Lauerman: Time For Kenney To Play Climate Poker With The Feds

This is the first in a two-part look at the issues involved in a federal emissions cap. Monica Gattinger will offer her take on the issue in a DOB analysis on Nov. 23.

The federal government has been upping the ante in the battle against greenhouse gas (GHG) emissions over the past year, with potentially deleterious effect on Canada’s oil and gas industry if we play our cards poorly.

In November 2020, Prime Minister Justin Trudeau unveiled his government’s plan to achieve net-zero emissions by 2050. In April, the feds boosted Canada’s targeted emission cuts for 2030 to between 40 and 45 per cent compared 2005 levels, an increase of 10 to 15 percentage points versus our original Paris Agreement commitment — despite our country’s GHG emissions being basically flat since 2005, excluding COVID-retarded 2020.

And during the federal election campaign late this summer, Trudeau promised to cap emissions of Canada’s oil and gas industry, since made official at the COP26 climate conference in Glasgow. “We’ll cap oil and gas sector emissions today and ensure they decrease tomorrow at a pace and scale needed to reach net zero by 2050,” Trudeau told fellow leaders at the opening of the conference on Nov. 1. “That’s no small task for a major oil and gas producing country. It’s a big step that’s absolutely necessary.”

Nope, no small task, and unfortunately absolutely necessary, especially if Canada is going to come anywhere close to achieving its new 2030 emissions reduction target, let alone net zero by 2050. Emissions from the country’s oil and gas industry are up roughly a fifth since 2005 — and have nearly doubled over the past 30 years on the back of rapidly rising oilsands production — and at 191 megatonnes of carbon dioxide equivalent nudged out transportation as top emitter at 26 per cent of total national emissions in 2019.

These new climate commitments by the feds have led to a wide range of response by supporters of the oil and gas industry here in Alberta, all of which provide information for developing a negotiating strategy to mitigate damage to, and support the transition of, our industry as we move towards a net zero world.

The federal government holds most of the best cards when it comes to slashing emissions, especially with the March 2021 Supreme Court ruling in support of carbon pricing, and certainly know it based on recent actions. But at the same time, the feds have made clear they are willing to consider reasoned opinion from all key stakeholders before setting oil and gas emission caps, and have the “power of the purse” to support such efforts.

Canada’s oil and gas industry will become a sunset industry in the next decade or so, emissions cap or not, as was made apparent — at least on the oil side — with my recent Last Oil Producers Standing series, but even the Trudeau government doesn’t want to fold early on a very good hand.

Reactions from Alberta

Reaction by the Alberta government to the onslaught of new federal climate commitments in general, and the pledged cap on oil and gas in particular, has been remarkably predictable, whereas reaction from industry and related groups has been much more thoughtful and potentially constructive.

“We will vigorously defend the economic interests of Alberta, including the right to develop our own natural resources and to do so in a responsible way,” said Premier Jason Kenney in response to Trudeau’s cap announcement in Glasgow. “If in fact what this announcement is about today is to try to leave [oil and gas] in the ground, we would fight that with every tool at our disposal.”

In addition, and rather perversely, Kenney said “the government of Canada has zero chance of achieving its greenhouse gas emission reduction targets without Alberta, specifically without Alberta’s oil and gas industry.”

Kenney went on to complain that Ottawa did not discuss the cap issue with the province prior to the announcement, pointing out that the province has exclusive jurisdiction over the regulation of natural resources under the Constitution — albeit now trumped by federal legislation to combat the climate crisis. (Kenney reiterated many of the same arguments late last week during an event to announce grants to oil and gas companies to fund greenhouse gas emissions reductions projects.) Alberta is to release an updated climate strategy in the coming weeks or months, but Jason Nixon, minister of environment and parks, has already ruled out setting concrete emission targets in the document.

In contrast, Alex Pourbaix, CEO of Cenovus Energy Inc., speaking during his company’s third quarter earnings call a few days after Trudeau’s announcement, said he’s not conceptually opposed to the cap, especially as Canada’s major oilsands producers have already committed to deep decarbonization through the Oil Sands Pathways to Net Zero alliance. “So the concept of a cap is not really problematic,” Pourbaix said. “The bigger issue is what is the cap, and if there are interim targets, what are they and when are they achievable by.”

On that note, Suncor Energy Inc. has indicated that it remains focused on reducing GHG emissions by 2030, rather than 2025, a new target date established by the feds. “Honestly, 2025 is going to be tough,” Martha Hall Findlay, Suncor’s chief sustainability officer, told Reuters. “That’s not a number we’ve used, it’s a number the feds have used.”

Finally, Deborah Yedlin, the president of the Calgary Chamber of Commerce was supportive of Trudeau’s emissions cap pledge, assuming respectful and fruitful negotiations between governments and industry. “The Calgary Chamber continues its work with industry and governments to address climate change and sustainably develop our resources, while ensuring certainty and stability for business, a just transition and support to develop, attract and retain talent and skills that will power our economic future,” Yedlin said in a statement.

Trudeau’s olive branch

How do we know the federal government knows it now holds most of the best cards? Well, besides the onslaught of new climate targets and initiatives, the appointment of former Greenpeace provocateur extraordinaire, Steven Guilbeault, as the country’s environment minister seems to be pretty good evidence. But unlike Kenney, I don’t think his appointment will bring in a radical agenda that will put “hundreds of thousands” out of work.

The same day Trudeau made his cap pledge in Glasgow, Guilbeault and Natural Resources Minister Jonathan Wilkinson sent a letter to the Net-Zero Advisory Body — a group of independent experts from across Canada, convened by the federal government, and including energy industry players Peter Tertzakian from ARC Financial Corp. (who is now a former member of the group) and Dan Wicklum, CEO of the Transition Accelerator and former CEO of the Canadian Oil Sands Innovation Alliance (COSIA) — to provide advice on “key guiding principles to inform the development of quantitative five-year targets.”

The letter went on to state that the two ministers would be seeking advice from experts in their departments, as well as pledging to “engage with provinces, territories, civil society, labour organizations, national Indigenous organizations and industry partners.”

Playing our cards right

It’s time for Kenney to accept the olive branch being offered by the Trudeau government and negotiate emission caps on Canada’s oil and gas industry in good faith, as indirectly recommended by the Chamber’s Yedlin. To allow Alberta’s — and Canada’s — industry to benefit from rising global oil and gas consumption in the shorter term, the Alberta government should offer a relatively weak cap in 2025 in return for a relatively strong one in 2030 — the year that really counts in terms of Paris — as indirectly suggested by Cenovus’s Pourbaix and Suncor’s Hall Findlay.

The implementation of carbon capture and storage (CCS) by the emissions intensive oilsands industry and even deeper cuts to methane emissions, both relatively low hanging fruit in the grand scheme of oil and gas emissions reductions, should allow us to meet relatively strict 2030 targets under such a deal.

In addition, it’s time for the Alberta government to recognize that we will ultimately be leaving oil and gas resource in the ground, and to minimize the amount we must begin investing now to decarbonize the industry to be one of the last major producers standing in a net zero world. And the feds have already made clear that they are willing to financially support this decarbonization effort, as shown by ongoing negotiations with major oilsands producers to help fund CCS under the auspices of the Oil Sands Pathways alliance.

To maximize federal funding for this effort, as well as secure maximum funding for other decarbonization efforts, including the development of a substantial blue hydrogen industry in Western Canada, it’s also time for the Alberta government to play its one remaining trump card — concrete emission reduction targets through 2050 to achieve net zero along with the rest of Canada.

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