Yahoo Finance Philip Cross: De-carbonize production not consumption of fossil fuels
On Monday the federal government initiated a consultation on whether to use a cap-and-trade or a carbon tax to reduce emissions from Canada’s oil and gas sector by 40 per cent by 2030 — eight years from now. The industry is being asked to slash emissions more than the 30 per cent national target by either paying more than the existing tax on carbon or by lowering its production, which hardly seems what the world needs as it faces a growing energy shortage.
The federal government’s singling-out the oil and gas sector for outsized emissions reductions may have a silver lining, however. There is growing recognition in the business sector, if not yet in government, that decarbonizing our fossil-fuel supplies is a cheaper and more efficient way to lower emissions than decarbonizing their consumption. The latter involves overhauling the trillions of dollars of capital stock invested in our existing “mines, oil and gas fields, thermal power stations, hydroelectric dams, pipeline networks, ports, refineries, iron and steel mills, aluminum smelters, fertilizer plants, railroads, multilane highways, airports, skyscraper-dominated downtowns, and extensive suburbia” in the words of environmental scientist Vaclav Smil.
Moreover, decarbonizing oil and gas will be necessary even in a net-zero future since some uses of fossil fuels cannot reasonably be expected to disappear (notably their widespread use as a raw material in manufacturing everything from clothing to plastics). This is why the International Energy Agency expects fossil fuel production to still be a substantial 24 million barrels a day in its net-zero scenario for 2050.
Lowering emissions from oil and gas production will be costly. Some reductions, such as eliminating methane, are relatively easy, which is why the government expects them to fall 75 per cent by 2030. Other reductions involving carbon capture and sequestration will require billions of dollars of investment to capture emissions and ship them by pipeline to be buried underground. More investment will also be needed if small modular nuclear reactors replace the natural gas currently being used to melt the bitumen of in situ oilsands operations.
The fact that decarbonizing fossil fuels rather than re-tooling our whole society to shift away from using fossil fuels would save trillions of dollars makes it attractive for governments to subsidize these efforts, either through direct grants or tax credits, as both the Alberta and federal governments proposed in their spring budgets.
If Canada chooses to substantially reduce its carbon footprint, it really has no option besides decarbonizing its fossil fuel supplies. There is no prospect that either hydro dams or wind and solar energy can expand enough over the next decade to meet the projected growth of electricity demand. Few large hydro projects are being contemplated, as most major rivers flowing rapidly downhill in Canada have already been dammed, while costly overruns and controversy dog projects such as Muskrat Falls in Newfoundland and Site C in British Columbia. Wind and solar power have not proven to be either reliable or cost-competitive to become significant energy sources in Canada. Nuclear power should be an alternative, but environmentalists have succeeded in unfairly demonizing it and no province is investing significantly in nuclear. So the only realistic prospect of meeting our growing demand for electricity while reducing emissions is to decarbonize the oil and gas being burned in power-generating plants.
But there are gaping holes in the federal strategy to lower emissions. It makes no allowance for “carbon leakage,” in which reductions in Canada’s emissions are accomplished by importing goods from countries such as China where they are produced even more carbon-intensively. Nor does Canada receive credit for helping other countries lower their emissions by, for example, shifting their power plants to natural gas instead of coal. The target for emissions reduction has to be global, not national.
This is not to say Canadians will want to pursue decarbonization of either their production or consumption of fossil fuel. Canada’s emissions account for just 1.5 per cent of the global total (China alone producing 26.0 per cent). It would be understandable if Canadians increasingly questioned the sacrifice of their living standards even as emissions soar in emerging nations such as China and India. All major nations continue to struggle to come up with an effective plan to cut emissions while meeting energy demand. The U.S. Supreme Court recently tightened the limits on EPA regulations aimed at reducing emissions, while the Senate last week rejected President Biden’s climate-change plan. Meanwhile Europe is reversing planned reductions in fossil fuel-based power plants, with the EU asking member nations to begin rationing natural gas after Russia declared force majeure on its shipments.
As the saying goes, no military plan survives contact with the enemy. The same is turning out to be true of government plans to reduce carbon emissions. The transition to lower emissions is proving to be more complicated than environmental advocates and government planners imagined. Decarbonizing fossil fuel production while continuing to consume them may be the best way to lower emissions while maintaining our standard of living.Philip Cross is a senior fellow at the Macdonald-Laurier Institute.
