Confronting risks, uncertainties of Canada's energy transition
Despite their many differences during the election campaign, all four major national political parties agreed on at least one big thing: Canada needs to drastically cut its emissions during the next decade.
At the high end, the Green party proposed a 60-per-cent cut to to 2005-level emissions by 2030, while the National Democratic Party wanted a 50-per-cent cut, the Liberals were aiming for a 40- to 45-per-cent cut and finally the Conservative party was eyeing a 30-per-cent cut.
Given that emissions have actually risen in recent years, the consensus around the need to reduce emissions suggests that Canada's economy could look vastly different in less than a decade. Every sector already faces pressure to decarbonize — automakers are rapidly shifting production to zero-emission vehicles; heavy industries, such as steel and aluminum, are working to develop and market less-carbon intensive products and so on throughout the economy.
The oil and gas industry faces a double-edged challenge — it represents the largest source of carbon emissions, with production alone responsible for 26 per cent of Canada's emissions.
Even as the industry faces pressure to decarbonize, which will require significant investment, demand for its product is simultaneously expected to decline.
“The elephant in the room for Canada is that any climate change policy must come to terms with the outsized impact from carbon-intensive industries in the energy sector, specifically oil & gas,” economists from TD Bank wrote in an April report, titled `Don't let history repeat itself.'
The report estimates that by 2050, roughly 50 to 75 per cent, or as many as 450,000 oil and gas workers in Canada, spread throughout Alberta, Saskatchewan and Newfoundland and Labrador, face risk of displacement.
But somewhat counterintuitively, the economic transformation underway isn't necessarily negative.
The TD report, authored by Beata Caranci and Francis Fong, the bank's chief and senior economists, respectively, notes that to the extent that fossil fuel generated energy is replaced by renewables, the number of energy sector jobs could actually grow.
The catch is that the jobs may be in different regions, and the new jobs may require different skill sets.
Using the job displacement that occurred in the manufacturing sector in the 1990s and early 2000s as an example, as a result of automation, the authors advocate for investment and retraining now to help ease the workers into a new economy.
Given the investments to decarbonize, and talk by political parties to apply carbon adjustments at the border — a fee imposed on imports based on their carbon footprint, or in effect a carbon tax on foreign goods — it is possible that whole new markets open up for low carbon products, according to Fong.
If Canada invests now, some of its companies could even attain larger shares of certain markets through an early mover advantage, he said.
“You can be certain if we're not making the right investments to create those green economy jobs down the line, we're going to get left behind,” Fong told the Financial Post.
One of the challenges for Canada is that oil and gas accounts for just five per cent of gross domestic product, but had been a major source of employment growth — growing 71 per cent between 2001 and 2014, supplying among the highest paid jobs in the country, according to the TD report.
Stewart Elgie, a professor of law and economics at the University of Ottawa, said the transition away from fossil fuels toward renewable creates a paradigm shift in the energy sector from resource extraction of oil, gas and coal, to manufacturing of solar panels and wind turbines.
Canada may not be well-positioned to compete on manufacturing against developing countries with lower labour and compliance costs, many of which also lack carbon pricing, he said.
But Elgie emphasized that a decarbonized economy will reshuffle supply chains in a way that hasn't happened in decades. That is likely to create new opportunities to establish whole new sectors in Canada, he said.
“The biggest challenge for us is that in any economic transition you've got to take risk,” said Elgie.
“You've got to make some bets about where you think you can succeed in the future and it's always a public-private partnership — our government is going to have (to) be co-investors in making some of those bets and the public is going to have to accept that not all of those bets will succeed.”
He noted that Alberta has no provincial sales tax, and instead relies on oil and gas revenues to fund its budget.
That's led to dramatic budget swings based on commodity prices — with a projected deficit recently narrowing to $7.8 billion versus an estimated $18.2-billion deficit projected in February.
But Elgie also suggested it would be more responsible to invest the oil and gas revenues into projects that could help diversify the economy.
Alberta could invest in products made from fossil fuels, such as plastics or other high value products such as carbon-fibre, Elgie said.
The biggest challenge for us is that in any economic transition you've got to take risk. You've got to make some bets ...