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The Business Case for Reducing Methane Emissions

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Left to right: Ed Alfke (CEO and chairman of the board), Saj Shapiro (COO), Rob Harding (CFO) and Alastair Handley (president). Photo by: Rebecca Hardcastle Photography.

In December 2018, the Alberta Energy Regulator set limits on the amount of methane gas that may be vented from upstream oil and gas sites, typically well sites. These limits are part of a broader scheme set by the Government of Alberta to reduce methane emissions from the provincial upstream oil and gas sector 45 per cent by 2025 from 2014 levels. According to the Intergovernmental Panel on Climate Change (IPCC), methane has a global warming potential (GWP) more than 25 times carbon dioxide.

Developed to “eliminate or reduce the potential and observed impacts of these activities and to ensure that public safety concerns and environmental impacts are addressed before beginning to flare, incinerate or vent,” affected companies – virtually every oil and gas producer in the province – have until December 31, 2022 to comply with the new limits.

More imminent compliance regulations require Alberta producers to report their methane-emitting equipment inventory by the end of this year; develop a methane reduction and retrofit compliance plan (MRRCP) based on the inventory by June 2020; and implement that MRRCP by December 31, 2022.

Ed Alfke and Alastair Handley have been in the environmental marketspace for over 10 years. Their Carbon Credit Solutions Inc. (CCSI) is a pioneer in the industry, with one of the first software platforms in the world to aggregate and quantify large-scale emissions reductions. This measure-report-verify (MRV) system has generated over 4.4 million carbon credits worth $70 million in Alberta, saving emitters $30 million.

“Our system is designed to be able to track thousands of different emissions reductions projects,” explains Handley, president of CCSI and director of TriCore Carbon Solutions Inc. “Ownership details, data, documents, photos and evidence about those projects. And the system is designed to streamline credit development by following a very strict credit development procedure. Our software has allowed us to be very successful in the market and differentiates us from some of the other folks.”

After meeting at a business breakfast years ago, Alfke, a serial entrepreneur with more than 30 years of experience (including the founding and expansion of Rent-A-Wreck in the 1980s), joined Handley at CCSI. Handley had been working in the carbon marketspace since 2007 and is a recognized leader and authority on environmental markets worldwide.

One of the pair’s most recent endeavours – TriCore – combines their expertise in carbon markets and credit generation with Alberta’s new methane emissions limits to create winning results for all parties concerned.

“CCSI’s driving purpose is to supply planet positive equipment, finance and data sets to create carbon credits to help the oil and gas industry pay for the cost of reducing methane and the new equipment,” explains Alfke, CEO of both TriCore and CCSI. “Our investment in TriCore is helping us achieve our goals.”

A joint venture between CCSI, Trido Industries Inc. and General Magnetic, TriCore supplies solar-driven controllers and chemical-injection pumps to companies on a lease-to-own basis. The new equipment reduces the company’s well-site methane emissions in compliance with the government limits coming into force January 1, 2023. The use of the new equipment then generates offset carbon credits which in turn pay down the lease. “In most cases, the credits pay for 100 per cent of the equipment,” Alfke says. “It’s essentially becoming compliant with methane regulations for free.”

The credits are generated because the companies voluntarily reduce their methane emissions with the new equipment – they are effectively early adopters – before the government-set deadline of January 1, 2023 requiring such measures. After that time, offset carbon credits may no longer be generated under this scheme. The current rate of generation is 25 carbon credits for every one ton of methane reduced (the ratio for carbon dioxide is one credit to one ton of CO2 reduced).

Alfke says the pay down typically happens in less than 24 months, but the equipment has a useful life of 15 years. “It’s a real opportunity, right now, for oil and gas companies to leverage Alberta’s carbon markets for their benefit and do something good for the planet.”

Cap-Op Energy, their latest acquisition, has proprietary software – the Methane Abatement Project Platform (MAPP) – made up of two parts: MAPP Inventory, an equipment and asset field application allowing field staff to collect data on-site and share it with corporate personnel in real time; and MAPP Campaign, decision-making software that integrates the data sets to help operators find the most economic efficiency and emissions reductions projects.

“CCSI’s, Cap-Op’s and TriCore’s knowledge and technologies work together to meet the compliance regulations and leverage Alberta’s carbon market to pay for it,” Alfke explains. “It’s an end-to-end solution that any oil and gas producer can take advantage of.”

Alberta’s carbon market was created in 2007 under Premier Ed Stelmach. Since that time, it has generated approximately 50 million carbon credits with an approximate value of $1 billion.

