The impact of the Biden plan to decarbonize and build a clean energy economy on the Canadian economy is coming into greater focus. Already, a great deal of attention is turning to Keystone XL. It has been identified as a high-profile target for Biden’s administration and he will likely carry out his campaign promise to cancel the pipeline. The point has been made that Keystone is perhaps no longer necessary with demand at its lowest levels in history. In the face of the pandemic, Alberta producers have been cutting capital budgets and focusing on cash flow instead of growth. For now, those measures may be more than enough to remedy the pipeline shortages that existed before the pandemic, especially with the Trans Mountain Expansion and Enbridge’s Line 3 under construction with fewer hurdles ahead. For others, the case still stands that there are substantial benefits to Keystone for both Canada and the US. According to MP Pierre Poilievre, Conservative Shadow Minister for Finance,
“All eyes are on the administration’s Keystone Pipeline decision. Keystone means billions of extra revenue and extra income for the west and indeed all of Canada. It’s good for both countries. We hope the new administration sees it that way.”
There is general agreement across party lines that Canada needs to be aggressive in reducing its intensity and emissions. However, there are different approaches and different levels of urgency between provinces. There is increasing interest from capital markets for companies to get more aggressive on emissions issues and demonstrate strategies to lower emissions intensity. There are real challenges that Canada will face while reducing emissions due to the structure of both our economy and our power sector which have historically been developed more sustainably.
In his report titled “The State of Canadian and US Climate Policy, August 2016”, Kevin Birn, Vice President IHS Markit Crude Oil Markets identifies some challenges in terms of opportunities and cost.
“Compared to the United States, Canada has fewer power sector reduction opportunities to switch from coal to natural gas. Canada already has one of the lowest carbon-intensive power sectors globally, with more than 80% of its electricity generated from non-emitting sources. This suggests that for Canada to achieve a similar level of emissions reductions, actions will be required in other sectors that may come at a higher price. The National Round Table on the Environment and Energy 2011 report found that similar emissions prices in Canada and the United States would drive fewer reductions in Canada. To put it another way, emissions reductions can be achieved at a lower cost in the US market than in Canada.”
An ambitious plan to decarbonize the power sector by 2035 may be more affordable for the US than for Canada. There is also a risk that innovation alone may not be sufficient to drive critical cost reductions in the US and to enable rapid commercialization of clean energy technologies to create a sufficient number of new jobs to replace existing jobs. The Biden pledge to revolutionize many sectors to fit the promise of a green economy is so wide-ranging that it may be unaffordable and unattainable. In July 2020, Biden unveiled his $2 Trillion Plan to Combat Climate Change which he proposed as an economic-development tool over four years. However, the idea of seizing the economic opportunity of a green transition only works if the United States moves fast enough to become a leader in clean energy technologies. Biden intends to leverage existing federal grant and loan programs at various U.S. Departments to hasten decarbonization. No doubt Canada will have similar proposals. But will there be enough capital to scale up new technologies and make them affordable? There are a growing number of voices pointing out the huge immediate losses that a rapid transition off fossil fuels will create both in Canada and the US. Kim Moody, CEO and Director – Moodys Tax is one of them.
“Any aggressive push to shut or slow down the oil and gas industry will come with massive negative consequences. While I’m sure Biden and his team are aware of that, I think they’re also hopeful that “new jobs” will replace the lost jobs. And that’s where I get concerned. The demand for oil and gas – especially in a cold country like Canada – will still exist regardless of an aggressive policy platform that wants to decarbonize our economy. We should be realistic and invest in our oil and gas industry rather than trying to destroy it.”
There are other unintended losses related to decarbonization and the pressure to transition away from fossil fuels too abruptly. Jurisdictions that have transitioned away from hydrocarbons to wind and solar for electrical generation, like Germany and Ontario, experienced soaring electricity costs. In the case of Ontario, electricity prices doubled, taking Ontario from one of North America’s lowest-cost power jurisdictions to the highest -twice as high as other provinces. The high prices caused job losses as manufacturers moved out of Ontario seeking lower-cost jurisdictions. It is reported that Caterpillar, United Steel, Heinz, General Motors, Navistar, Kellogg’s, John Deere, Kraft Foods, Unilever, and Bacardi’s closed some or all of their Ontario plants. So there is an immediate economic cost to green transitions which include a loss of businesses that provide the jobs that are much needed for economic recovery in the face of Covid 19.
The biggest roadblock to decarbonization may be the economic cost of the pandemic. How can the US, Canada, and Europe expect to transition with the record levels of government debt due to the Covid 19 response? Dennis McConaghy, former Trans Canada Exec VP and author of the book “Breakdown –The Pipeline Debate and the Threat to Canada’s Future” sees decarbonization as a flawed solution to GHG reduction that stems from issues with the UN models for sustainable development. He asserts that in developing their models, the UN tried to translate growing concentrations of GHG’s in the atmosphere into potential temperature increase and McConaghy insists that there are still unanswered questions about how credible those models are. He also agrees that there isn’t much debate that human beings have increased the concentrations of GHGs and the more GHGs humans produce, the more likely it is that we will experience increased global temperatures. However, he points out that if there is a temperature increase due to GHG emissions- we might end up with a temperature increase of three degrees Celsius by the middle of the century. That is if all the UN models were correct. According to McConaghy,
“We should be questioning whether it would be better for the world to adapt to three degrees Celsius temperature increases or for the world to adapt to the huge cost it’s going to impose it on itself to try to remove hydrocarbons from its energy systems with a resultant massive reduction of human economic output. This is what the debate should be about as opposed to latching on to this notion of decarbonization in the pursuit of net-zero emissions without really proving that we could ever maintain living standards anywhere near what they have traditionally been.”
McConaghy observes that politicians like Biden and Trudeau don’t have an understanding of the issues and consequences and are being led by unrealistic UN perceptions of the attainability of decarbonization. He points out that decarbonization requires enormous intervention and introduces a high degree of unreliability to energy supply. He also notes that over the next decade, there are going to be many initiatives intended to force economies to move in the direction of decarbonization regardless and how much it is going to cost them. Some political actors, like Mark Carney, refer to the energy transition in enthusiastic terms as he did in a recent interview, saying the private finance sector will be key to help Canada hit 2050 emissions goals. Though some will make money in financing the massive change of energy systems to decarbonize and are enthusiastic about the prospects, McConaghy says most are not going to be as enthusiastic when they have to pay for it as taxpayers or consumers.
Maureen McCall is an energy professional who writes on issues affecting the energy industry.