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Canada’s Carbon Conundrum and the Difficult Path Forward

by David Hughes

Since the first oil well was drilled in 1859 humans have been on a roll. Global population has increased more than six-fold and energy use per capita has grown more than nine-fold. Accompanying this explosive growth in energy use was unprecedented economic expansion—since 1965 global GDP has grown 6.8-fold and per capita GDP has increased 2.9 times adjusted for inflation.

Unfortunately, there is no free lunch.

Since the first oil well was drilled, anthropogenic emissions have grown 116-fold and more than 13-fold per capita. Half of all greenhouse gas emissions have been emitted since 1991 and half of the fossil fuels burnt since 1850 have been burned since 1993.

The halfway point in cumulative emissions from fossil fuel burning depends on the level of development of individual countries and their rate of growth:  Canada’s halfway point was in 1989; the US in 1981; the UK in 1950; and China, where consumption is skyrocketing, in 2007.

Despite China’s rapid growth, however, its per capita rate of emissions was just slightly over the world average in 2019, compared to three times the world average for Canada and the US (the UK was at the world average).

Climate scientists have underscored the danger of global warming due to greenhouse gas emissions and the need to eliminate emissions as soon as possible. The Paris Agreement, signed in 2016 by 197 countries including Canada, pledged to control emissions to contain global warming to at most two degrees above pre-industrial levels. Canada committed to a 40-per-cent reduction by 2030 and has introduced Bill C-12 pledging to reduce emissions to “net-zero” by 2050.

High-emitting countries like Canada and the US clearly have the most room for cutting emissions. Despite signing the Paris Agreement, Canada’s emissions have grown by 3.3 per cent since 2016, the highest of any G-7 country. Although the US also increased emissions by 0.6 per cent, the other five G-7 countries reduced emissions by between 4.4 and 10.8 per cent.

In 2019, the most-recent year for which emissions data are available, oil and gas production accounted for 26 per cent of Canada’s total emissions. In the Canada Energy Regulator’s (CER) most conservative forecast (which assumes new policies to address climate change and improvements in emissions reduction from the oil sands), growth in oil and gas production to 2050 would cause the oil and gas sector alone to exceed an 80 per cent emissions reduction target in 2050 by 32 per cent.

Clearly the CER forecast is incompatible with meeting Canada’s emissions reduction targets. Yet Canada is using taxpayer funds to build the Trans Mountain pipeline expansion project (TMX) to facilitate additional oil and gas production growth. This is completely at odds with its emissions reduction commitments.

Canada’s investment in TMX is even more incomprehensible given the fact there is sufficient existing export pipeline capacity with the CER production forecast.

In BC, both the Canadian and BC governments are subsidizing LNG exports which will require increased gas production. CER’s most-conservative production forecast for BC would exceed BC’s CleanBC emissions target by 93 per cent in 2050. This includes emissions from the production of gas required for LNG exports and assumes a 45-per-cent reduction in fugitive methane by 2025 and electrification of production facilities. If emissions from the liquefaction terminals are included the picture is even worse.

Government enthusiasm for increasing oil and gas production must also face the realities of falling revenue from the industry. Despite increasing production, royalty revenue has declined 45 per cent since 2000. Tax revenue from the oil and gas industry has declined from more than 14 per cent of total industry taxes in 2006 to less than four per cent in 2018. Jobs, which peaked in 2014, have declined by 23 per cent due to increased automation even though production is at an all-time high.

If Canada’s commitments to emissions reduction are to be more than empty promises our government must face the fact that production will have to decline radically and that its policies to expand pipelines, production and exports are completely counterproductive to achieving its climate commitments.

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Canada’s emissions increase greatest in G7 since Paris

New report shows jobs and royalties declining with emissions rise

JUNE 1, 2021

VANCOUVER – A stark change in direction is needed if Canada is to meet its emissions-reduction targets, says a new report by veteran earth scientist David Hughes. 

Going into the G7 Summit later this month, Canada and the US are the only G7 countries that have not reduced emissions since signing the 2016 Paris Accord. In fact, Canada has shown the greatest emissions increase during this time. 

