Fossil fuel era drawing to a close…except in Canada

Adrian Wyld/CP
Adrian Wyld/CP

The following is the sequel to an earlier story by Will Dubitsky on the growing green economy and Canada’s failure to take advantage of it.

In the first part of this story for The Common Sense Canadian, I discussed how Canadian and Quebec leaders are largely ignoring the potential of high job creation, high growth green sectors, while China, Europe and the US are showing real leadership. Here, I will dig deeper into the policies and organizations that are foolishly banking on the Canadian resource-based economy as the key to economic development. Sadly, while President Obama sits poised to veto the Keystone XL pipeline, signalling the accelerating transition into a new era, Canada is being left behind.

Up to a trillion dollars in stranded fossil fuel investments

In keeping with Einstein’s definition of insanity, nearly all the economic experts will tell you we must keep doing the same thing over and over again and expect different results. Yet the signs are that the fossil fuel era is approaching its demise.

First, long-term energy and energy-related investments already favour the green economy – largely because the costs of clean tech are coming down.

Second, in the Summer of 2014, long before the recent plunge in oil prices, it became apparent that unconventional resources such as the tar sands, shale and offshore oil cannot be supported by market prices. As a result, Big Oil has already started to withdraw from major unconventional investments around the globe, otherwise known as stranded assets. This trend is becoming more and more evident .

The growing order of magnitude of stranded fossil fuel investments are very telling. Of the$2 Trillion invested in oil development in 2014, $930 Billion may never reach the return on investment stage – the makings of an investment bubble.

Considering the 20% return on equity for oil and gas in 2008 and the projection of a mere 5% return for 2015, it would appear that the most of the financial community has got it all wrong – especially when you factor in the increased volumes of stranded assets to come with oil at less than $70/barrel.

Unfortunately, financial institutions are not as diversified as they claim to be, totally bypassing the high growth, high job creation green sectors while maintaining the resource economy as integral to the majority of investment products/strategies.

Doubling down on unconventional energy

Meanwhile, Goldman Sachs has warned that the oil companies’ capital expenditures for investments in unconventional resources have “gone through the roof” and that their Reserve Replacement Ratio, the measure which investors use to rate oil companies, is not encouraging. (New Internationalist, November 2014)

Similarly, a UBS study concluded that the rapid decline in the costs of clean energy, clean transportation and green economy integration technologies – such as energy storage technologies – together suggest that the writing is on the wall for fossil fuels and point to a full-scale shift to a green economy by 2020. (Ibid)

Leaving it in the ground

This is about more than economics though. Governments around the globe are adopting strong climate policies which favour the green economy, acknowledging that 80% of fossil fuels must remain in the ground to avoid catastrophic climate change. That means that of the 12,000 gigatonnes of fossil fuel reserves, only 936 gigatonnes can be used.

$26.4 Billion/yr in subsidies to Canadian fossil fuels: IMF

Another issue is the fact that fossil fuels remain one of the most heavily subsidized sectors in the global economy. According to the International Monetary Fund, in US 2011 dollars, Canada spends $26.4B/year in direct and indirect subsidies (including health, climate change costs, etc.) for its fossil fuel sectors. This means that the unraveling of short-term thinking on fossil fuels will accelerate over time as the international community increasingly engages in addressing climate change. Put another way, the idea of shifting subsidies away from fossil fuels to the green economy will become increasingly attractive for policy makers.

Oddly enough, the representatives of the fossil sectors complain about subsidies for clean energy. The response of the European Wind Energy Association is that the wind sector could compete without any subsidies if it weren’t for the subsidies fossil fuels receive.

Renewables lead new energy mix

In the US, wind energy is now cost competitive with natural gas. Indeed, the change in the US energy paradigm is now well-entrenched, with renewables representing 47% of new electrical generation capacity installed in 2014, natural gas at 50% and coal, nuclear and oil combined only accounting for a little over 2%.

Consequently, from an investment perspective, clean technologies are the safer bet, free of the fluctuating, speculative prices we see with fossil fuels and destined to be favoured by increasingly aggressive government policies, further driving down prices.

Yet in Canada, only the NDP has committed to end fossil fuel subsidies, transfer the savings to clean technologies and introduce a cap and trade system.

NEB locking us into yesterday’s economy

As a result of the Harper administration’s changes to legislation on environmental impact analyses, the National Energy Board does not have the mandate to consider the biggest issue among all issues associated with TransCanada’s Energy East and other pipeline proposals – that is, the emissions stemming from tar sands development and downstream consumption of these fossil fuel products.

Compounding the limitations of the NEB mandate, the regulator has an “attitude problem”. This is very evident from the NEB’s rejection of oral cross-examination regarding certain types of questions, such as those submitted by distinguished energy expert Marc Eliesen on Kinder Morgan’s TransMountain pipeline expansion proposal.

Marc Eliesen is a former CEO of BC Hydro and Chair of Manitoba Hydro and served as a deputy minister in seven different federal and provincial governments. Since the NEB did not see it as necessary for TransMountain to address most of Marc Eliesen’s written questions, he withdrew as an intervenor/participant in theNEB Kinder Morgan review circus.

