Edward Greenspon: Oil Chaos and the M.I.A. Strategy
Policy Speaking BlogThursday April 2, 2020
The approval process for the Frontier oil sands mine project is a golden opportunity for the federal and Alberta governments to move past the outdated balancing act at the heart of climate and energy policy in Canada.
A new and improved grand bargain is within reach. As Environment and Climate Change Minister Jonathan Wilkinson recently told an environmental fundraiser:
We want energy. We don’t want pollution.
Right now, the federal government is in an impossible situation. Approve a new oil sands plant and you lose credibility with people who care about fighting climate change. Reject the Frontier proposal, especially after regulators approved it, and you validate claims of anti-oil and anti-Alberta bias.
But Frontier is only a small part of the challenges facing the industry. The oil patch needs to get on the right side of public opinion and back in the good books of investors leery of low economic returns and high political risks. Meanwhile, the environment is indifferent to any single project.
Clearly, climate change is getting worse. In the recent federal election, public anxieties denied the Conservatives a shot at power and the Liberals a shot at a majority. Young people marched in numbers usually reserved for toppling a Shah.
Yet, despite accepting a carbon tax and the shuttering of coal plants, Canadians have done little to curb their consumption. Of 23 million registered passenger vehicles in Canada, only about 100,000 are fully electric. New sales total just 2.2 per cent. Oil will be with us a while yet.
Prime Minister Justin Trudeau and Alberta Premier Jason Kenney each face significant political constraints. Mr. Trudeau needs to win back the most environmentally minded voters. Mr. Kenney must manoeuvre around a separatist movement that could lop off a segment of the party he so meticulously reconstructed.
Still, Alberta has accepted the Trudeau government’s carbon price of $30 a tonne in its large emitters’ program, while Ottawa has accepted the Kenney government’s formula for reducing methane emissions. And a pipeline to the West Coast, already under construction, cleared another hurdle Tuesday. The timing is ripe to bring environmental and economic policies together by seeking social licence for petroleum through a radical reduction of its carbon impact.
To that end, the Public Policy Forum has brought together about three dozen oil and gas producers, environmentalists, governments, bankers, utilities, academics and Indigenous leaders in what we call the Energy Future Forum. Its mission is to find ways Canada can meet or exceed its targets under the Paris climate agreement on the way to a net-zero future, while strengthening the economy and enhancing national unity.
First comes net-zero emissions. It so happens the oil and gas industry has been considering this longer than most. At least three of the largest oil sands producers – Canadian Natural Resources Ltd., MEG Energy Corp. and Cenovus Energy Inc. – have publicly committed to the goal.
So has Teck Resources Ltd., proponent of the $21-billion Frontier project. Others, such as Suncor Energy and Royal Dutch Shell PLC, are also walking the talk of emissions reductions.
The route to net zero will certainly involve greater electrification of the oil sands and leadership on carbon capture and storage. Further out, it might mean extracting hydrogen from hydrocarbons, while leaving the carbon behind. This made-in-Canada knowledge and technology will be exportable.
In 1996, the federal government extended accelerated capital cost allowances to stimulate oil sands investment, while Alberta introduced a royalty deferral plan. A similar package could be used to decarbonize rather than expand the oil sands.
Finally, we need to set interim milestones. Conveniently, a mechanism is already in place – an emissions cap of 100 million megatonnes for the oil sands that Alberta legislated in 2016. With the actual number well below the ceiling, nobody has bothered implementing it.
Now’s the time. The cap should also be steadily reduced on the way to net zero. If producers innovate effectively, the ceiling is rendered moot. If emissions don’t fall quickly enough, plants might have to be retired before their natural economic life expires, as with coal.
What matters is not any single operation, but total emissions – a case environmentalists have made for years. Calgary oil financier Mac Van Wielingen has argued the last theoretical barrel sold on Earth should logically be the cleanest. If Canada wants to protect government revenues, jobs and export earnings, we need to be the purveyor of that cleanest barrel.
Past energy transitions – water to steam, steam to electricity and horsepower to internal combustion engines – show that change takes decades. Since the environment doesn’t have decades, we need to transform the oil sands into a clean source of power now. Here’s where energy strategy and climate strategy become one.