Key Points
Capping oil and gas emissions likely means a cap on production, resulting in:
• Significantly reduced government revenues, funds used to pay for public programs, infrastructure and jobs
• New barriers to Indigenous economic reconciliation via responsible resource development on their lands
• Harm to Canada’s net trade balances and consistent surpluses afforded to us by energy exports
• Ceding of oil and natural gas production to other countries with less protections for human rights and the environment -- despite growing global demand for years to come -- with likely no net reduction in global emissions
If you care about Canada's economic prosperity, the upcoming emissions cap on its oil and natural gas sector should be of enormous concern to you.
The oil and gas industry contributes immensely to the overall wealth and prosperity of Canadians nationwide. It is:
> a significant source of revenues for our governments, which pay for social programs and public infrastructure while underpinning the high standard of living that Canadians enjoy
> a vital job creator for Indigenous and non-Indigenous peoples alike, supporting hundreds of thousands of jobs and families in nearly every province and territory
> contributes immensely to our net exports, ensuring healthy trade balances and underpinning a strong economy
> one of the most transparent, regulated and environmentally conscious oil and natural gas sectors worldwide, and should be a go-to supplier of choice for the world’s energy needs
Hence, at a time when global oil and natural gas demand continues to grow to new record highs [1][2], it seems counterintuitive to introduce a cap on Canada's responsible and reliable energy sector.
The cap - which limits emissions from the oil and gas industry alone - is in isolation from the rest of Canada’s economy and could require up to a 47 per cent drop in production for compliance. This would only shift global oil and gas market share out of Canadian hands and into those of less responsible producers, likely without any net reduction in global GHG emissions [3].
If you value high levels of regulatory transparency, world-class environmental protections, and top-notch workplace standards, Canada is the best choice for the world's future energy needs. And, if you value the high standard of living and quality of life afforded to Canadians by the energy sector, you should be wholly concerned about the up-and-coming oil and gas emissions cap and its potentially significant adverse effects on the economy.
- Oil & Gas Emissions Cap to Cost Canadians Up to $79 Billion Annually: REPORT
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- Canada Leads the World with Most Active Carbon Pricing Initiatives
Cost Canadians up to $79 billion annually
Canada's plan to cap oil and natural gas emissions may come at a significant cost to the economy, according to the Montreal Economic Institute (MEI).
The Economic Impact of Applying a Carbon Emissions Cap to the Oil & Gas Sector describes how a cap would take its toll on Canada’s prosperity without likely accomplishing any net reduction in global emissions.
"Each barrel of oil that is not produced here will simply be produced somewhere else, often somewhere with more lenient environmental standards than ours," says Olivier Rancourt, MEI economist and co-author of the report.
Rancourt continues, suggesting that Canada "…simply does not have the power to affect international demand, and reducing local supply will do nothing but export jobs and tax revenue."
MEI estimates that the decline in production required to achieve a 42 per cent emissions reduction would cost the Canadian economy between $44.8 billion and $79.3 billion per year starting in 2030.
If no new reductions in GHG intensities were achieved by 2030, the oil and gas industry would effectively have to reduce production by 42 per cent versus 2019 levels to comply with the cap. Additionally, with expected increases in Canadian oil and gas production through 2030, this figure increases to a 47 per cent drop in production levels by the end of the decade.
The International Energy Agency (IEA) predicts global oil demand to reach a record high of 105.7 million barrels per day (bpd) by 2028, just two years shy of when Canada’s emissions cap will be imposed on the economy [4]. Additionally, global liquefied natural gas (LNG) demand is projected to grow 76% by 2040 [1].
It seems irrational for Canada to consider capping oil and natural gas production by 2030 when demand has never been stronger and it remains one of the most responsible and reliable energy-producing countries in the world.
As long as there is a need for these energy sources, they should come from countries like Canada that are bastions of democracy and dedicated to reducing environmental impacts.
Canada’s wealth of energy resources - mainly oil and natural gas - plays an oversized role in generating the funds that underpin our social programs, standard of living and way of life. We should never forget that.
Canadian prosperity would suffer immensely
If Canada’s oil and natural gas sector must reduce production levels to comply with a cap, the country would likely face significant, economy-crippling revenue shortfalls. For example:
> Canadian governments received nearly $579 billion in revenues from the oil and natural gas sector between 2000 and 2019, capital used to invest in and pay for our schools, hospitals and roads [5].
> Last year, the Royal Bank of Canada released a study that estimated a significant financial windfall for Canadian governments through the oil and gas sector, generating $112 billion in royalties and taxes between 2022 and 2023.
> Another recent report estimated an additional $597 billion in government revenues from the oil and natural gas sector from 2023 through 2032 [6].
> Combined, that is well over $1.1 trillion in revenues generated for Canadian governments between 2000 and 2032 from oil and gas.
