Here’s a conversation that we ought to be having in Canada about our energy future (but aren’t—at least not yet): How do we show up in the energy transition—globally and at home—in the coming decades?
As a country, we have an abundance of fossil fuel resources. We also have an abundance of clean and renewable energy resources, and the critical minerals needed for the technologies that harness and capitalize on them.
We are in a relatively unique position to choose: petro-state or electro-state?
As Anne-Sophie Corbeau & Tatiana Mitrova write: “What is emerging are two competing models of energy and influence—one anchored in the enduring logic of hydrocarbons, the other in the accelerating promise of electrification. At stake is not just the future of energy systems, but the contours of geopolitical power in the decades ahead.”
The stakes, as articulated by Kingsmill BondDaan Walter & Sam Butler-Sloss, are clear: “The electrotech revolution isn’t all sunshine and opportunity—there are serious risks to falling behind. While future energy systems may no longer depend on fuel, they will depend on software, control systems, and digital infrastructure. If countries don’t develop those themselves, they’ll end up reliant on others—and vulnerable to them…We’ve entered an era defined by technological competition and energy security. By focusing on electrotech now, countries and companies can navigate the instability of the coming decade with greater resilience. And in doing so, they also lay the foundation for long-term stability, free from climate disaster.”
As I’ve previously written, “Some argue the transition to clean energy will be slow. They would prefer policymakers focus on enabling increased production and use of Canada’s oil and gas resources, citing ever-growing global demand. But increasingly, energy analysts are forecasting a future, based on current market trends, that paints a very different picture with sweeping implications for Canada….The risk to Canada, then, is that we continue to pay short shrift to the opportunities at hand—in critical minerals, batteries and other technologies, and clean and renewable electricity—in favour of trying to prop up the viability of our oil and gas sector. That we focus on the sunset, rather than the sunrise.”
This won’t be an easy conversation, but it’s a necessary one.
This piece was originally published in Business in Vancouver.
By Dan Woynillowicz & Madeleine McPherson
If you tune into the news or are active on social media, odds are you’ve seen a growing number of stories questioning whether B.C. has enough electricity and suggesting government needs to ease off on policies and programs that encourage businesses and British Columbians to electrify, switching from fossil fuels to clean electricity.
In recent months several organizations have popped up to actively push this narrative, publishing analysis aimed at raising alarm about whether B.C.’s grid is up to the challenge of substituting clean power for fossil fuels. While they claim concern about climate change, their actions and advice make their intention clear: to preserve and perpetuate the market share for oil, natural gas, and the vehicles and furnaces that burn them.
The B.C. Coalition for Affordable Dependable Energy (BCCADE)—which advocates for the continued use of natural gas—has been promoting an analysis of the implications of replacing the natural gas currently used in residential and commercial buildings with electricity. For starters, this isn’t something prescribed by any provincial or municipal policy, but even if it was their calculation—that the province would require 41,100 gigawatt hours (GWh) of additional electricity generation—is simply wrong. Regrettably, this analysis falls victim to something called the primary energy fallacy, which fails to account for the efficiency gains from electrification.
While gas furnace efficiency ranges from 80 to 90 percent, an electric heat pump is, conservatively, more than twice as efficient. Similarly, an electric hot water tank is around 30 percent more efficient than its gas equivalent. When you factor in these significant efficiency gains, total energy requirements for residential and commercial buildings drop; replacing current natural gas use would require about 20,000 GWh of additional electricity generation—just half the amount touted by BCCADE.
Which brings us to the ongoing efforts of the Energy Futures Institute, an initiative of Resource Works, to raise the alarm about whether B.C. has sufficient electricity in the near term, let alone in an electrified future. To spark public anxiety, the Institute has focused on BC Hydro’s recently increased reliance on electricity imports—precipitated by drought conditions—while mostly ignoring BC Hydro’s procurement of additional supply (which will be repeated every two years), and publishing research that overestimates future demand from electric vehicles (EVs) by at least double.
First, it’s important to acknowledge that BC Hydro is adapting to two realities: the growing impacts of climate change and growing demand for clean electricity to help tackle climate change through electrification. It’s why BC Hydro is continuously monitoring and adapting its operations as new climate science emerges, while procuring additional supply contracts every two years. BC Hydro’s current call for power received proposals for triple the amount of electricity it is seeking, with 21 proposals from independent power producers with projects in almost every region: 8 from the southern Interior, 4 from the central Interior, 5 from the north coast, 2 from the Peace Region & 2 from Vancouver Island. Wind, solar and batteries can be built quickly and technology costs have been dropping over the last decade as global production has increased exponentially: by 90 percent for solar, 70 percent for onshore wind, and more than 90 percent for batteries. Paired with the province’s flexible hydro reservoirs, B.C is well positioned to increase their role in delivering reliable, affordable clean power.
Second, B.C.’s recent reliance on electricity imports—and its longstanding electricity trade with our neighbours, whose profitability has helped keep rates low—shouldn’t be seen as a liability, but a benefit. Numerous studies have concluded that interties linking provinces and states are more reliable, resilient and affordable. For example, forthcoming research finds that more electricity trade with Alberta would reduce capital costs for new generation, reduce GHG emissions and strengthen resilience.
Fomenting the fear that B.C. doesn’t have enough power and leveraging that fear to argue the province should do less to tackle climate change does a disservice to British Columbians. It doesn’t enrich but diminishes the dialogue that we need to have in B.C. about how we produce and use energy.
British Columbians deserve less heat and more light in this discussion. Or put more simply, less fear-mongering and more facts.
Dan Woynillowicz runs Polaris Strategy and Insight, advising companies, organizations and governments on strategy and policy to navigate climate change and the transition to clean energy.
Madeleine McPherson leads a research team at the University of Victoria focused on modelling the transition to a clean energy system, and co-creating pathways with stakeholders from civil society, government, and industry.
This was originally published in Business in Vancouver.
With a provincial election looming, pollsters are trying to tease out the public mood and the issues that might dominate at the ballot box. By significant margins, the top three issues on the minds of British Columbians are cost of living (64 percent), health care (51 percent) and housing affordability (41 percent). Meanwhile, climate change and the environment has fallen from being identified as a top issue by 30 percent of British Columbians during the 2020 election to just 18 percent, according to polling by the Angus Reid Institute.
Climate change gets lumped in with “the environment,” which seems logical enough. After all, it’s caused by carbon pollution, and it impacts everything from rivers to forests and wildlife. But narrow-casting climate change as an environmental issue fails to reflect the systemic impacts already being felt by British Columbians due to climate change. In fact, the top tier issues of cost of living, health care and housing affordability are all being made worse due to climate change.
Let’s start with cost of living. Back in 2022 when gasoline prices jumped by 73 cents per litre, on average, the province’s carbon tax was an easy target for blame. But according to a recent analysis 96 percent—or 70 out of the 73 cent price increase—was driven by the global oil market. While opponents made great hay out of blaming the carbon tax for “driving up the cost of everything,” another analysis by University of Calgary economists concluded “climate policies are not a significant driver of the rising cost of living. Nor will removing policies such as carbon pricing materially improve the situation.” Highlighting the impact on grocery prices in B.C. they found that “the latest estimates from Statistics Canada suggest carbon taxes increased the average cost of food by about 0.33 per cent relative to what they would be in the absence of carbon taxes. That’s the entire effect.” That’s 33 cents on a $100 grocery bill.
Meanwhile, the Bank of Canada has noted that climate change-fuelled extreme weather “has been one factor driving up food prices in Canada.” A lot of food on Canadian grocery store shelves comes from California and Mexico, both of which have seen negative impacts on harvests due to weather. Similarly, when severe heat and drought impacts Canadian grain harvest, that drives up the price of not only a loaf of bread, but meat, too. Similarly, declining harvests of oranges and olives are driving up the cost of juice and olive oil.
Looking to point the finger for inflation? Try fossil fuels and the climate change that results from burning them.
Health, healthcare and climate change similarly collide. A recent Health Canada report explored the myriad health impacts of climate change resulting from rising temperatures and extreme heat, wildfires, and the expansion of zoonotic diseases into Canada, while also highlighting how these are not just future concerns, but impacts already being experienced today. These kinds of health impacts have a knock-on cost to Canada’s healthcare system in the billions of dollars, while also reducing economic activity by tens of billions of dollars over the coming decades.
While the linkages to climate change may not seem quite as clearcut when it comes to housing affordability, there are numerous interactions. A lack of affordable housing in cities encourages urban sprawl, forcing households into the suburbs and exurbs, which are typically underserved by public transit, meaning more driving (and the resulting fuel bills and emissions). Meanwhile, more frequent and intense extreme weather events including wildfires and atmospheric rivers—made more likely by climate change—can further strain the need to build (or rebuild) housing and infrastructure, driving up material and construction costs, while also making house insurance more limited and more expensive.
Cost of living, health care and affordable housing are all very real, very acute issues that British Columbians are experiencing directly. But it’s clear that a changing climate is making them worse, and rolling back climate action will only deepen these and other challenges. If you want solutions to issues like the cost of living, health care, housing affordability, food security or a whole host of other issues, then continued action to cut carbon pollution is a pre-requisite, not a nice-to-have.
Because climate change isn’t just another political issue, it’s an era.
Hardly a week goes by these days without a headline documenting a big new investment in the energy transition. Recently, it was Ontario’s turn, with Honda Motor Co. announcing a historic $15 billion commitment to build a comprehensive electric vehicle supply chain from start to finish.
It was another welcome proof point that Canada can compete and win as the global shift to a clean economy continues to ramp up, and evidence that our success doesn’t hinge on government subsidies alone. In fact, our relative predictability and, well, boringness, offer skittish investors safe harbour in a global sea of uncertainty.
Canada isn’t simply a go-to location for these types of big projects because of government support. In fact, Honda will receive less support for this project than it would if it were located in the U.S. Asked why it chose Canada, Honda Motor Co.’s president referenced access to critical minerals, a clean electricity supply, a strong workforce and overall confidence in the Canadian electric-vehicle ecosystem.
Beyond these tangible benefits, there is also the intangible: stability and predictability in an increasingly volatile world. As Chris Bataille, an adjunct research fellow at the Columbia University Center on Global Energy Policy, quipped, “One of the things that people keep missing about Canada is that while we’re not cheap, our rule of law and economic and political stability – i.e., our boringness – are normally second to none. That’s important in global finance, where investment risk drives everything.”
In other words, Keep Canada Boring.
The stakes are high, and the competition is fierce. Last year, investors poured nearly $2 trillion into clean-economy projects around the world. This staggering figure illustrates how markets and investors are responding to demand for materials, products and technologies made by sectors powered by clean energy and technologies.
In recent years, China, the United States, and Europe have all introduced aggressive policies and incentives in a bid to seize as much of the clean-economy prize as possible. In response, Canada has followed suit by playing to its strengths, implementing a suite of policies to build our EV market – consumer rebates, an EV supply regulation, and funding to build EV-charging infrastructure. Canada has also introduced industry incentives to supply our home market with made-in-Canada EVs, including the batteries and low-carbon steel that go into them.
These efforts are bearing fruit. Recent analysis found that Canada’s low-carbon exports have more than doubled in value over the past decade, reaching over $38 billion last year. Leading the way are exports in clean transportation, which rang in at close to $9 billion, double the value exported in 2022. This trend will undoubtedly continue, considering that Canada has now attracted a cumulative total of more than $46 billion invested in the EV assembly and battery supply chain since 2020. More production and more exports mean more jobs and prosperity for Canadians.
But, as recently reported in the New York Times, as political power has swung between the Democrats and Republicans, environmental rules have been subject to “a cycle of erase-and-replace whiplash.” Economists warn that the uncertainty this brings to business is far worse than the regulations themselves. As Marty Durbin, senior vice president for policy at the U.S. Chamber of Commerce, put it, “If the regulatory changes are just whiplash or snapback, it creates a level of uncertainty that makes it very hard to build a vibrant economy.”
Recognizing the degree to which government regulations, policies and programs have been fundamental in establishing Canada’s attractiveness as an investment destination, there’s a very real risk to securing additional projects if these were to disappear or radically change. Preserving our advantage requires that Canada doesn’t succumb to the wild policy pendulum swings that have become the norm south of the border.
No matter the partisan stripe, any government in Canada – federal or provincial – can and should recognize that we have what it takes to be competitive as markets re-orient towards net zero: a clean and growing electricity grid, an abundance of the metals and minerals the world needs, strong trade relationships providing access to global markets, robust regulatory frameworks, the innovative and entrepreneurial mindset of Canadians, and Indigenous economic reconciliation in action.
Leveraging these advantages, and coupling them with policy stability and certainty in a world where these are increasingly rare commodities, can ensure a resilient, prosperous economy for all.
So, in the spirit of short, snappy slogans: Keep Canada Boring to Keep Canada Competitive.
The following essay was originally published as part of Policy magazine’s Road to 2025 series.
“Every election is a climate election.”