The oil and gas sector alone will cause Canada to exceed its Paris Agreement target of a 40 per cent reduction by 2030, set by Prime Minister Trudeau at President Biden’s recent climate summit, and the “net zero” by 2050 target in Bill C-12. This new report uses the Canada Energy Regulator (CER) oil and gas production forecasts and the Canadian government’s submission to the UN on 2019 emissions, to project emissions from the sector to 2050. Even in the CER’s “Evolving Scenario”, which assumes that governments will continue to introduce new policies over time to address emissions reduction targets. 

“We can only achieve our emissions targets if oil and gas production is significantly reduced from the CER’s projected levels,” Hughes says. “Pursuing policies that encourage production growth, such as the $12.6 billion TMX pipeline expansion project and LNG exports, will ensure that Canada will not meet its emissions reduction commitments.” 

Last month the International Energy Agency also said investments in new oil and gas developments must stop immediately if the world is to meet its goal of net-zero emissions and limit the worst impacts of climate change. It called for a total transformation of the energy systems that underpin economies around the world. 

The report, Canada’s Energy Sector: Status, evolution, revenue, employment, production forecasts, emissions and implications for emissions reduction, highlights that although oil and gas production is at record highs, the return in the form of jobs and government revenue have dramatically fallen. It was co-published by the Canadian Centre for Policy Alternatives, with the Corporate Mapping Project, The Parkland Institute, Stand.earth, West Coast Environmental Law and 350.org. 

“Oil and gas sector employment is down 53,000 workers from its peak in 2014 even though production is at record highs,” says Hughes. “Because of technological advances, the sector needs fewer workers than before, so those jobs are unlikely to return to previous levels.” 

He also notes that the sector is contributing much less to government revenues than it once did.

“Oil and gas royalty revenue is down overall by 45 per cent since 2000 in Canada and by 61 per cent in Alberta, even with production at record levels,” Hughes adds. 

CER’s evolving scenario production forecast makes it clear that additional pipeline infrastructure is not needed because existing export capacity is sufficient, Hughes says, explaining that the need to reduce production to meet emission reduction targets will result in even more excess capacity on existing pipelines. 

“When announced expansions of existing export pipelines are included, Canada already has enough pipeline capacity to transport the amount of oil the CER is projecting for export through 2050 without TMX or the Line 3 expansion,” he says. 

Hughes also raises serious questions about the efficacy of carbon capture and storage (CCS) at the scale required, and purchasing carbon offsets, two approaches the federal government increasingly points to as solutions to address the climate crisis. 

Hughes notes that oil and gas provided 77 per cent of end use energy demand in Canada in 2019, and are likely to be needed at some level for the foreseeable future. Reducing exports, which accounted for 55 per cent of oil production and 18 per cent of gas production in 2019 will be needed, along with aggressive policies to reduce domestic consumption. 

“It’s increasingly clear that our government needs to step up and put forward a credible plan that addresses both the needs of workers and communities, who are already being left behind, while also addressing the need to reduce emissions,” concludes Marc Lee, a CCPA senior economist and member of the Corporate Mapping Project. “Rather than focusing on extracting and exporting as much fossil fuels as possible, we need to be talking about what the future of jobs and revenue looks like in Canada while winding down the sector.” 

“It is increasingly clear that growth of the oil and gas sector in Canada makes our economy more vulnerable, doesn’t produce more jobs, increases toxic liability and stands in the way of our country meeting our climate targets. We simply can’t keep increasing the production of products that the world is moving away from that increase pollution and make it more difficult for us to build a cleaner and safer economy. We need a plan now to wind down oil and gas production and emissions that leaves no one behind.” said Tzeporah Berman, International Program Director Stand.earth. 

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Politics versus the future: Canada’s Orwellian energy standoff

There is no denying the utility of fossil fuels, which meet 85% of the world’s energy needs. And consumption is rising along with emissions. Even in Canada, the second largest hydropower producer in the world, 76% of end use energy is provided by fossil fuels.

We are told by the federal government that increasing oil and gas production and meeting emissions reduction targets are mutually compatible goals. Alberta has crafted a ‘climate leadership plan’ that allows oil sands emissions to grow by 40% and places no restrictions on oil and gas production outside of the oil sands. A phase out of remaining coal plants, most of which were already due to be decommissioned under the former Harper government’s legislation, and a modest carbon tax, were also included.