> In 2020, about 593,000 jobs were supported by oil and gas in Canada. The industry is also a critical employer of Indigenous Peoples, who accounted for approximately 10,400 of those jobs [7].
Which Canadian industry would replace lost government revenues induced by an emissions/production cap? And perhaps more importantly, what countries would benefit from a weakened Canadian presence in global energy markets?
If you value global peace, transparency, social progress and environmental protection, voluntarily ceding Canada’s global energy market share to less responsible – and often autocratic – producer countries via an emissions cap would be a huge mistake.
Barrier to Indigenous economic reconciliation
Indigenous involvement in new oil and natural gas projects is growing, as community leaders look to meaningful participation in developing resources on their lands as a way forward towards economic reconciliation. In many instances, these remote First Nations live in abject poverty due to a lack of lasting economic opportunities in their communities.
Today, responsible energy development has become instrumental in drastically improving the socio-economic conditions of Indigenous communities across Western Canada. Since 2014, Indigenous employment in Canada's oil and gas sector has grown by more than 20 per cent. Oil and gas companies spent over $2.6 billion on procurement from Indigenous businesses in 2019 alone - up from $1.5 billion in 2017 [7].
Coastal GasLink, for example, has awarded more than $1.7 billion in contracting opportunities to Indigenous and local communities [14]. The pipeline will supply LNG Canada and other export facilities in the Kitimat area with natural gas for liquefaction, to be shipped across the ocean to energy-hungry buyers in Asia.
Speaking of Canada’s only current LNG export facility under construction, LNG Canada has invested over $4 billion in contracts and procurements with businesses in British Columbia, including $3 billion spent with local and Indigenous-owned businesses [15].
In the spirit of economic reconciliation with Indigenous communities, these figures are something to be excited about.
First Nations want an energy future, not eco-colonialism
— Canada Action (@CanadaAction) February 5, 2023
“If left to climate activists, Indigenous people would be the last to benefit, the last to participate, and the last to be connected to new infrastructure.”#BCPoli #BCLNG #CdnPoli https://t.co/Qqh76ptwCf
Cedar LNG's recent approval is an excellent example of how First Nations are becoming owners of critical energy infrastructure projects that will benefit not only their communities, but also those in surrounding areas.
"Today is a historic day for me and my people. Today is not just about the approval of an LNG facility,” said Crystal Smith, Chief Councillor of the Haisla Nation, upon Cedar LNG’s approval [8].
“Today is about changing the course of history for my Nation and Indigenous peoples everywhere, a history where Indigenous people were left on the sidelines of economic development in their territories, a history where Indigenous peoples’ values were ignored in favour of economic gain, impacting the environment and our way of life. Today’s environmental approval of Cedar LNG paves the way for our Nation to take control of our future.”
Will Canada give up reconciliatory opportunities with First Nations for an emissions cap that may shift Indigenous jobs and revenues to less responsible producers abroad while potentially having no net reduction in global emissions?
If you value economic reconciliation with Indigenous communities and support their right to self-determination, it becomes difficult to get behind an emissions cap that may limit the development of future Indigenous-led energy projects.
Canada’s trade balances and wealth would suffer
Canada’s trade balances would also suffer if the oil and natural gas sector had to reduce production to comply with an emissions cap [4].
For example, petroleum products accounted for 29 per cent of Canada's total exports in 2021, valued at roughly $140 billion [9]. Furthermore, oil and natural gas exports added $1.94 trillion to Canada’s balance sheet from 1988 to 2019, a figure so vast it is impossible to comprehend [10].
The nifty chart above shows how critical energy products are for Canada’s net trade balance.
With less production under an emissions cap, Canada would likely fall into a major trade deficit. The value of our imports would quickly exceed that of exports, leaving a gaping hole in our balance sheet.
Canadians would no longer enjoy the trade surpluses we often have, which are propped up by oil and natural gas products and used to pay for imports of a wide variety of other consumer goods.
Global energy security and climate action would suffer
An emissions cap on Canadian oil and natural gas would also harm global energy security and climate action.
Canada - one of the most stable and responsible energy exporters - has an increasingly important role to play as a go-to supplier of oil and natural gas. Japan, Germany, South Korea and others abroad have all asked us for our energy over the past several months as they seek more reliable fuel sources from reliable democratic producers [11][12].
Additionally, Canada is also widely recognized as one of the most transparent, highly regulated and environmentally conscious energy exporters on the planet. Canadian oil and gas companies are leaders in deploying innovations and cleantech that aim to reduce the environmental impacts associated with the extraction and production of these critical resources.
And besides, Canada’s oil and gas absolute emissions already peaked in 2015, since then dropping by 7 per cent, despite production levels rising by 16 per cent [13]. Through continued world-class environmental performance, Canadian oil and gas is making steady progress on emissions reductions while providing immense economic benefits to families and governments nationwide.
Why impose a cap on a singular part of the Canadian economy, which has already seen its emissions peak years ago? It doesn't make any sense.