Far from being just a slogan, this refrain reflects the reality that society’s reckoning with climate change is destined to span not just successive election cycles, but multiple decades. Still, political and policy leadership will continue to dictate the level of effort (or lack thereof) made to pivot away from burning fossil fuels, aggressively reduce carbon pollution, and avert the worst possible outcomes of climate change.
But what if we consider climate change as not just another election issue, but as one that cuts across all other issues? What if, as futurist Alex Steffen does, we acknowledged that “Climate change is not an issue but an era”?
To compartmentalize climate change as an environmental issue misrepresents the scope and scale of how it is already impacting — and will increasingly impact — most facets of our human existence. Indeed, in some cases, the very solutions that will help us combat climate change can also serve to address or alleviate other issues.
But beyond the next election outcome’s implications for these efforts, there’s also a question about the role that climate change might have in shaping the outcome itself. Currently, pundit prognostication suggests that climate change, as an issue, won’t have much bearing on the next federal election. Recent public opinion research backstops this view.
Polling by Abacus Data exploring the top three most important issues facing Canada today found the rising cost of living as the most cited, identified by 72% of respondents. Housing affordability and accessibility (50%), healthcare (45%) and the economy (35%) followed. Tied for fifth were climate change and the economy, and immigration, identified by 23% of respondents.
Figure 1: Abacus Data poll findings – What are the 3 most important issues facing Canada today?
Carbon tax, cost of living and the transition to clean energy
Let’s start with the rising cost of living, given how dominant it is as an issue of public concern.
While opponents of the carbon tax have made great hay out of blaming it for increasing the price of everything, analysis by University of Calgary economists Trevor Tombe and Jennifer Winter lays this claim to rest. “While concern around affordability is clearly warranted,” they write, “climate policies are not a significant driver of the rising cost of living. Nor will removing policies such as carbon pricing materially improve the situation.” Highlighting the impact on grocery prices in BC, as an example, Tombe and Winter find that “the latest estimates from Statistics Canada suggest carbon taxes increased the average cost of food by about 0.33% relative to what it would be in the absence of carbon taxes. That’s the entire effect.” That’s 33 cents on a $100 grocery bill. Not nothing, but not the smoking gun carbon tax detractors would have people believe.
If governments are going to tackle affordability, they need to focus on the things that are actually making life less affordable. Exploring the drivers of post-pandemic inflation in Canada through its peak in 2022, Dr. Tombe and another University of Calgary colleague, Yu Chen, found (Figure 2) that when Canadian inflation peaked at 8.1% in June 2022, higher energy prices were responsible for nearly one-third of inflation, at 2.6% points (with 1.9% points from gasoline alone). Those energy costs, of course, were shaped by global prices for oil and natural gas, both of which were rising thanks to a robust post-pandemic economic recovery and lagging oil production in key OPEC countries before being turbocharged by Russia’s invasion of Ukraine.
Figure 2: Key Drivers of Consumer Price Inflation in Canada, Jan 2017 to Nov 2022
They also looked beyond the direct effect of energy prices to estimate spillover effects, noting that “Energy, after all, is an important input in the production of many goods and services throughout the economy. Products that are transportation intensive or that require heating or cooling — food, for example, satisfies both these conditions — may be particularly sensitive to energy price increases.” Here again, the findings are significant: items sensitive to oil prices accounted for nearly 60% of Canada’s non-energy inflation in July 2022, and over 85% of the increase since February 2020 (Figure 3).
Figure 3: Contribution of Items Sensitive to Oil Prices to Non-Energy CPI Inflation
In sum: “High energy prices, and the resulting production-cost increases for many other goods and services throughout the economy, may largely explain Canada’s accelerating inflation.”
This shines a spotlight on a key benefit of the transition from fossil fuels to clean energy —escaping the volatility and price spikes that bedevil global oil and natural gas prices. As researchers from the Roosevelt Institute have noted, based on their research, it’s clear that transitioning from fossil fuels towards renewables can help stabilize energy prices for two reasons: “First, renewable energy will bring the majority of energy consumption into the electricity sector, a highly regulated sector that has historically produced stable energy prices. Second, renewables prices are inherently stable compared with fossil fuels.”
While critical mineral inputs and supply chain snags can affect the capital cost of wind turbines or solar photovoltaic (PV) panels, the reality is once these technologies are installed the cost is fixed. Unlike a coal or gas plant, their fuel — the wind and sun — is free. And the more we plug into a clean power grid — to fuel electric vehicles and meet heating and cooling needs with heat pumps — the more we can reduce reliance on oil and gas and minimize exposure to their price fluctuations. As an Oxford study concluded, “Compared to continuing with a fossil fuel-based system, a rapid green energy transition will likely result in overall net savings of many trillions of dollars — even without accounting for climate damages or co-benefits of climate policy.”
Climate considerations in housing affordability and health care
What about housing affordability and climate change? While the linkages to climate change may not seem quite as clearcut, there are numerous intersections and how policymakers tackle this issue has the potential to increase, lock-in, or reduce carbon pollution and homeowner costs.
A lack of affordable housing in cities encourages urban sprawl, forcing households into the suburbs and exurbs, which are typically underserved by public transit, meaning more driving (and the resulting fuel bills and emissions). Meanwhile, more frequent and intense extreme weather events — made more likely by climate change — can further fuel the need to build (or rebuild) housing, driving up costs, while also making house insurance more limited and more expensive.
As the Affordability Action Council has noted, “Every residential building that is built between now and 2050 without the net-zero target in mind will create a liability down the line that someone will have to pay for. While retrofits generate multiple benefits, it is much cheaper to build new housing that meets a net-zero standard than it is to retrofit buildings.” Which is why they recommend a multi-faceted approach to new housing that focuses on affordability as well as convenience, resilience and energy efficiency, with energy costs and net-zero climate goals in mind.
While some politicians may position climate action and housing affordability as a trade-off, polling by Abacus Data found that 62% of Canadians believe that it is important to address the housing affordability issue without compromising Canada’s climate goals. Similarly, 78% believe it’s important to build housing in ways that minimize pollution contributing to climate change, and 84% believe it’s important to develop new housing in a manner that is resilient to climate change impacts. The linkages between climate change and housing affordability are clear, as are Canadians’ expectations.
Health, health care and climate change similarly overlap. A recent Health Canada report explored — in great detail — the myriad health impacts of climate change resulting from rising temperatures and extreme heat, wildfires, and the expansion of zoonotic diseases into Canada, while also highlighting how these are not just future concerns, but impacts already being experienced today. As a resident of BC, I am still struck by the impacts of the climate change-fuelled heat dome and catastrophic flooding in the province in 2021, in which 600 people lost their lives and many more suffered.
The Canadian Climate Institute has similarly documented how the health impacts of climate change will have a knock-on cost to Canada’s health care system in the billions of dollars, while also reducing economic activity by tens of billions of dollars over the coming decades.
Clearly, measures that make our communities more resilient to a changing climate —whether that be to extreme weather, fire or floods — and that reduce air pollution will help address the health impacts on Canadians and costs to our already-struggling health care system.
It’s the economy, stupid
Last, but certainly not least, is the economy. While there is still considerable attention paid to the potential economic implications for Canada’s oil and gas sector from aggressive climate action, global markets are quickly re-orienting towards the economic opportunities of the energy transition. What if that’s the lens through which federal parties’ economic platforms are considered in the next election?
According to BloombergNEF, 2023 saw record-breaking investment in the energy transition (Figure 4). Nearly US$1.8 trillion of capital flowed into the global clean energy transition, up 17% relative to 2022 and more than three times more than in 2019. In Canada, the installed capacity of wind, solar and energy storage grew by 11.2% in 2023, reaching a new total of 21.9 GW, according to data compiled by the Canadian Renewable Energy Association. Perhaps ironically, 92% of that growth occurred in Alberta, as the provincial government’s moratorium on renewable energy approvals didn’t impact already-approved projects from coming online.
Figure 4: Global investment in energy transition, by sector
Note:Start years differ by sector but all sectors are present from 2020 onwards. Most notably, nuclear figures start in 2015 and power grids in 2020. CCS refers to carbon capture and storage.
But the energy transition sector that has featured most significantly in Canada is electrified transport and the battery supply chain. Over the past couple of years hardly a month has gone by without a significant investment in Canada’s battery and electric vehicle manufacturing and supply chain — including Volkswagen, Stellantis, Ford, General Motors, Umicore, LG Energy Solutions, Posco Future M Co Ltd and more. It’s notable that almost all of these investment decisions referenced Canada’s clean electricity supply as a key factor in their decision to invest here.
An analysis by the Future of Canada’s Automotive Labourforce (FOCAL) initiative found that in a scenario with widespread consumer acceptance of EVs and continued efforts to secure additional EV production mandates, Canada’s automotive manufacturing industry would see a significant increase in its assembly capacity to over 1.7 million vehicles by 2040. With growth in the battery supply chain — and critical mineral production and processing to supply it — the analysis found that that more jobs would be created in assembly, battery production, and mining than would be lost in internal combustion engine and powertrain production, with a net economic gain over $50 billion and close to 100,000 jobs created.
The success to date in attracting investments is the result of federal, provincial and municipal collaboration. Together, their efforts have led to Canada leapfrogging China to secure the top spot in BloombergNEF’s global lithium-ion battery supply chain ranking, which looks at each country’s potential to build a secure, reliable and sustainable supply chain for lithium-ion batteries . According to BloombergNEF, Canada’s consistent manufacturing and production advances, strong ESG credentials, policy commitment at both the provincial and federal level and integration with the US automotive sector (which is benefiting from the US Inflation Reduction Act), have helped us become a leader in forming the battery supply chains of the future (Figure 5).
Figure 5: BloombergNEF’s global lithium-ion battery supply chain ranking
This success didn’t happen by accident, nor is future success assured. Durable government policy (and not just dollars) is critical, a message that leaders of all political parties, federal and provincial, need to consider. As BloombergNEF noted, “The rankings reflect only developments in 2023, and that actions by other countries in this competitive market – or future inaction on the part of Canada – could result in upsets in the years ahead. Across all the metrics, it’s a race where in a year where you decided to do nothing, other people bypass you.””
As I’ve previously said, “The risk to Canada, then, is that we continue to pay short shrift to the opportunities at hand—in critical minerals, batteries and other technologies, and clean and renewable electricity — in favour of trying to prop up the viability of our oil and gas sector. That we focus on the sunset, rather than the sunrise.”
The stakes in the next federal
Canadians deserve political discourse grounded in the reality that it is neither too late or too futile to act, but that we are not progressing quickly enough. While it’s easy to be cynical about efforts to date, especially as the direct impacts of climate change arrive at our doorstep with greater frequency and ferocity, analysis of the federal government’s 2030 Emissions Reduction Plan by the independent Canadian Climate Institute (Figure 6) concluded that current and proposed policies can deliver 85 to 90 per cent of Canada’s 2030 target.
Figure 6: Canadian Climate Institute modeling of Canada’s emissions pathway
In fact, the whole world has made significant strides forward. As David Wallace-Wells has documented, “Thanks to astonishing declines in the price of renewables, a truly global political mobilization, a clearer picture of the energy future and serious policy focus from world leaders, we have cut expected warming almost in half in just five years.”
This isn’t to suggest we are making progress quickly enough, or even that the success of current policies and approaches is guaranteed. If we are to lock-in progress to date and build on it, it’s clear that we will need ongoing and enhanced policy leadership. With the 2020s unfolding as the “decisive decade” for climate action the bottom line is quite simple:
Policy matters. Politics matters. And every election matters.
In Canada, the 2015, 2019 and 2021 federal elections were all — in hindsight if not evidently at the time — climate elections. In both the 2019 and 2021 elections, climate change was the top election issue, according to polling by Angus Reid.
Floods, wildfires, hurricanes and other extreme weather events to come may yet bump climate change, as an issue, up voters’ priority list. But as documented above, efforts to avoid the worst outcomes of a changing climate aren’t just about the environment. The impacts of climate change cut across top of mind issues from affordability, to housing and healthcare, as do the solutions.
While some politicians might prefer a “carbon tax election,” for obvious reasons, such a narrow consideration of climate change would do a disservice to Canadians. Whether affordability, housing or health care are their ballot box concern, the spectre of a changing climate — and how we confront the challenges and seize the opportunities of that change — needs to be discussed and debated.
It’s time for federal politicians — of all political stripes — to approach climate change for what it is: not an issue, but an era.
Contributing Writer Dan Woynillowicz is the Principal of Polaris Strategy + Insight, a public policy consulting firm focused on climate change and the energy transition.
My comments today centre on the need to ensure that policymaking is grounded in credible analysis, and an understanding that successfully navigating this transition requires that we keep our eyes on the road ahead, not fixed on the rear-view mirror.
Some argue the transition to clean energy will be slow. They would prefer policymakers focus on enabling increased production and use of Canada’s oil and gas resources, citing ever-growing global demand. But increasingly, energy analysts are forecasting a future, based on current market trends, that paints a very different picture with sweeping implications for Canada.
I’d like to draw your attention to a forecast released last week by DNV, global experts in assurance and risk management. As they put it, “Unlike most energy forecasters, DNV does not develop scenarios…our analysis produces a single ‘best-estimate’ forecast of the energy future.”