One can expect more of the same for the NEB hearings on Energy East.

Changing our laws to suit oil and gas

Just as it restricted the NEB’s environmental review mandate, the Harper government gutted the habitat protections in the Fisheries Act, at the request of Canada’s pipeline industry.

Harper has also ensured that the NEB reports directly to the Prime Minister’s office.

In other words, Canada is painting itself into a corner.

Both Justin Trudeau and Harper view Canada as a resource export economy and both revert to the denial of science to increase Canada’s dependence on resource exports.

The new energy paradigm

As alluded to my Jan 23, 2015 Common Sense Canadian article, yesterday’s economists, Harper and Trudeau and most of mainstream media, much like the climate change deniers would like us all to believe in a fairly tale that presents economic and environmental considerations as opposing forces for which there is a need for reconciliation.

This economy versus the environment spin is comparable to the debate of 100 years ago on the reconciliation of woman’s rights with the need for economic development.

Yet the world’s largest energy consumer, China, is already changing the global economic-energy-environmental paradigm in through a rather schizophrenic war on coal. Consider that: 1) China is the world’s largest investor in green technologies, with $89.5B in clean energy technology projects in 2014; 2) China’s coal imports will be down by 15% by the end of 2014 compared to 2013; 3) China’s pilot cap and trade systems in Beijing and Shenzhen have reduced emissions by 4.5% and 11% respectively; 4) China is thinking of introducing a national cap and trade system in 2016.

Europe on track for big emissions reductions

Nearly all of the EU members are on track for their 2020 targets for a 20% reduction in GHGs, 20% energy from renewables and a 20% improvement in energy efficiency. Not resting on their laurels, in October 2014, the European heads of state agreed to a 40% GHG reduction target for 2030.

Then there is the incredible case of Germany, which outdid its own Kyoto Protocol objective of a 21% reduction of GHGs by 2012, having achieved a 25.5% reduction instead. But Germany is not an exception to the rule. For the same Kyoto period ending in 2012, the UK, Sweden and France reduced their emissions respectively by 23.4%, 18% and 10.5%.

At this point, Ban Ki-moon’s 2007 remarks on green economics seem highly appropriate:

[quote]We have witnessed three economic transformations in the past century. First came the Industrial Revolution, then the technology revolution, then our modern era of globalization. We stand at the threshold of another great change: the age of green economics.[/quote]

How long is it going to take for today’s economists to catch up?

Obama Keystone veto’s global ramifications

In closing, with Obama on the verge of applying his veto to Keystone, it may be helpful to read the article referred to below, which specifically deals with the matter of Keystone but could easily be recast as the case against TransCanada’s Energy East, Kinder Morgan’s TransMountain and Enbridge’s Line 9.

In a nutshell, this article in The Guardian speaks of the increased path dependencies generated by new pipelines and concludes that an Obama rejection of Keystone would be a clear signal to the US, Canada and the entire world that the time has come for putting the emphasis on developing clean energy and clean transportation alternatives – and the weaning off of our dependence on fossil fuels.

This is precisely the point President Obama made in his January 20, 2015 State of the Union speech, when he indicated that a rejection of Keystone would send a signal to the world that we must get serious about migrating to a green economy; whereas approving it would constitute a setback to the climate action agenda.

One can say “ditto” for TransCanada’s Energy East and the other major Canadian pipeline projects.

What is happening is that China, Europe, the US and other nations – not Canada – are becoming increasingly aligned for a future that functions on a green economy paradigm, the path to higher job creation,  stronger economic development, avoidance of catastrophic climate change and the embracing of environmental stewardship – in other words, the path to tomorrow’s economy.

With the aforementioned science and economic considerations in mind, Mark Carney, the current Governor of the Bank of England and former Governor of the Bank of Canada, recently wrote to British Members of Parliament, advising them that the Bank’s officials are reviewing whether or not the majority of fossil reserves are burnable.

Change is clearly afoot – if only Canada’s leader could see and embrace it.


About Will Dubitsky

Will Dubitsky worked for the Government of Canada on sustainable development policies, legislation, programs and clean tech innovation projects/consortia. He lives in Quebec.

9 thoughts on “Fossil fuel era drawing to a close…except in Canada

  1. The US is set to become the world’s largest producer of petroleum – this is, in part, what caused the oil price crash. The Middle Eastern oil producers are trying to put the US out of business, among other things.

  2. In BC we are lucky to have BC Hydro, publicly-owned and producing 11,000 MW of clean, renewable energy.

    Somehow, BC Hydro is being made to pay $hundreds of thousands to purchase carbon-offsets from companies like gas-producing EnCana:

    This is so the BC Government can declare itself “carbon-neutral”, while it promotes coal exports, LNG and building new highways and bridges.

      1. Correction we are not that “lucky” to have the liberals piling debt on one of BCs most cherished institutions just so they can say its unprofitable in order to sell BC Rail. Sorry BC Hydro I meant.

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