If you support local jobs, energy security, human rights and climate action, you should support democratically produced Canadian oil and natural gas.
Support responsible Canadian energy
The evidence is in. An emissions cap on Canadian oil and natural gas production will likely do nothing but significantly diminish Canada’s economic prosperity while benefitting less responsible producers abroad with the potential to see zilch reductions in net global GHG emissions.
At a time when global oil and natural gas demand is growing to new highs, it only makes sense to source that energy from the most sustainable and reliable producers around – from countries like Canada.
We do not have to choose between supporting oil, natural gas, geothermal, hydro, hydrogen, wind, solar, nuclear, etc. We need all-inclusive and pragmatic solutions to fulfill our growing energy needs, which will underpin a strong and prosperous economy for decades to come.
We can do it all! Let’s not leave any Canadian family behind!
Join us online to learn more about how we can take on an all-inclusive approach and work together for a better Canada and a better world.
— Canada Action (@CanadaAction) August 26, 2023
SOURCES:
1 – Shell – LNG Outlook 2023 – Date Accessed: March 2023 (https://www.shell.com/energy-and-innovation/natural-gas/liquefied-natural-gas-lng/lng-outlook-2023.html#iframe=L3dlYmFwcHMvTE5HX291dGxvb2tfMjAyMy8)
2 – International Energy Agency – World Energy Outlook 2022, STEPS Scenario – Date Accessed: March 2023 (https://www.iea.org/reports/world-energy-outlook-2022)
3 – Montreal Economic Institute – The Economic Impact of Applying a Carbon Emissions Cap to the Oil and Gas Sector – Date Accessed: March 2023 (https://www.iedm.org/the-economic-impact-of-applying-a-carbon-emissions-cap-to-the-oil-and-gas-sector/)
4 - International Energy Agency. (2023, July 12). Growth in global oil demand is set to slow significantly by 2028. Retrieved from https://www.iea.org/news/growth-in-global-oil-demand-is-set-to-slow-significantly-by-2028. Date Accessed: August 2023.
5 – Canadian Energy Centre – $755 billion: The energy sector's revenue contribution to Canadian governments, 2000-2021 – Date Accessed: March 2023 (https://www.canadianenergycentre.ca/755-billion-the-energy-sectors-revenue-contribution-to-canadian-governments-2000-2021/)
6 – Canadian Energy Centre – $495 billion in government revenues from the Canadian oil and gas industry projected over next decade – Date Accessed: March 2023 (https://www.canadianenergycentre.ca/495-billion-in-government-revenues-from-the-canadian-oil-and-gas-industry-projected-over-next-decade/)
7 - Government of Canada – Options to cap and cut oil and gas sector greenhouse gas emissions to achieve 2030 goals and net-zero by 2050 – discussion document – Date Accessed: March 2023 (https://www.canada.ca/en/services/environment/weather/climatechange/climate-plan/oil-gas-emissions-cap/options-discussion-paper.html)
8 – Haisla Nation – March 14, 2023 Statement – Date Accessed: March 2023 (https://www.cedarlng.com/wp-content/uploads/2023/03/HNC_EAC_Decision_C_Smith_Notes_FINAL.pdf)
9 – Natural Resources Canada – Energy Factbook 2022-2023 – Date Accessed: March 2023 (https://publications.gc.ca/site/archivee-archived.html?url=https://publications.gc.ca/collections/collection_2022/rncan-nrcan/M136-1-2022-eng.pdf)
10 – Canadian Energy Centre – Over $1.9 trillion: The value of Canada's oil and gas exports, 1988 to 2019 – Date Accessed: March 2023 (https://www.canadianenergycentre.ca/over-1-9-trillion-the-value-of-canadas-oil-and-gas-exports-1988-to-2019/)
11 – Reuters – Germany touts possible 'major role' for Canadian LNG in shift away from Russia – Date Accessed: March 2023 (https://www.reuters.com/business/energy/canadian-lng-could-play-major-role-germanys-shift-russian-gas-scholz-2022-08-23/)
12 - Business in Vancouver – Korea, Japan want Canadian LNG – can Canada deliver? – Date Accessed: March 2023 (https://biv.com/article/2023/02/korea-japan-want-canadian-lng-can-canada-deliver)
13 - The Globe and Mail. (2023, July 20). How Canada's oil production rose and emissions fell – and what it means. Retrieved from https://www.theglobeandmail.com/opinion/editorials/article-how-canadas-oil-production-rose-and-emissions-fell-and-what-it-means/. Date Accessed: August 2023.
14 - Coastal GasLink. (n.d.). Indigenous Relations. Retrieved from https://www.coastalgaslink.com/sustainability/indigenous-relations/. Date Accessed: August 2023.
15 - LNG Canada. (n.d.). Local Communities. Retrieved from https://www.lngcanada.ca/commitments/local-communities/. Date Accessed: August 2023.