Canada Must Adapt to Low Oil and Gas Price Environment, International Energy Agency Warns

If Saudi Arabia’s oil minister’s dire warning about high-cost energy producers didn’t effectively get the message across that Canada needs to adjust to a new market reality, perhaps a new warning by the International Energy Agency (IEA) might.
 
“We are likely to see continued capacity increases (in) the near term, with growth slowing considerably, if not coming to a complete standstill, after the projects under construction are completed,” the IEA said in an oil market overview published Monday.
 
According to the IEA, Canada’s oil era may be coming to an end due to dramatically low prices, increasing environmental concerns, a lack of public support for pipelines and evolving climate policies.
 
In an in-depth review of Canada’s energy portfolio and policies released Thursday, the agency urged Canada to adopt strong climate goals as it considers future energy production.
 
“As a leading exporter of oil, coal, natural gas, uranium and hydropower, Canada is a cornerstone of global energy markets and energy security,” IEA Executive Director Fatih Birol said as he presented the report, Energy Policies of IEA Countries – Canada 2015.

At the COP21 climate summit Canada committed to the Paris Agreement, which seeks to limit global temperature increases to two degrees Celsius. The treaty, signed by nearly 200 nations, also aims for a major decarbonization of the world’s economy by 2050.

Under the previous federal government Canada pledged to cut emissions by 30 per cent below 2005 levels by 2030 although a recent Environment and Climate Change Canada report revealed Canada is not on track to meet that target in large part due to rising emissions from the oil and gas sector.
 
“We very much welcome that the new federal government is collaborating closely with provinces and territories to turn Canada’s COP21 climate pledges into concrete energy policies,” Birol said Thursday.
 
Federal-Provincial Climate Collaboration Still in Question 

Since the agency last reviewed Canada’s energy policy in 2009, Canada has made some climate-friendly changes, most notably through the shuttering of major coal-fired power plants.
 
However, Canada’s long-running lack of federal greenhouse gas regulations has negatively influenced the oil and gas industry, the report notes. The agency recommends Canada “reduce uncertainty for investors and project developers by setting a clear timeline for the implementation of federal GHG regulations.”
 
The report also noted Canada has yet to put in place a mechanism for working with the provinces to align climate goals.
 
The federal government will meet with provincial environment ministers early next month to discuss how Canada will collectively work towards its climate targets.
 
According to Erin Flanagan, policy expert with the Pembina Institute, how Canada will craft a national energy framework remains a question.

“One of the things the federal government talked about is using Canada's climate target as a floor instead of a ceiling,” Flanagan said in an interview at the COP21 climate talks. Canada's climate target requires reducing emissions 30 per cent relative to 2005 levels by 2030.

But, she added, what that means on a provincial level remains unclear. This could lead to complications with provinces like Alberta that have just unveiled new climate leadership plans.

In November Alberta promised to phase out its 18 coal-fired power plants, introduce a carbon tax to match B.C.’s $30/tonne price and to put a cap on oilsand’s emissions. The province’s plan did not guarantee absolute emissions reductions by 2030 or acknowledge how the provincial plan will fit within federal targets.

The provincial government's climate panel “provided a pathway to reach emissions stabilization 2030,” Flanagan said. “So there will need to be additional conversations now about what Alberta’s contribution to a national target will be.”

Low Oil Prices Won’t Last Forever

Canada’s oil-dependent economy has been significantly impacted by a major downturn in oil prices. As Canadian crude prices have fallen to record lows, Alberta has lost 63,000 jobs, according to Natural Resources Minister Jim Carr.
 
Today’s report notes that although the Canadian economy is heavily reliant on the energy industry — about 10 per cent of the national GDP is due to oil and gas production — the country has the opportunity to diversify its energy mix by investing in clean energy.
 
“Canada is in a strong position to foster innovation and become a leader in clean energy technologies,” the report states. “This will contribute to reducing the environmental impact of energy use and production, as well as the cost of natural resource development, notably for oil-sands operations.”
 
The agency states that Canada needs to shift investment and policy to support clean energy technologies.
 
A September report by Clean Energy Canada found that the value of clean energy projects in Canada approached $11 billion in 2014, although suffered from a lack of government investment and policy support.
 
“The news on clean energy is good, but with federal leadership, it could be terrific,” Clean Energy Canada executive director Merran Smith told DeSmog Canada at the time of publication.
 
“Unlike Washington, Ottawa’s pretty much been ignoring this sector. We hope and expect this report will serve as a flashing neon sign for federal parties: There’s a huge opportunity here; get on board and show us what you can do.”
 
The IEA report acknowledges that current oil market conditions provide an opportunity to turn investment interest towards alternative energy.
 
“While today’s low oil prices may drag down returns and pressure future investment, these conditions will not last forever,” Birol said.
 
“By ensuring responsible energy production and use, Canada can continue to develop its resources while balancing economic and sustainability goals.”

Image: Kris Krug, DeSmog Canada