Even with Alberta’s oil sands cap in place, National Energy Board (NEB) projections for oil and gas production growth show that upstream emissions will increase greatly, to the point that a 49% reduction in emissions from the rest of Canada’s economy would be required to meet our Paris targets.

Notwithstanding the difficulty in making such radical reductions outside of the petroleum sector in a short timeframe, the federal and Alberta governments assert that if the Trans Mountain pipeline expansion (TMX) is not built, even Alberta’s extremely modest ‘climate leadership plan’ may be cancelled.

Rachel Notley and Justin Trudeau have invested a lot of political capital in TMX but are ignoring the bigger picture. Even if oil and gas production is allowed to grow per the NEB’s projections, there are two other export pipelines likely to be built that are not mentioned in the heated TMX debate.

Line 3 and Keystone XL, without TMX, would provide sufficient pipeline export capacity for foreseeable production growth under the oil sands emissions cap, and access world prices on the Gulf Coast.

The oft-repeated ‘Canada has only one market’ rhetoric ignores the fact that oil is a globally priced commodity, that the US Gulf Coast has the world’s largest concentration of coking refineries able to optimally refine Canadian heavy oil, and that there is likely a price discount, not a premium, from exporting to Asia, given transportation costs.

But building any of these pipelines ignores the fact that upstream oil and gas emissions under Alberta’s plan, given NEB projections, will account for more than three quarters (76%) of Canada’s emissions by 2040 and 100% by 2050 – if emissions reduction targets are to be met.

Some environmental groups assert that it will be relatively easy to swap out fossil fuels for renewable energy – wind, solar, biomass, biofuels and geothermal energy. That is unlikely given the scale of such a transition. Renewable energy can certainly be scaled up a lot, along with geothermal energy for heating and cooling, but we will likely need fossil fuels for decades to come as we make the transition.

That’s because solar and wind are intermittent, on an hourly and seasonal basis, and the energy they produce – electricity – makes up only 17% of current delivered energy in Canada. They need to be backed up by dispatchable sources like natural gas, or with storage, to provide reliable power. Solar and wind now provide less than 5% of Canada’s electricity generation, and much less of total delivered energy.

All of which means we can’t make the transition overnight, and the longer we delay, the more difficult it will become. It also means we can’t simply plan to swap one source of plentiful energy for another, without reducing consumption. Mass transit, building codes, building retrofits and other efficiencies will be very important.

Industry extracts the lowest-cost, highest-quality, least emissions-intensive fossil fuel resources first. Knowing that fossil fuels will likely be needed for a long time to come, and that producing them is very emissions-intensive, Canada’s current de facto strategy of selling them off at rock bottom prices with declining revenues to government makes little sense.

Governments telling us we must increase emissions from oil and gas production in order to meet emissions reduction targets would make George Orwell proud. Canada needs a viable energy strategy that will meet long-term energy security needs and emissions reduction commitments. Investments in political capital, to the exclusion of common sense and a view beyond the next election, seem to have relegated us to Orwell’s world.

David Hughes is an earth scientist and author of Canada’s Energy Outlook: current realities and implications for a carbon-constrained future published by the Canadian Centre for Policy Alternatives and available at energyoutlook.ca

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Pipeline feud underscores need for evidence-based energy strategy

Canada’s long-term energy security needs and climate commitments cannot be met without major changes: study

VANCOUVER — A new study by veteran earth scientist David Hughes anchors the heated debate about pipelines and energy infrastructure within the realm of science and evidence. The study, which offers a comprehensive review of Canada’s energy systems, reveals that Canada’s existing plans fall short of meeting energy security and emissions reduction targets.

In contrast to heated rhetoric about Kinder Morgan’s proposed Trans Mountain Expansion (TMX) Project, Canada’s Energy Outlook: Current realities and implications for a carbon-constrained future—published today through the Corporate Mapping Project, the Canadian Centre for Policy Alternatives and the Parkland Institute—provides a detailed evidence-based assessment of Canada’s energy system and the options realistically available for an energy-secure, carbon-constrained future.

