de petróleo y Comisión Nacional de Hidrocarburos procesamiento de gas natural Comisión Reguladora de Energía Lineamientos para Informar la Comisión Federal de Competencia ocurrencia de incidentes y accidentes a Económica la Agencia Nacional de Seguridad Industrial y de Protección al Medio Ambiente del Sector Hidrocarburos. Lineamientos para que los Regulados lleven a cabo las Investigaciones Causa Raíz de Incidentes y Accidentes ocurridos en sus Instalaciones
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Appendix C. Harmonization Canada, the United States, and Mexico Opportunities: A Workshop Report undertake and regulate oil and gas production. This section contains information, Against this backdrop, a multi-stakeholder recommendations, and action items related to workshop was held to explore opportunities a workshop held in October 2016 called Oil & for further oil and gas market and regulatory Gas Development in North America: harmonization across Mexico, Canada, and the Opportunities for Regulatory Harmonization. United States. The workshop brought together This workshop was put together and representatives from all three countries and facilitated by Resources for the Future with from sectors including industry, federal and funding from DOE in support of DOE’s provincial/state governments, academia, and mandate to investigate opportunities for nongovernmental organizations. It was carried stronger data, policy, operations and planning, out under Chatham House rules. and economic ties across energy sectors in the The workshop yielded a large number of United States, Canada, and Mexico. This ideas that government agencies, research workshop is the third in a series of workshops groups, academics, and other stakeholders in on energy policy and market harmonization all three countries should consider to move across North America. The first two were on toward further harmonization of energy policy electricity markets and policy harmonization and markets affecting the oil and gas systems and were held in Boise, Idaho, and in North America. The conversation was not Albuquerque, New Mexico, in October 2015. designed to reach consensus in any way, and Interested readers can find the report from the lists below therefore reflect a set of ideas those electricity sector workshops (Krupnick, embraced by different participants to varying Shawhan, and Hayes 2016) on RFF’s website.66 degrees. Participants highlighted several areas This summary reflects our best attempt to where cross-border oil and gas cooperation is digest and articulate the workshop already quite effective, such as under the participants’ comments; however, the Agreement between the United States of Workshop Takeaways and Action Items America and the United Mexican States section, which suggests prioritization of concerning Transboundary Hydrocarbon particular action items, represents only the Reservoirs in the Gulf of Mexico (US-Mexico authors’ views. Transboundary Hydrocarbon Reservoirs Agreement). Introduction Takeaways and action items from the The past decade has been a transformative workshop are organized into six categories: one for the energy sector in North America, goals and principles, economic policy,67 featuring significant changes in the ways that infrastructure siting and permitting, methane
66 See “Harmonizing the Electricity Sectors across 67 In general, workshop participants did not express North America” (Krupnick, Shawhan, and Hayes 2016). significant discontent over economic policy Available at “disharmony,” in part because there are already several http://www.rff.org/files/document/file/RFF-DP-16- processes in place to harmonize economic issues. For 07.pdf example, workshop participants expressed little criticism of pipeline tariff policies in the three countries or of severance taxes and other elements of economic regulation that might differ across the three countries. Indeed, there was acceptance of heterogeneity in these factors across countries, states, and provinces.
www.rff.org | 56 Resources for the Future | Krupnick et al. policy, environmental policies and strategies, Focus on development of “outcome- and cross-cutting items. We report reflections based” regulations that are targeted to and action items here as the participants address individual policy objectives, presented them in October 2016, without such as a CO2 cap to limit emissions for making any adjustments for their salience climate mitigation. All regulatory under the new Trump administration. approaches must be considered to best Workshop Takeaways and Action achieve a certain goal at least cost to Items stakeholders—and indeed, there may be circumstances under which it makes Goals and Principles for North American sense to use a command-and-control Energy Harmonization mechanism, given that it may actually Consider whether harmonization is the cost less to mandate the use of a appropriate word to use for technology than to put all the monitoring conversations on trilateral policy in place to develop a functional questions, considering that it has emissions baseline. negative connotations for a number of Understand that there is not a need to people (particularly reflecting on harmonize on every policy, and NAFTA and perceptions of top-down appreciate the political, social, and regulation). The goal of harmonization is economic heterogeneity among and not to apply one regulatory model to all within the three countries. The goal is to countries and apply only the lowest harmonize where it makes the most common denominator of stringency; sense based on economic and policy rather, the goal is to coordinate efforts principles and given legal and political among the three countries to varying constraints. degrees to improve the whole system. By this definition, words such as Action Items for Economic Policy alignment, coordination, and coherence Define what constitutes a subsidy to the should be considered as alternatives. oil and gas sector, and harmonize this Move deliberately and quickly in definition among the three countries, addressing tri-national coordination especially given that the three countries opportunities as a window of agreed to end “inefficient” fossil fuel opportunity currently exists with the subsidies during the North American recent Mexican energy reforms and the Leaders’ Summit in June 2016. shale and other unconventional resources Study royalty frameworks—especially revolution. The North American energy what an efficient royalty would look like landscape is changing rapidly, providing and how it would vary with underlying an opportunity for coordination within conditions—as this is a shared challenge and integration of North American across the three countries. Consider to energy sectors while industry, what extent royalty regimes should be regulations, and markets are “plastic” simplified and how royalties are and malleable. Additionally, climate distributed. change mitigation considerations will Other royalty-related issues included the increasingly affect the fossil fuel following: industry in Mexico and Canada and in Consider Alberta’s Modernized Royalty some US states, providing unique Framework, in which the government opportunities for cooperation.