“The Carbon Competitiveness Incentive Regulation applies to companies that emit large volumes of greenhouse gases,” Handley explains. “They are required to comply with the regulation and if they are unable to reduce emissions they have two choices for how to comply: they can pay a levy to the government, the current price of which is $30 per ton of carbon dioxide equivalent emitted, or they can purchase carbon credits which sell at a discount to the $30 levy. So, many organizations purchase carbon credits to save money on compliance costs.”

Credits are generated by a variety of actions, on the part of companies and farmers in Alberta, which reduce emissions. Solar projects, conservation cropping and wind farms are common examples. A large emitter can also choose to purchase credits developed out of the oil and gas sector, such as those generated by reductions in methane emissions. “It’s actually just a regulated free-market system,” Handley explains.

Since inception in January, Cap-Op has completed or is currently completing some 12,000 projects, the majority of which are replacement of high-bleed pneumatic controllers with low-bleed devices. The pumps are manufactured and installed by Calgary-based Trido, which has been in the business for 10 years and has installed over 2,800 pumps to date. General Magnetic owns the core technology in Trido pumps.

CCSI’s client list runs the gamut from multinational oil and gas companies to smaller Alberta-based producers. “Any oil and gas producer [in Alberta] that has a functional well will have to comply with the new limits,” Alfke says. “Our program is designed to benefit any company that needs it.”

In addition to the benefits of early compliance, reduction of methane emissions, carbon credit generation and the pay-off of equipment, clients obtain other benefits too. “It reduces chemical costs as well as improves whole efficiencies that help the overall operation of the well head,” Alfke says.

“More importantly, under our program, once the equipment is paid off, if the client acts quickly, they can actually generate a revenue stream for themselves from the credits,” Handley continues. “If they act now, they can probably pay off their equipment and generate a reasonable revenue stream before the deadline.”

While the opportunities for carbon credit generation with TriCore are finite within Alberta (because of the 2023 deadline), the global possibilities are endless. “We are looking to take this program around the world – with companies like Shell, ConocoPhillips and BP,” says Alfke. “We work with them in Alberta and hope to go global with them. We plan to take this worldwide over time.”

Indeed, there are over 60 carbon markets around the world. “It’s an estimated $42-billion global market,” Handley says. “And it keeps growing, as more sub-national and national governments implement carbon markets. In fact, roughly 30 per cent of the U.S. population lives in jurisdictions which have some type of price on CO2 emissions already. California and 11 states in the northeast already have carbon markets.”

In terms of methane reduction, Alberta is part of a global change. “Shell and others have already announced they are removing methane from worldwide operations,” Alfke says. “They’re all moving in this direction. It’s part of corporate social responsibility, the idea of slowing global warming and reducing carbon footprints in various forms. The desire to continue to be in business for another 100 years.”

TriCore and CCSI have been recognized with a number of awards, most recently the Emerging Clean Technologies Award at the Global Petroleum Show in Calgary in June. “The scalability and sophistication of the MRV software is why we won,” Alfke explains. “It’s the leading software platform in the world. It’s considered an emerging technology even though we [CCSI and the MRV software] have been around for 10 years. But it’s new to oil and gas.”

Scalability has been achieved: a recently audited report shows CCSI has experienced a massive 1,460 per cent growth over the past five years. With 52 employees currently, Alfke expects to double that number within 12 months.

Alfke and Handley’s third company – Climate Smart Group – comprises its international consulting arm. “It does everything CCSI and TriCore do, plus consulting,” Alfke says. “It’s had some major Fortune 100 clients. It’s the brand under which we expect to use for global expansion.”

“The opportunities to take the learnings and the experience from the Alberta marketplace and apply it internationally are almost beyond most people’s imagination,” says Handley. “The Alberta market is arguably one of the best markets in the world and is something all Albertans should celebrate. The business model that our companies are operating under is one that we believe is applicable in many jurisdictions around the globe.”

The partners view their work through both the business and human lens. “We exist as a principle-based group to make a difference in scale reducing emissions,” Alfke offers. “We all have kids and grandkids and we exist to reduce emissions in an efficient business case way, founded in economics. Because if there’s a real reason to reduce emissions and keep doing it, it has to be founded in an economic model.”

“There are a lot of people saying a lot of really scary things about what’s going to happen at the planet if we don’t reduce greenhouse gas emissions,” Handley says. “It’s really quite negative. We believe that we can actually take actions to reduce greenhouse gas emissions in a manner that is pragmatic and sensible and helps us transition to an economy where we have lower greenhouse gas emissions and do it in a manner where businesses can thrive. In simple terms, I think we’re trying to offer hope about how we make the transition to create a cleaner world.”

Pioneers in their field, Alfke and Handley are a shining example of the environmental innovation happening in Alberta. Their work can and is making a difference here and elsewhere.

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