OPINION: Canada's energy narative needs an urgent reboot
by Jatin Nathwani, December 2, 2019
Recall history. Oil was discovered in Ontario in 1865. Today, oil extraction in Ontario is no longer of any economic significance and, yet, Ontario continues to thrive. There is no reason to assume that a different economic future for Alberta or Saskatchewan is not possible. The Hill Times photograph by Andrew Meade
WATERLOO, ONT.—The positive contribution to Canada’s economic well-being by the fossil fuels resource sector—oil, coal, gas—is well-recognized, a matter of record and fully accepted by Canadians. Primarily Alberta and Saskatchewan, but also British Columbia, Newfoundland and Labrador and Nova Scotia have been in the vanguard, bringing technological innovation and business acumen to deliver jobs, prosperity, and sustained revenues to all levels of government.
Whether this story of unenviable success—the hen that lays the golden egg—will continue into the future is now in doubt. This is not a result of perceived “perfidy” of the federal government, its approval processes or opposition of Indigenous and environmental groups to new projects. The root cause is a massive global technological disruption that is underway unleashing forces of change that will undermine the rosy growth forecasts of demand for oil and gas. When combined with the risk of an energy transition, arising from requirements to limit carbon emissions, a scenario cannot be ignored that turns fossil fuel resources into stranded assets.
Growing concern amongst central bankers of the world, initially led by Mark Carney at the Bank of England, and, subsequently reinforced by others, is the view that the transition away from fossil fuels can be a threat to global economic stability. Thus, companies with heavy exposure to carbon emissions are now susceptible to substantial downward pressures on their valuations. With the insurance industry increasingly reluctant to underwrite climate-induced risk and portfolio managers and investment bankers demanding full disclosure of corporate vulnerabilities, it would be foolish to ignore these developments before fossil fuels become an albatross around our collective necks.
There is an urgent need for an honest conversation to understand the national implications of a continued reliance on fossil fuel resources as the backbone of an economic development strategy. It is becoming increasingly clear that, by 2030, oil will no longer maintain its dominance as the fuel of choice for transport: what is a high value product today will become less so as we approach mid-century.
The evidence is mounting. Disruptive innovations enabled by digital technologies, data science, remarkable decline in battery costs (70 per cent in the last six years) and electrification of mobility (cars, trucks, tractors, two and three wheelers, e-trikes) pose trouble for the sector. For example: it took 20 years to sell the first million electric vehicles (EVs) and then only 18 months to sell the next million and then four months to sell the fifth million. Photograph courtesy of Pixabay
The evidence is mounting. Disruptive innovations enabled by digital technologies, data science, remarkable decline in battery costs (70 per cent in the last six years) and electrification of mobility (cars, trucks, tractors, two and three wheelers, e-trikes) pose trouble for the sector. For example: it took 20 years to sell the first million electric vehicles (EVs) and then only 18 months to sell the next million and then four months to sell the fifth million. Growth rates of the electric vehicle market shares projected to double every two years into 2025 and beyond, reflect an underlying reality that customers choose electric vehicles because they offer superior performance and a cost advantage over gasoline cars.
Adding to the woes of the oil sector is a dramatic shift within the auto industry. It is a full-scale pivot away from gasoline cars towards electric vehicles. The re-tooling of the factories with massive investments in electric mobility is proceeding on all fronts—choice of models, longer-range performance, an expanding charging infrastructure and batteries coupled to high efficiency electric motors—showing no signs of decline in cost performance. With national governments strengthening policy support by mandating the phase out of gasoline and diesel vehicles in the 2025 to 2040 period, the global movement away from the internal combustion engine is now firmly entrenched. This is a tectonic shift will be neither orderly, linear, nor predictable.
By lowering the decibel levels of provincial-federal discourse around carbon pricing, pipeline approval processes and post-election angst around Western Canadian alienation, we can create the ‘white-space’ for meaningful dialogue and get into a ‘problem-solving’ mode. Industry leaders, policy-makers, and academics need to embark on a fundamental re-think of the entire architecture of our energy system to respond to changing circumstances.
Transforming Canada’s fossil-based energy system:
Is this possible? Over two to three decades, yes, but the need for action is now.
Diversification of Supply: Canada has the technological and scientific capacity to go from transportation of fossil fuels by pipelines to movement of electrons by wires utilizing diverse sources of energy such as hydro, nuclear, geothermal energy, large-scale wind and solar with storage and bioenergy resources.
Deep Electrification of the Economy: This is part of the answer because electrification offers the path to prosperity. With high levels of urbanization, intelligent energy networks offer commercial enterprises and households to participate actively in energy markets as producers and consumers of energy, improve efficiency of energy use and enhanced electric mobility. Data is the new gold and information technologies and network connectivity is the social glue that holds cities and communities together.
Geothermal Energy Led by the Oil and Gas Sector: Over the past century, the oil and gas sector has acquired an unparalleled technological capacity to drill, explore, extract, and bring carbon energy to markets. The sector has extensive knowledge of geology and geotechnical engineering expertise as demonstrated a compelling record of risk and cost reduction on a global scale. Turning the advantage on its head requires extraction of heat instead of carbon from the Earth’s mantle.
Geothermal energy resources—five to seven kilometers below the surface—is a perfect substitute for fossil fuels, a bonanza in waiting without any drastic changes to the existing financial incentives, depreciation allowances and tax credits available to the sector for drilling activities.
An opportunity beckons. Is it too much to ask the oil and gas sector to turn its gaze to extracting heat rather than carbon as the primary energy resource? Time has come to bid a fond farewell to fossil resources and a compelling opportunity exists for the oil-and-gas sector to lead the way to a low-carbon energy economy.
Recall history. Oil was discovered in Ontario in 1865. Today, oil extraction in Ontario is no longer of any economic significance and, yet, Ontario continues to thrive. There is no reason to assume that a different economic future for Alberta or Saskatchewan is not possible.
Professor Jatin Nathwani is the founding executive director of the Waterloo Institute for Sustainable Energy (WISE) and holds the prestigious Ontario Research Chair in Public Policy for Sustainable Energy at the University of Waterloo.
The Hill Times Online Dec. 2, 2019: