May 26, 2023 EnergyNow Media
David Yager – Revisted from January, 2023
There has been significant public debate about the new federal emissions reduction targets for 2030 and the parallel “Just Transition” discussion document titled “Committee on Natural Resources (RNNR) Creating a Fair and Equitable Canadian Energy Transformation. Wednesday June 1, 2022.”
This document is the source of the published job losses in various industries that have appeared in the media.
https://open.canada.ca/data/en/dataset/24ae60ef-359d-4c67-aa31-a71e5e7aa88d
In the 2015 COP 21 Paris Agreement so often cited as justification for the foregoing, Canada originally committed to reducing its GHG emissions by 30% from 2005 levels by 2030.
In April of 2021 the federal government publicly increased its Paris 2015 reduction commitments to 40 to 45%. The upstream oil and gas industry’s specific target is 42% below 2019 levels.
How this will be done has been a subject of great debate and ongoing discussions, particularly for oil sands.
Where did this elevated April 2021 target come from?
For the previous year, governments, non-government organizations and policy influencers came up with multiple ways to reshape the global energy complex as the world emerged from the pandemic lockdown. They all involved more government money and renewable energy and less fossil fuels.
After oil prices collapsed in April of 2020, a new narrative emerged that not only was oil dead, but it would stay that way. This thesis was supported in September of 2020 when BP shocked the world by announcing it was phasing out of the oil business and embracing renewables.
Later that year Democrat leader Joe Biden won the 2020 U.S. election in part with a plan to Build Back Better through a basket of pro-climate and anti-oil policies and massive federal spending. His first step upon being sworn in as President in early 2021 was to cancel the Keystone XL pipeline. Again.
That year the World Economic Forum tabled its plan, the Great Reset. In Canada the Resilient Recovery strategy was unveiled, written in part by former Liberal Chief of Staff and environmentalist Gerald Butts.
The “energy transition” was introduced into climate policy vernacular, as was the widely adopted commitment of Net Zero by 2050.
The theme was similar. This was an ideal time for government to become heavily involved in reshaping the planet’s energy future.
Number 5 in the 2021 reports from Canada’s Auditor General is titled “Lessons Learned From Canada’s Record on Climate Change.”
https://www.oag-bvg.gc.ca/internet/English/att__e_43947.html
The following appears near the end. The title is “What Canada can learn from the COVID-19 Crisis.”
“The COVID‑19 pandemic has shown that strong, concerted government action can avert the worst of a crisis. But the longer‑term crisis of climate change looms larger than ever.
Governments in Canada and around the world responded to COVID‑19 in various ways: lockdowns and curfews, mask mandates, vaccine rollouts, support for workers and small businesses affected by economic shutdowns, and the procurement of personal protective equipment and ventilators. Jurisdictions whose governments took strong initial steps and followed scientific advice generally fared better than those that did not.
Like pandemics, climate change is a global crisis, which experts have been raising alarms about for decades. Pandemics and climate change both carry risks to human health and the economy, and both require whole‑of‑society responses to prevent further catastrophe.
This suggests that Canadians can draw crisis management lessons from the COVID‑19 pandemic. As well, pandemic economic recovery efforts will provide opportunities for the emergence of a stronger, more climate‑resilient society—if governments at all levels, citizens, the private sector, and civil society work together.”
It reads the federal government could look to successful management of the pandemic for tools to advance climate change initiatives.
But when the elevated emission reduction targets were announced in April of 2021, the world was not quite as circumspect as it is today about the effectiveness and success of the pandemic response and global lockdowns.
Because what followed as the recovery began was major supply chain disruptions, huge increases in public debt, rising energy prices and shortages, and elevated inflation and interest rates.
This will be discussed and reviewed for years.
The master plan continues with announcements that by 2035 all new light vehicles must be electric, and that agriculture must adapt by using less nitrogen-based fertilizer created with fossil fuels. There’s been lots of news recently about funding for electric battery and EV manufacturing plants and tax support for CCUS.
What is not talked about is the likelihood of Canada actually meeting these targets as 2030 approaches. With the first three weeks of 2023 already gone, this massive undertaking has only six years and 49 weeks remaining.
While there are lots of incentives for compliance, what is never mentioned is the enforcement mechanism for failure. Perhaps the $170 per tonne carbon tax in 2030 will be sufficient incentive for some.
But the task for the oil industry is so big that one solution being publicly discussed to lower emissions to stated levels is to shut in production.
It can’t possibly come to that.
In June 2022 your writer was invited to a one-day conference sponsored by the CD Howe Institute in Toronto titled “Special Policy Conference: Canada’s 2030 Emissions Reduction Plan – What’s Realistic?”
I was one of three participants in the upstream oil and gas panel. The program also included experts from electricity, buildings and transportation.
While officially the event was “off the record,” I was granted permission to quote myself. Wanting to be invited back some day, I chose my words carefully.
I called the targets “aspirational” because in the public policy world that’s what happens when “what” becomes more important than “how.” Most of those who drive big-picture climate policy don’t work in any of the industries they regulate.
This means that policies created without industry input or consultation rarely achieve the desired outcome.
For oil I stated, “The preferred solution is Carbon Capture Utilization and Storage, or CCUS. Here carbon dioxide is captured before it can reach the atmosphere and stored underground.
Sounds simple.
It is not.
CCUS is oil and gas production working backwards. Instead of extracting resources from underground and shipping them to markets for refining and distribution, CCUS does the exact opposite.
But it requires the same knowledge, engineering, equipment, processes, pipelines and capital assets.
Exhaust CO2 is captured and processed, then compressed and transported to a suitable location above the right rocks. Instead of subterranean reservoirs that are full of oil and gas, in this case the reservoirs must be able to accept and store carbon dioxide.
Implementing CCUS on the scale envisioned by the 2030 emission targets will require the construction of multi-billion-dollar facilities and compressors to move CO2 hundreds of kilometers by dedicated pipeline.
This means planning, permits, engineering, materials, regulatory approvals and stakeholder engagement.
The current emissions reduction targets can only be conceived and supported by people who have no idea how difficult it is to complete big new projects in Canada in the 21st century. This doesn’t just apply to the oil industry. This is everything.”
Then I talked about the 2013 Calgary flood. Construction on the dry dam west of the city didn’t start for nine years.
Another example closer to downtown Toronto was Ontario’s legendary Ring of Fire region south of James Bay. This area was identified in 2003 as holding a treasure trove of specialized minerals for energy and transportation decarbonization.
But 19 years later they still don’t have an access road. A recent news report indicated that there would be no road until at least 2028.
I assured the audience that fortunately, emissions from this resource were zero. Nobody laughed.
A few days before Utica Resources had sued the Province of Quebec for $18 billion for cancelling its mineral leases and development permits. More lawsuits for damages were coming. There had been oil and gas exploration in Quebec for decades. Huge investments were made. But that province had banned oil and gas development and cancelled all existing permits with no realistic plans for compensation.
I continued, “Last summer Quebec cancelled a low-emission LNG export project that would have been the closest supplier to northern Europe. This happened just before a global LNG shortage became obvious.
The world is watching. Investors don’t like what they see. Because we don’t build things in Canada any longer. We kill them.
CCUS projects will require consent from all affected landowners and neighbors. Developers will have to convince people nearby that the facilities and underground storage reservoirs will never leak and threaten their health or quality of life. Projects like this do not cause property values to rise. Subsurface geology, not demographics, will decide the location.
Resolving these issues now takes years. I have no idea how these big projects are going to by-pass all the increasingly costly and complex application and approval processes required to do anything. Anywhere.”
The other big issue is the industry’s greatly reduced capacity, which is “…the ability…to undertake major projects of any kind. It has endured seven years of low commodity prices, project cancellations, policy changes, carbon taxes, capital withdrawal and starvation, and what can be fairly described as a multi-faceted, international assault on the moral legitimacy of its very existence.
While the industry appears to be recovering as measured by production, revenue and profits, its internal capability to design, engineer and execute major projects like CCUS no longer exists like it once did. Because global capital investment has been reduced by half since 2014, there has been a commensurate contraction of the supply chain for all the major components from valves to pipe to compressors.
With rising prices, historically the industry would have ramped up spending. But today’s oil producing and support sectors are a fraction of what they once were.
Because that’s what society wanted. We’ve been told for years that oil is a sunset industry. Investors have been advised to avoid stranded assets, the oil and gas resources that the energy transition will soon render worthless.
Be assured the industry has committed to rise to the challenge and work with other stakeholders to reduce emissions.
But continued messages like a government engineered ‘Just Transition’ are frightening, not comforting. However compassionate this genius plan sounds in Toronto, in the west it means the country intends to make the impending loss of your job, home or business less awful.
This is hardly a magnet for attracting capital or workers.
The oil industry won’t meet the emission targets because it can’t. That this was conceived without investigating who or what is left to do it is, as politely as I can say it, aspirational.
The disconnect between ‘what’ and ‘how’ in our country has become so severe I worry about our future.
The continued belief that bright ideas and inspiring aspirations are a satisfactory substitute for getting things done is very serious. Our competitiveness is plunging, as is our credibility.”
The point is simple. Reducing emissions from oil and gas is possible and underway. No problem. That’s what society wants, and it ensures the long-term viability of the industry.
But to pick numbers out of the air and try to turn them into to workable policy in the middle of a pandemic lockdown and anticipating no unforeseen economic headwinds is a recipe for failure.
Later CD Howe would publish a summary document which stated, “Not a single speaker or participant unreservedly found the Plan’s aspirations easily achievable…Timelines are not realistic in view of the size of many of the projects and slowness of permitting. All sectors will need to gather equipment, have labour available and build infrastructure.”
We’re not going make the targets Canada. You did not read this here first. Even Alberta NDP leader Rachel Notley recently declared that the current federal emission reductions are unrealistic, and the Just Transition program is hopelessly out of touch with current industry and economic conditions.
Will the federal government admit this and change course?
If not, how will this be enforced?
At present the only obvious solution is shutting in production. How do you do that? What do you do with long term commercial supply arrangements like export contracts to the U.S., feedstock for petrochemical plants or heating fuel for homes and buildings?
Then there’s imports. Eastern Canada now imports a lot of natural gas from the U.S. and oil from America and other countries. None have similar emission reduction regulations or carbon taxes. There is no penalty on these commodities, nor import restrictions.
It that fair? Shut in Canadian production and continue to import from countries that refuse to implement similar policies?
If Canada’s upstream oil and gas industry fails to meet its emission reductions by 2030 – which on a macro level it will – do you shut it down? How do you pick the winners? Who tells who what to do? Is Alberta expected to this? Can the federal government order that it be done?’
The Netherlands is facing a similar challenge with farmers using too much fertilizer. Farmers have publicly rebelled for months. Regulators have identified 3,000 farms that are non compliant. They are hoping that the owners will comply voluntarily, but the government is also considering buying them from the owners.
Will Ottawa be purchasing over-emitting oil and gas producing assets at fair market value then shut them down? Or installing emission reduction equipment and starting them back up?
There’s been talk of a constitutional challenge because of provincial control over resources. When should that start? Before or after people are freezing and the economy grinds to a halt?
Fortunately, the rest of the world will be producing 98 million barrels a day, so they’ll sell us some oil. At a price. If things go very poorly, perhaps the Americans will reverse the existing gas export pipelines and keep us warm in the winter.
This is so bizarre it won’t come to that.
But has there ever been a time when our federal government has moved this aggressively on environmental and economic policies that are so completely disconnected from the nation’s capacity to comply?
David Yager is an oil service executive, oil and gas writer, energy policy analyst and author. His book From Miracle to Menace – Alberta, A Carbon Story can be found at www.miracletomenace.ca