In this ‘best-estimate’ forecast they foresee that coal, oil, and gas will each begin an inescapable decline before the end of this decade. Particularly material for Canada are the implications for oil and gas. Oil demand tips from growth to decline in 2027 as electrification of road transport accelerates. Global demand for gas also peaks in 2027, plateaus for a decade and then declines.
But it is their forecast for North American oil and gas production that is particularly noteworthy, and in stark contrast to what you might hear about on the news or as members of this committee. North American oil is foreseen plateauing at around 17 million barrels per day until 2024, then declining to 7 million barrels per day in 2050. North American gas production peaks in the 2020s and declines to 2030 and beyond. Liquefaction capacity to produce LNG in North America is forecast to peak in 2030 and plateau. These declines are faster and steeper in net zero scenarios—in which the world succeeds in limiting warming to 1.5 degrees Celsius—whether produced by DNV, the International Energy Agency, or even Shell and BP.
A passage of dialogue from Ernest Hemingway’s 1926 novel, The Sun Also Rises seems particularly relevant to this future:
“How did you go bankrupt?” Bill asked.
“Two ways,” Mike said. “Gradually, and then suddenly.”
The flip side of this is the extent to which deployment of clean energy is and will continue to accelerate. The key technologies for achieving net zero— solar, wind, batteries, heat pumps and green hydrogen—are not and will not grow on a linear basis, but are following an S-shaped, exponential curve driven by self-reinforcing feedback loops that accelerate their cost reductions and scaling.
The risk to Canada, then, is that we continue to pay short shrift to the opportunities at hand—in critical minerals, batteries and other technologies, and clean and renewable electricity—in favour of trying to prop up the viability of our oil and gas sector. That we focus on the sunset, rather than the sunrise.
There is a very real opportunity cost when it comes to the efforts of policymakers and the spending of public dollars, neither of which are limitless. To achieve net-zero we need to target public policy and spending to help shift capital from fossil fuel to clean energy investment at a ratio of $4 invested in clean energy for every $1 invested in fossil fuels in this decade.
The key takeaways for the committee to consider are:
First, that we need to prepare for a net-zero future in which the oil and gas sector will not be growing and proactively manage the implications—to communities, workers, and government revenue—while ensuring the sector responsibly reduces its emissions and manages its environmental liabilities.
And third, that we don’t attempt or aspire to simply mirror the IRA and our American neighbours, but surgically select those sectors and opportunities in which Canada can compete and win throughout the energy transition.
The summer of 2023 is, according to scientists, what climate change looks like. Heatwaves that test the limits of human survival. Wildfires and floods whose damage isn’t just measured in dollars, but lives and livelihoods lost. Droughts that jeopardize food production. These climate change-fuelled extreme weather events weren’t isolated to a few countries or continents this year but were ubiquitous. Whether at home or on holiday, more and more of us were directly experiencing the consequences of climate change.
We have entered a new era in which the impacts of climate change aren’t some distant threat, but a lived experience—an experience that will catastrophically intensify absent greater effort to cut carbon pollution and pivot away from fossil fuels. And so, in our current era, every election is a climate election.
What’s at stake in the U.S election?
It’s far from hyperbole to say that President Joe Biden’s efforts to scale up the United States’ fight against climate change have been a game changer. And whether to build on these efforts or tear them down is very clearly on the ballot.
The Inflation Reduction Act (IRA), passed in the summer of 2022 without a single Republican vote, is expected to deliver at least US$369 billion in support for climate and clean energy solutions over the next decade. Goldman Sachs believes that figure will be much higher, as much as US$1.2 trillion.
Just one year in, the results of the IRA are impressive. According to data compiledby the American Clean Power Association, by August 2023 federal support from the IRA had spurred the announcement of US$271 billion of private investment in domestic clean energy projects and manufacturing facilities—more than the combined clean energy investments of the previous eight years. Together, these investments are projected to deliver 185 gigawatts (GW) of of new utility-scale clean energy capacity (to put this in context, Canada’s entire electricity capacity is 154GW), US$4.5 billion in consumer savings, 29,780 new manufacturing jobs, and more than US$22 billion in manufacturing investment in 83 new or expanded utility-scale clean energy manufacturing facilities. A similar acceleration and scaling up of investment in electric vehicle (EV) manufacturing, battery production, hydrogen and carbon capture and storage (CCS) is also occurring. As Jesse Jenkins, a Princeton professor who has been leading analysis of the IRA, says, “It seems like every week there’s a new factory facility somewhere.”
While the domestic impacts of the IRA are impressive enough on their own, they’ve gone well beyond American borders. For example, the European Union — seeing the IRA for what it is, not just environmental policy but strategic industrial policy —responded with its Green Deal Industrial Plan, aimed at enhancing the competitiveness of its net-zero industry and accelerating its transition to net zero. Here in Canada, the federal government responded with $80 billion worth of new measures to spur low-carbon innovation and deployment, aiming to build on its climate policy framework with targeted support for clean electricity, clean-tech manufacturing (especially in battery production and its supply chain), hydrogen and CCS. Other nations — including China, Japan and South Korea — are making similar moves.
As the head of the International Energy Agency (IEA), Fatih Birol, put it: “I want to make it clear: the Inflation Reduction Act is the single most important climate action since the Paris Agreement in 2015.” But will the US stay in the race to net zero or pull up lame? That depends on 2024.
Shaping the climate ballot question
For President Biden and the Democrats, the IRA isn’t just about fighting climate change. It’s about reviving the Rust Belt, bringing manufacturing jobs back to American soil and spurring new innovation and industries that will not only deploy clean technologies at home, but which can be sold to the world. In Biden’s own words, “When I hear ‘climate’, I think jobs. Good-paying, high-quality jobs that will help speed our transition to a green economy of the future and unleash sustainable growth.”
It just so happens that most of the IRA-induced investment — and the jobs that come with it — will occur in red states (Figure 1). According to Bloomberg, the White House estimates that red states will attract US$337 billion in investments for large solar, wind and storage projects through 2030, compared toUS$183 billion into blue states. But this isn’t vote-buying by a Democratic President, it’s a function of where the nation’s best wind and solar resources are. Some analystssuggest, optimistically, that we’ve seen Republicans soften their opposition to climate change and that, over time, we could see a fading of their default support for fossil fuels and default opposition to renewables as a result of the IRA.
Clearly, the Democrats want “climate jobs” not “climate change” to be a ballot question.
Figure 1: More IRA Money Is Set to Flow to Red States (Bloomberg)
While it’s possible voters in these red states might come around in their support for the IRA — driven by the economic benefits more so than the climate benefits — it’s clear that the Republican establishment has no such inclination.