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combined several incentives into a single capacity and stringency. Review other structure that accommodates costlier local content laws, especially those in investments and takes into account the United States and Canada, to fluctuations in oil and gas prices. Reflect highlight any practices or international on how Alberta engaged stakeholders to standards for study. foster transparency and whether and how Review unitization agreements that such a process should and can be govern development of oil and gas pools replicated. underlying international borders. Examine whether royalty credit Examine formulas to calculate programs, such as British Columbia’s companies’ profits in the three countries, Clean Infrastructure Royalty Credit and consider whether (and under what Program, which allows companies a circumstances) these formulas should be royalty deduction of up to 50 percent of harmonized. the cost of a project to reduce emissions, Review and highlight practices for should be implemented elsewhere to regulating dominant players in the encourage emissions reductions and market, and review oil and gas other environmentally friendly practices. privatization processes that have Study how to share benefits within occurred in other countries, as Mexico communities, especially indigenous or attempts to regulate Pemex and open its First Nation communities. oil and gas market. In general, examine what work could be In the context of Mexican insurance done to optimize royalty rates and other regulation, consider whether there is attempts to get a fair return to taxpayers sufficient financial responsibility to fully for resource exploitation. Also consider fund emergency response, given that, in to what extent externalities, including the near future, regulators plan to use climate externalities, should be taken insurance to cover incidents. into account. Action Items for Infrastructure Siting and Study full tax rates across countries, a Permitting complex issue because of the need to account for subsidies, taxes and Examine the extent to which exemptions, accelerated depletion in the infrastructure permitting processes are United States (a subsidy), and royalty similar or differ across the three payments. Adjusting policies with an eye countries. (In Mexico, for example, only toward harmonization is possible only federal regulators need to be consulted after studies can define true tax rates in for pipeline permits, whereas in the the three countries. United States, oil pipelines are subject to Study local content laws and their state-level permitting.) Examine the impacts. For example, companies potential for (and desirability of) making entering the market in Mexico for the processes more similar to reduce first time may find that complying with company transaction costs. the new Mexican local content laws is Address various issues in the United very costly or difficult. Many countries States, Canada, and Mexico with EISs have local content laws, and some are and associated approval and siting not prohibitive or burdensome for processes. Aside from much-needed business, depending on the local
www.rff.org | 58 Resources for the Future | Krupnick et al. information sharing, the following were potential exists for double counting all discussed in this regard: CO2 emissions. o Harmonize permitting review Harmonize cross-border safety regimes, processes and time frames allowed such as the successful railroad safety to improve regulatory certainty. initiative following the Lac-Mégantic The goal should be to streamline rail disaster. Similar initiatives for processes as much as possible (and pipelines may improve safety for cross- for country leadership to stick to border pipelines. set deadlines), but not so much that Canada and Mexico should consider they compromise decision implementing BOEM’s approach to integrity. Providing regulatory programmatic environmental impact certainty—in terms of expectations studies, which allows for relevant regarding any potential issues that information on ecosystem baselines and might affect approval as well as the provides common ground for the time frame for approval—would evaluation of EISs and National benefit all stakeholders. Environmental Policy Act analyses. o Explore best practices in how to (One participant noted that even though properly consult indigenous groups Mexico does not yet implement the to both protect the rights of local bureau’s approach, two guidelines have populations and avoid, for been published on the matter of example, issues like the ones developing ecosystem baselines for surrounding the Dakota Access environmental issues, one for land and related to siting and sacred spaces. the other for offshore.) o Adopt the consistent use of a social cost of carbon (SCC) in EISs, Action Items for Methane Policy preferably in a manner that is Share information and practices on harmonized to a certain degree and identifying methane “superemitters” and uses the same SCC figure. calculating baselines with which to set (Notably, in June, the United industry reduction targets. States, Canada, and Mexico agreed Consider using standardized techniques at the North American Leaders’ showing methane emissions by facility Summit to work toward an aligned based on production accounting SCC calculation methodology.) platforms, a well-established process The United States must also apply currently used to measure production the SCC consistently across its and royalty payments in Alberta. Such a agencies, which has been a platform would enable high-resolution challenge. emissions data, which would allow for o Provide regulatory certainty with better-suited, less costly regulations, and regard to how governments view reporting via such a system would life-cycle analyses, with consistent generally involve minimal additional metrics and guidelines for time and cost. Define what the next steps estimating impacts in terms of would be to incorporate methane direct and indirect consequences. emissions accounting into production o Be cognizant of the issue of accounting in other jurisdictions. counting GHG emissions and exports of fossil fuels, as the
