Oil & Gas Emissions Cap to Cost Canadian Economy Up to $79 Billion Annually, Benefit Other Producers: REPORT

Oil and Gas Emissions Cap to Cost Canadian Economy Up to $79 Billion - REPORT MEI

Is an emissions cap on oil and gas in Canada good for our families and the global environment? According to a new report by the Montreal Economic Institute (MEI), implementing an emissions cap on an already highly regulated sector will cause significant economic pain for Canadians while potentially ceding market share to less responsible producers.

The Economic Impact of Applying a Carbon Emissions Cap to the Oil and Gas Sector predicts that tens of billions of dollars may be lost yearly if the cap comes into effect while Canada moves towards achieving zero net reductions in global greenhouse gas (GHG) emissions.

In July 2022, the federal government published a document discussing potential methodologies for implementing the cap by 2030. Among these was a cap-and-trade system that would only apply to the oil and gas industry, singling it out among several other major emitting sectors of the Canadian economy.

According to MEI, energy production may decline if such a policy was implemented, with the capital allocated for cleantech and innovation by oil and gas companies to follow. This, of course, would dramatically hinder Canada’s goal of reaching net zero emissions by 2050 given that these companies are collectively the highest spenders on cleantech and innovation in the country.

Canadian policy choices around energy matter - Darryl White - BMO CEO - Copy

Report Highlights:

> The federal government recognizes that Canada’s oil and gas sector has already significantly reduced its GHG emissions. Oil sands producers have reduced their GHGs per barrel produced by 33% since 1990 and account for more than half of investments in Canada’s energy transition and the achievement of carbon neutrality.

> The federal government says additional measures are necessary to achieve the ambitious GHG reduction targets of 40% by 2030 compared to 2005.

> Canada’s oil and gas industry is already subject to many GHG regulations, such as methane regulations, clean fuel regulations, and the federal carbon pricing program.

> A new cap-and-trade system for GHG emissions would add to an already heavy regulatory burden for the oil and gas sector. Applying such a measure to one sector in isolation from the rest of the economy would also go against the logic of how cap-and-trade systems work.

> Applying a cap-and-trade system on oil and gas goes against the optimal conditions for such a system and may lead to a decline in production.

> A molecule of carbon dioxide (CO2) released into the atmosphere by the oil and gas sector has no greater climate warming potential than a molecule of CO2 emitted by a gas-powered car or emitted during industrial processes like steel or cement production.

If the ultimate goal is to reduce GHGs in the atmosphere, then it makes no difference which economic sector this reduction comes from. Therefore it is illogical to consider the oil and gas sector alone and in isolation from the rest of the Canadian economy.

Economic Impacts of Declining Production

Chrystia Freeland says Canadian energy sector is a big part of the economy, ex - Copy

If Canada decides to impose a specific cap-and-trade system for the oil and gas sector alone, it will likely entail what was proposed in the 2030 Emissions Plan with a goal of 42% lower emissions below 2019 levels for the sector as a whole. Therefore:

> To maintain 2019 levels of production, the oil and gas sector will have to reduce its GHG intensity, defined as the emissions from the production of one barrel of oil equivalent (boe), by 42% to meet the cap.

> If no new GHG intensity reductions are obtained, the industry will effectively have to reduce its production by 42%

> An increase in Canadian oil and gas production would only be possible by effectively reducing GHG intensities by more than 42%

> Additionally, the Canadian government expects oil and gas production to rise by 2030 to 2.97 boe, up from 2.71 boe in 2019. Therefore, GHG intensities per boe would have to drop by 47% compared to 2019 levels. Hence, any improvement in GHG intensity less than 47% would result in lower-than-projected production.

economic impacts of an emissions cap on oil and gas in Canada in 2030Montreal Economic Institute

Scenario 1 - $79.3 billion lost from the Canadian economy in 2030 alone

Scenario 2 - $59.6 billion lost from the Canadian economy in 2030 alone

Scenario 3 – $44.8 billion lost from the Canadian economy in 2030 alone

Arbitrarily imposing an emissions cap on one of the largest prosperity-generating industries may very well do even more damage to the Canadian economy than listed above, says MEI.

For example, the emerging global carbon capture, utilization and storage (CCUS) sector is expected to play a key role on the road to net zero. Between now and 2050, it is estimated that $1 trillion of investment is required into CCUS to achieve net zero ambitions. This, of course, is capital Canada may lose out on if we starve our energy companies of the funds necessary to bring these projects to fruition by diminishing investment.

Let us remind ourselves that between 2000 and 2019, the oil and gas sector generated over $500 billion in revenues for Canadian governments across the country. These funds are used to pay for our schools, hospitals, roads, and critical jobs that give our country one of the world's highest standards of living and quality of life ratings.

For Canada to jeopardize such wealth to reduce emissions – GHGs which will simply be “offshored” and produced elsewhere by ceding global oil and gas market share to less environmentally responsible countries – seems like a lot of pain for Canadians with no gain in the fight against climate change.

Global Emissions, Energy Security & Demand

Global energy demand is projected to grow 47% by 2050 and we need all sources of energy to meet this demand worldwide

Canada’s energy exports would suffer significantly under an oil and gas emissions cap, reducing supply to our closest allies and trade partners (mainly the U.S.). As a result, these nations would have to begin importing more oil and gas from elsewhere to compensate for the shortfall, likely from producers with much less governmental transparency and protections for human rights and the environment.

The International Energy Agency’s 2022 World Energy Outlook has found oil demand to continue growing until at least the mid-2030s, when an uptick in electric vehicles will see consumption peak at around 103 million barrels per day (bpd).

Meanwhile, OPEC’s 2022 World Oil Outlook expects a surge in fossil fuel demand come mid-century. According to the cartel, global oil demand is expected to increase from 97 million bpd in 2021 to around 110 million bpd in 2045, requiring a cumulative investment of $12.1 trillion to maintain adequate supply.

Shell’s latest liquefied natural gas outlook found global LNG demand to grow 90% by 2040, up from around 380 million tonnes per annum (mtpa) to more than 700 mtpa. Rystad Energy also projects global LNG demand to peak above 700 mtpa in 2034, up from around 380 mtpa in 2021.

With growing global oil and gas demand, it’s mind-boggling to think that Canada is considering an emissions cap that has the potential to prevent some of the world’s most sustainable and reliable energy from reaching international markets.

If anything, Canada should be promoting its petroleum products as a go-to source amid the world’s worst-ever modern energy crisis, where governments now see the importance of responsible supply chains.

Canadian Energy is Good for the World

Carbon capture will ensure Canadian energy leads the way in the low emission oil and gas future

Canadian oil and gas is produced under one of the most stringent regulatory regimes in the world. We are one of the most transparent and regulated energy producers on the planet, and a global leader in emissions reductions, water use reductions, cleantech and innovation, research and development, the deployment of renewables, and so much more.

Furthermore, protection for workers’ rights and the environment is at the core of what we do as one of the world's last major democratic energy producers.

In short, we are a global leader in reducing environmental impacts associated with energy production, and should not even begin to think about diminishing our role in global energy markets.

Reducing Canadian oil and gas production doesn’t keep one molecule in the ground. All this does is cede market share to less responsible producer countries – often with autocratic governments that just don’t care about democratic values and principles like Canadians do.

Canada has a growing role in providing the world with more responsibly produced oil and gas – not less. Implementing an oil and gas emissions cap that could reduce the volume of Canadian energy on global markets isn’t a win for Canadians, global energy security, or the environment. In fact, it’s quite the opposite.

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