Leading Republican presidential primary contender and former President Donald Trump has said he would end “Green New Deal atrocities” on his first day. Similarly, Governor Ron DeSantis of Florida has said he wants to “rip up Joe Biden’s Green New Deal.” On Capitol Hill, Republican lawmakers have been using everyopportunity to try to kneecap or rescind the clean energy components of the IRA.
Conservative think tanks — led by the Heritage Foundation — have laid out a planto dismantle President Biden’s climate efforts as part of Project 2025, a “battle plan” for the first 180 days of a Republican administration that would see the IRA repealed alongside the shredding of “regulations to curb greenhouse gas pollution from cars, oil and gas wells and power plants, dismantling almost every clean energy program in the federal government and boosting the production of fossil fuels.” The plan has been delivered to every Republican presidential hopeful.
The Republicans want fighting “green woke-ism” — and the “woke agenda” more broadly — to be the ballot question.
Campaign crystal ball
In June, a poll of Americans found that 24 percent had been personally impacted by an extreme weather event in the past 12 months. By August, 62 percent thought that climate change was currently having some or a great deal of impact on their local community.
It seems likely that between now and election day, Americans will continue to experience the impacts of climate change and, increasingly, see the benefits of clean energy investments spurred on by the Biden administration. But what issue will emerge as the ballot question and whether any of this will matter come election day is hardly worth speculating over (Events, dear boy, events!).
But it is worth considering the implications of a Biden versus Republican (whether Trump or DeSantis) presidency in 2025.
A second term for President Biden would see the US stay the course, and almost certainly introduce additional measures and efforts to ramp up climate action, cut pollution, and position the United States to compete in a net zero future. In contrast, a Republican presidency would almost certainly spell the end of any federal climate efforts.
But as witnessed under President Trump, promising to “make coal great again” and doing so are very different things. Thanks to state-led efforts and falling wind and solar power costs, renewable energy investments in the US continued throughout his presidency. Meanwhile, seven major U.S. coal companies claimed bankruptcy and 50 coal-fired power plants closed. The market forces blowing in this direction have only strengthened. Analysts at Bloomberg New Energy Finance say that the clean energy transition is now hard-wired into the US economy. While progress would almost certainly slow, it cannot be reversed.
As for what this means for Canada, it depends very much on the priorities of the prime minister of the day: seize every opportunity to do more, or less, in the race to net zero? In that sense, Canada’s next election will be just as consequential as the US election, because now, every election is a climate election.
This essay was originally published in Policy magazine.
This opinion editorial was co-authored with Bruce Lourie (Ivey Foundation) and Moe Kabbara (The Transition Accelerator) and was published in the Toronto Star.
Premier Doug Ford knows a good deal for Ontarians when he sees one, as he did with the federal daycare and health-care deals. With the recently unveiled federal budget, Prime Minister Justin Trudeau has put another good deal on the table for provinces and territories that make credible commitments to achieving net zero.
Now with the potential to tap into federal funds, Ford can go even further and faster in accelerating the build out of an affordable, resilient, and clean electricity system that powers Ontario’s future economy.
The need to go further and faster has never been more important. In 2022, Ontario’s grid was 90 per cent non-polluting — which is a good news story until you realize that the year prior it was 94 per cent. Near-term electricity supply constraints have pushed the province to procure 1,500 megawatts of new emitting gas-fired power plants. Now that there is new federal support, investments should be made to reverse these recent trends in order to maintain Ontario’s clean energy advantage.
Fortunately, Ford understands the value of Ontario’s clean energy advantage with his recent budget noting that “clean energy has become an economic imperative as companies around the world want to invest in jurisdictions with affordable, reliable and clean energy.” And this advantage is already paying dividends for Ontario.
Take, for example, the hard-won victory of getting Volkswagen to build a “gigafactory” for battery cell manufacturing in St. Thomas. Volkswagen, it should be observed, has a corporate commitment to 100 per cent renewable electricity for all its North American plants by 2030.
And this type of corporate commitment isn’t unique to Volkswagen. Other companies that have recently announced investments in Ontario have similar goals and have taken note of Ontario’s clean energy advantage:
Stellantis/LG, in announcing its $5 billion battery manufacturing Windsor plant, praised Canada’s “leadership in the generation of electricity from renewable sources.”
Umicore’s plans for a manufacturing facility for cathode active battery materials was even more effusive, noting Ontario “offers critical advantages such as access to a highly skilled workforce, key infrastructure and renewable energy, which the new plant will be running on 100 per cent from start of production.”
Magna, which recently unveiled plans to invest $471 million into six facilities in Ontario — including $265 million toward a new battery enclosure facility in Brampton — is committed to net zero operations by 2030 and wants to transition all operations to renewable power.
The Ontario government has responded to these investments with the Clean Energy Credit Registry to enable companies to fulfil their climate commitments by purchasing 100 per cent clean electricity. Proceeds from the program will fund new clean energy investments.
Yet this program must go even further by ensuring the purchased credits come from new clean electricity generation, rather than recycled credits from existing generation. Such an improvement would increase the confidence of companies, which are facing ever-greater shareholder scrutiny around whether their deeds match their words and demonstrate to the federal government that Ontario has a robust commitment to a net zero grid.
Now with the federal government’s new clean energy support, there is no reason for Ontario not to pursue the investments needed to fully decarbonize the grid and to attract more companies to the province.
By demonstrating the province’s commitment to clean energy, Ontario can leverage federal funds to help continue attracting companies committed to net zero, ensuring a competitive economy and good jobs for Ontarians.
This essay was originally published in the May-June edition of Policy Magazine.
It’s been more than a year since Russia invaded Ukraine, precipitating a range of regional and global crises, not the least of which is “the first truly global energy crisis.” It has disrupted both energy supply and demand, resulting in energy price spikes, while damaging and shifting longstanding trading relationships.
As a result, we are confronted by new questions about the prospects for a global shift from fossil fuels to clean energy to combat the climate crisis: will a renewed focus on energy security slow or accelerate the energy transition? And what will this mean for global efforts to cut greenhouse gas (GHG) emissions?
To answer these questions and understand the implications, we must do our best to cut through the “fog of war” that has descended on the energy transition. As Carl von Clausewitz, a 19th-century Prussian general, said: “War is the realm of uncertainty; three-quarters of the factors on which action in war is based are wrapped in a fog of greater or lesser uncertainty. A sensitive and discriminating judgment is called for; a skilled intelligence to scent out the truth.”
To say the state-of-play on the energy transition has been dynamic is an understatement, but it is possible to cut through the fog and see where things stand, where we’re headed, and what it might mean for Canada.
According to an analysis by BloombergNEF, last year marked the first time that as much money was invested in replacing fossil fuels as in producing more coal, oil and gas, with each garnering around US$1 trillion (Figure 1). On the clean energy side of the ledger, this was a 31 percent increase over investment in 2021. The biggest recipients of this capital were solar and wind (US$495 billion, up 17 percent) followed close behind by electric vehicles (EVs) (US$466 billion, up 54 percent). As for where this capital was deployed, nearly half (US$546 billion) was in China. If European countries are considered together, they tallied US$180 billion, and the US was home to US$141 billion.
Figure 1: Global investment (US$) in energy transition by sector, BloombergNEF
The energy transition investment total increases if you add investments in expanding and strengthening power grids (US$274 billion), clean energy supply chains and manufacturing (US$79 billion), and the $119 billion raised by clean-tech companies in equity financing. All included, investments driving the energy transition topped US$1.6 trillion last year.
Globally, wind and solar accounted for a record 12 percent of global electricity in 2022, and power sector emissions may have peaked, according to the think tank Ember. Drilling down into some specific examples, by the end of 2022 India was home to 199 gigawatts (GW) of wind and solar capacity (for context, Canada’s entire electricity system is about 150 GW), and they have announced plans for tendering 50 GW of renewable energy capacity per year for the next five years (i.e. adding up to 250 GW). Japan and South Korea both re-visited their energy plans in light of evolving energy markets and their own net-zero commitments and now aim to reduce reliance on both coal and LNG while boosting nuclear and renewable energy capacity. Electric vehicle adoption is taking off too, fueled by more selection (in 2022 more than 300 models were on offer), and by the end of 2022 a cumulative total of 27 million EVs were on the road, displacing more than 1.6 million barrels per day of oil in 2022, according to BloombergNEF.
With this progress, even if incremental, the delayers, who say climate solutions are too expensive, and doomers, who say it’s too late, can safely be discounted. As the International Energy Agency has found, while carbon dioxide (CO2) emissions grew by 0.9 percent in 2022, the rise in emissions was well below global GDP growth of 3.2 percent and would have been three times higher had it not been for strong growth in clean energy.
It seems quite evident that the war in Ukraine, like the COVID-19 pandemic, won’t derail the energy transition. To the contrary, European leaders have found a solution to their energy trilemma — achieving energy sustainability, affordability, and security — and it isn’t LNG, it’s a decarbonized energy system.
As European Commission President Ursula von der Leyen put it, “The quicker we switch to renewables and hydrogen, combined with more energy efficiency, the quicker we will be truly independent and master our energy system.” Within weeks of the Russian invasion, the EU unveiled the REPower EU Plan, which took the previous target of a 25 percent cut in natural gas use by 2030, relative to 2020, and more than doubled it to 56 percent. And the plan is working. Take heat pumps, for example, which replace gas boilers. In 2022, Europe led the world with 41 percent growth in heat pump sales (compared to global growth of 11 percent), with nearly three million sold. It seems Putin has done the near-impossible: make heat pumps sexy.
It seems quite evident that the war in Ukraine, like the COVID-19 pandemic, won’t derail the energy transition. To the contrary, European leaders have found a solution to their energy trilemma — achieving energy sustainability, affordability and security — and it isn’t LNG, it’s a decarbonized energy system.
Closer to home, the passage of the Inflation Reduction Act (IRA) in the United States—perhaps better thought of as the Industrial Revolution Act — will not only transform the American energy system, it will cause ripple effects around the world. With an estimated public investment of US$400 billion — in the form of tax incentives, loans, and grants — the IRA is expected to drive more than $1 trillion in private investment into the production and deployment of clean energy solutions, including (but not exhaustively) renewable energy, batteries, EVs, more efficient consumer appliances, hydrogen, and carbon capture and storage.
The head of investment at Bill Gates’ Breakthrough Energy Ventures, a climate solutions investment fund, said the IRA would lead to the creation of 1,000 new companies; 100,000 jobs were created in the six months since its passage on the way towards an estimated 9 million jobs. Hardly a week goes by without an investment announcement with links back to the IRA. Clichés like “game-changer” and “tipping point” are not overstatements. As Melissa Lott, director of research at Columbia University’s Center on Global Energy Policy, summed it up: “It is truly massive. It’s industrial policy. It’s the kitchen sink. It’s a strong, direct and clear signal about what the US is prioritising.”
Here in Canada, the course the federal government (but not all provincial governments) is charting is clear, as evidenced by its clean energy-oriented spring budget — effectively designed to compete with the IRA in a significant but targeted way — and ongoing efforts to secure new net zero-aligned industrial investments. Canada can and must compete and collaborate with our allies, most notably the Europeans and Americans. There is good reason to be bullish, and to double down: we have a head-start with our relatively clean electricity system and numerous renewable energy and technology options for its necessary expansion; we have the critical minerals needed for the energy transition and rank second in battery supply chain competitiveness, and we are home to entrepreneurial innovators, including the dozen companies that made the 2023 Global Cleantech 100 list.
Looking to the future, it’s clear that countries are poised to continue making progress in their efforts to pivot to clean energy and reduce GHG emissions, with implications for coal, oil and gas. As Fatih Birol, head of the IEA, wrote, “Russia’s efforts to gain political and economic advantage by pushing energy prices higher have spurred a major response by governments — not just in the EU but in many countries around the world — to speed up the deployment of cleaner and more secure alternatives.” As a result, projections in the IEA’s flagship annual World Energy Outlook released in late 2022 are already out of date. Where it foresaw, for the first time, a peak in fossil fuel demand before the end of the 2020s, the agency’s newest data indicates that peak is moving even closer.
In the face of this optimism, it must be acknowledged that not every country or company is headed in the right direction, nor is the flight path to net zero emissions by mid-century likely to be a smooth one. While clean energy investment now matches fossil fuel investment, BloombergNEF finds that the investment ratio needs to be 4:1 (Figure 2) to ensure an orderly transition, in which growing clean energy supply offsets the required decline in fossil fuel supply. The Royal Bank of Canada, whose CEO advocates for an “orderly transition” is only achieving a ratio of 0.4:1.
Figure 2: Range of decadal energy supply investment ratio, 2001-2050, BloombergNEF
There are and will be challenges (see: critical mineral supply), setbacks (see: high natural gas prices perpetuating reliance on coal-fired power in Pakistan), and deviations from the transition (see: BP, Shell and Exxon backing off their climate targets). Such is the turbulence of transitioning to new supply chains, the power of path dependency, and the constraints on incumbents.