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Exchange information on technologies more issues, and look for areas where and industry practices that are deemed goals and objectives overlap. safe—or even mandatory—in one Expand FracFocus, already in place in country but not another. One example is the United States and Canada, to the blowdown requirement for Mexico. Consider how this would hydrostatic testing of pipelines in the dovetail with Mexico’s existing United States versus Canadian “dry” regulations. testing. Hydrostatic testing is a Examine the potential for wastewater technique that is intended to improve sharing across companies, as state safety but can have perverse incentives regulations often do not encourage (or for reducing methane emissions. perhaps discourage) oil and gas Determine implications for integrating companies operating in the same field methane and carbon dioxide reduction from sharing water. Texas implemented regimes. Is there a forcing coefficient for regulations that incentivize sharing, and methane that would allow these other states are trying to follow suit. emissions to be considered together or Study whether this would be possible traded in the same emissions markets as within states, let alone across states or CO2? countries; whether this would reduce water use or disposal; and whether there Action Items for Environmental Policies might be any unintended consequences. and Strategies In the long term, continue to consider the Cross-Cutting Items Paris Agreement in decisions and plans Harmonize regulations not only across within and among the three countries as North America but also within countries Mexico and Canada (and perhaps the US if jurisdictions and agencies have or US states pending developments over conflicting goals, such as differing the next few years) develop future eminent domain laws among US states INDCs. Study how an integrated North or differing considerations in the American climate strategy in the long permitting approval processes and run would affect the ability of each reviews among US agencies. This is less country to meet agreed GHG reduction of an issue in Mexico because of the goals. strong federal government role relative Facilitate investments in GHG to state governments. reductions across borders by Review Mexico’s Social Impact streamlining goals, baselines, and Assessment guidelines, which require emissions data. operators to submit an assessment of the Develop risk-based safety and potential social impact of energy environmental inspection systems to development projects and any relevant address the Gulf of Mexico holistically mitigation measures, as a potential in the spirit of the US-Mexico model for other jurisdictions. Transboundary Hydrocarbon Reservoirs Mount a case study looking at regulatory Agreement. The Gulf is one ecosystem, review and related judicial processes and nature does not recognize borders. across the three countries. Mexico’s Expand existing coordination to address systems are particularly interesting to
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study because ASEA has won 97 percent Leverage the three countries’ of lawsuits. investments through joint funding for Continue to discuss and come to a research and development. consensus, as much as possible, on Study whether regulatory risk is product definitions, data collection increasing in North America and methods, and mechanisms for comparing whether harmonization increases or data across countries. Data decreases regulatory risk. Some raised identification, translation, and sharing the issue of multinationals seeing the are necessary—but be mindful of United States as a less favorable place to appropriate levels of effort, as lessons invest and find that regulatory risk is learned from early attempts at data increasing, though it is unclear how sharing show that some challenges may harmonization would affect this issue. be too persistent to overcome. Study NAFTA’s effects on oil and gas Compare how business is conducted markets in North America, in addition to across North America in the oil and gas past and present concerns regarding sector (in a similar vein as the World harmonization in NAFTA and what they 68 Bank’s Doing Business project), and mean for harmonization in this context. potentially create a website that could Examine areas where NAFTA could be compare environmental regulations updated. across jurisdictions and countries. This Describe ways the three countries are could highlight where some countries or already collaborating. Produce a list of jurisdictions need to improve and existing bilateral and trilateral forums. provide a platform for knowledge sharing. One model might be to expand Continue existing partnerships and use and update DOE’s RAPID Toolkit, them as a model for cooperation in other created for sharing information on areas. Mexico’s ASEA, for example, has regulatory processes and other already been meeting with US agencies, information, to allow cross-border side- such as BSEE and BOEM, and has by-side comparison of regulations and visited several other countries’ agencies. academic and industry comparisons. Also consider making RAPID public. Consider the circumstances under which independent regulators, such as the Alberta Energy Regulator, are necessary or have produced better outcomes in the three countries. Continue energy technology innovation exchanges such as carbon capture and storage (CCS), methane measurements, and water-saving technologies.
68 See www.doingbusiness.org.
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