The study’s findings also run counter to key arguments made in favour of the TMX and expanding oil and gas production, including:

  • On emissions-reduction: Expanding oil and gas production as projected by the National Energy Board (NEB) means that the rest of Canada’s economy will have to reduce emissions by 49 per cent by 2030, and 85 per cent by 2040, to meet emissions reduction targets. This is almost certainly impossible in the timeframe available.

  • On available pipeline capacity: The TMX rhetoric ignores two other approved export pipelines. Line 3 and Keystone XL would provide more than double the export capacity of the TMX, and meet foreseeable export needs under the Alberta Government oil sands emissions cap.

  • On maximizing profit: The argument that TMX is necessary to capture an “Asia price premium” is false. Canadian heavy oil is discounted because of its inferior quality and due to the cost of transportation. That quality discount will be the same on the US Gulf Coast as in Asia, and the transport cost is higher to Asia—meaning that exports via TMX will command a lower price than exports to the US via pipeline.

  • On economic activity: Despite growing production, the proportion of Canadian GDP due to oil and gas production shrank 20% from 1997 to 2015. Returns to the public are also down: corporate taxes paid for extraction and refining are down more than 50 per cent since 2006, and royalty revenue has declined 63 per cent since 2000.

  • On job creation: Despite production growth, jobs in the extraction and distribution portions of the industry have been relatively flat since 2006 and declined in 2015 with the downturn in oil price. Further, job creation estimates by pipeline proponents are almost entirely short-term construction jobs. Permanent jobs from TMX, for example, amount to 50 in BC and 40 in Alberta, according to the proponent’s documentation.

  • On long-term prosperity: Canadians are likely to require fossil fuels for many years to come, given the daunting scaling issues in replacing them with alternative renewable sources. Canada has no strategy for oil and gas beyond expanding exports as rapidly as possible. This will deplete the highest quality portion of Canada’s remaining fossil fuel endowment—the portion that is the least costly and emissions-intensive to recover—thereby compromising long-term energy security with minimal economic returns, given the current low price environment.

These points are highlighted in the study, which explores the evolution of Canada’s energy system in comparison to other countries; the relationship of the economy to energy consumption and emissions; revenue generation and jobs from fossil fuel production; and existing government proposals to meet 2030 and 2050 climate commitments. After considering these many factors, the study concludes with recommendations for meeting long-term energy security and climate needs.

“This is a critical moment to develop a viable energy strategy, based on science and evidence, to address our future energy needs and emissions-reduction targets” says report author Hughes.

“We have relied on fossil fuels for more than a century and we’ve had a good run. There is no silver bullet—we will require both non-renewable and renewable energy resources in the future and need to be realistic about what we can expect from various energy options, as well as means to reduce consumption. We need to take steps now or we put our future energy security and emissions-reductions targets at grave risk.”

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The report—including chapter summaries and downloadable PDFs—can be found at energyoutlook.ca.

For more information or to set up interviews, please contact: Lindsey Bertrand (CCPA–BC Office) at [email protected] or 604-801-5121 ext 238

You may also contact:

  • In Ottawa: Alyssa O’Dell (CCPA–National Office / Eastern time zone) at [email protected] or 613-563-1341 ext 307 

  • In Edmonton: Scott Harris (Parkland Institute) at [email protected] or 780-492-3952
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“Canada’s Energy Outlook” report in the news

May 2, 2018 — The Tyee — Government revenue from fossil fuels in sharp decline

May 2, 2018 — News Talk 770 — David Hughes discusses the study with host Danielle Smith (starts at 01:29)

May 1, 2018 — The Star Vancouver — ‘Virtually impossible’ to ramp up oil and gas in Canada and hit climate targets, report warns

May 1, 2018 — DeSmog Canada — “10 handy facts about Canadian energy that you actually probably want to know”

May 1, 2018 — AM 1310 News — David Hughes discusses the study on the The Rick Gibbons Show

April 17, 2018 — CBC Radio One: Early Edition — “David Hughes says Alberta could wreak havoc with BC’s gas prices if it were to turn off the taps”