But the momentum towards net zero is building — 128 countries representing 88 percent of emissions, 92 percent of GDP and 85 percent of the world’s population have made net zero commitments — and the technology and investment trendlines are clear: the energy transition is accelerating. As the IEA’s Birol notes, “With this in mind, the push by some companies and governments to build new large-scale fossil fuel projects is not only a bet against the world reaching its climate goals — it is also a risky proposition for investors who want reasonable returns on their capital.”
The challenge for Canadian policymakers, business, and finance leaders — for our climate performance and economic competitiveness — is to decide where to place our bets, which will determine where we find ourselves when the fog of war on energy transition finally lifts.
The recent visit to Canada by the Japanese Prime Minister sparked the latest round of debate about the prospects for increasing Canadian LNG production and export.
According to LNG champions, “Canada definitely has a business case for LNG.” The basic premise is that increasing LNG exports from Canada can help wean Japan off Russian gas and cut greenhouse (GHG) emissions by replacing coal. A win for the energy security of an ally, and a win for the climate.
The story goes on to say that Japan might even consider using Article 6 of the Paris Agreement to transfer credits for their GHG emission reductions to Canada, which could count towards achieving Canada’s 2030 target and offset the additional GHG emissions from producing and liquefying more gas. Win-win-win!
It sure sounds like a great story, but does it live up to the hype?
For policymakers, there are two, interrelated considerations at the intersection of the business case and the public interest.
The first is whether direct (e.g. tax breaks, grants) or indirect (e.g. helping foot the bill for new electricity transmission to electrify operations) public subsidies are warranted. The sweet spot is when the economic benefits are significant and fairly certain, and providing subsidies tips the scales on the business case for investment.
The second relates to climate change and the growing momentum towards clean (i.e. zero carbon) energy. What are the domestic GHG emission implications? What about global GHG emissions? And how do these considerations impact competitiveness and the risk of stranded assets?
Let’s take a closer look at where things are tracking in Japan, and how this ought to inform the debate about LNG exports from Canada.
According to the IEA’s 2022 World Energy Outlook, in a business-as-usual scenario (which they call Stated Policies, or STEPS), Japan’s demand for natural gas is projected to decrease by 39 million cubic metres (bcm)—or 38%— by 2030, relative to 2021, as the 2021 Strategic Energy Plan is implemented. This plan was formulated along two key themes: (1) achieving carbon neutrality by 2050 and the greenhouse gas emission reduction target, and (2) ensuring stable energy supply and reducing its costs while taking action against climate change. (IEA, 2022)
If Japan follows through on announced policies (the IEA’s Announced Policies Scenario, or APS)—which include the Green Transformation (GX) plan, which the Japanese Cabinet has subsequently approved—the drop in gas demand to 2030 is even more pronounced, falling by 57 bcm, or 58%. And it doesn’t stop there. By 2050 gas demand is projected to be just 17 bcm, an 83% drop from 2021. It’s also critical to note that as demand gas drops, so too does demand for coal—falling by 40 (STEPS) to 46 million (APS) tonnes per year by 2030.
As we have witnessed in the EU’s response to the energy crisis resulting from the Russian invasion of Ukraine, energy security and climate security are no longer at odds. As the IEA put it, “this is a crisis where energy transitions are the solution, rather than the problem.” (IEA, 2022)
This is similarly evident in Japan’s plans for “working to reduce its energy security risks while pushing forward with its climate agenda through measures to decrease exposure to imported fossil fuels, increase its share of nuclear and renewables, and improve energy efficiency.” (IEA, 2022)
But if both gas and coal demand is falling, then the specific question at hand doesn’t have a climate dimension, it’s really just about replacing Russian gas with Canadian gas. And so we must ask ourselves: if the role of Canadian gas is simply to replace Russian gas, how will it fare as Japanese gas demand falls?
Japan really doesn’t import much Russian gas, so it won’t be long before there are more non-Russian suppliers than there is demand. Will Canadian gas still be able to compete with other suppliers in this scenario, or will Canadian LNG terminals end up as stranded assets?
This raises questions about whether there’s enough certainty of success to justify public subsidies. It took several billion in subsidies to secure a final investment decision for Phase 1 of the LNG Canada project, but that was when the outlook for gas was much rosier than it is today. Back then the IEA was still touting the “golden age of gas.” Now, the IEA has declared “The golden age of gas is approaching the end.” (IEA, 2022)
How fast is it approaching that end? For LNG capacity, it appears we’re already there. According to the IEA, if governments follow through on policies they’ve announced (APS)—as Japan is doing—then existing and under-construction LNG facilities will already produce surplus LNG. The first phase of LNG Canada squeaks in, but anything beyond that is highly uncertain, with success premised upon governments backtracking on policy commitments.
On this basis, the case for public subsidies to tip the scales on the business case and secure new investment is a weak one, fraught with risk to taxpayers.
Turning to the question of climate benefits, as noted above it’s clear that Japan’s interest in Canadian gas isn’t related to emission reductions, but enhancing energy security by replacing Russian gas.
As a result, the prospect of generating legitimate credits under Article 6 seems far-fetched. If both coal and gas demand is falling as nuclear and renewable power increase, how could it be demonstrated that Canadian gas was displacing coal that would otherwise have been burned, rather than replaced with nuclear or renewable power?
Meanwhile, GHG emissions in Canada will increase, either taking us further from achieving our climate targets or requiring other sectors—and citizens—to do more of the heavy lifting.
So things don’t look great, whether considering competitiveness or climate impacts. What business case there is for additional LNG investment in Canada is fraught with uncertainty and risk. If shareholders want to assume that risk, they are free to do so.
But policymakers ought to think twice about public subsidies that put taxpayer money at risk, money that might better support other opportunities that are lower risk and better align with the transition to net zero. As for our climate targets, it’s clear that there is no quid pro quo or net climate benefit resulting from LNG exports. Consequently, governments are well-advised to hold firm on ensuring that any additional LNG development fits within those targets, and the cost of doing so is borne by the industry (not taxpayers or other sectors).
Rachel Samson from the Institute for Research on Public Policy summed things up well, “With many risks facing an LNG project, private investors will focus on the lowest-cost projects with the greatest chance of realizing a return. If government subsidies are added to the mix, projects that are less likely to be competitive – and thus less resilient to shifting market demand – could move forward. If those projects don’t make it, taxpayers are not only short the money invested but they also miss out on the benefits that could have been realized from investing the funds elsewhere.”
Dig down and what seems like a great opportunity may not live up to the hype. All that glitters isn’t gold.
Polaris Strategy + Insight 