A Cap on Canadian Oil & Natural Gas is a Cap on Energy Security

An emissions cap on oil and natural gas is a cap on Canadian energy security

Why should you care about a possible up-and-coming emissions cap on Canadian oil and natural gas producers? Apart from potential economic consequences, the policy also poses a major risk to the energy security of Canadians and our allies.

Canada’s oil and gas companies are expected to reduce total emissions by 42% by 2030 under the cap, a plan that may force production cuts to comply [1][2]. At the same time, global demand for oil and natural gas will be at record highs in 2030, and Canada will be one of the only top producers and exporters on earth with such a policy.

Rewind to today. Amid the world’s worst energy crisis ever, Canada’s trade partners are asking for more of our reliable and responsible energy [3]. Japan, Germany and South Korea are some countries that have made it clear they prefer Canadian energy over other sources abroad because of our shared values – and our reliability and sustainability as one of the few major democratic energy exporters worldwide.

A few years ago, Germany’s Chancellor likely would never have come to Canada asking for new liquefied natural gas (LNG) supplies – as Olaf Scholz did in August 2022. That visit last summer happened because the European Union – facing severe energy shortages and high prices primarily due to the war in Ukraine – introduced new taxonomies on nuclear and natural gas plants to shore up electricity supplies, labelling investments into these energy sources as ‘green’ [5].

What better place to get the natural gas his country needs than from Canada, Scholz thought – and stated on numerous occasions during his summer visit.

“As Germany is moving away from Russian energy at warp speed, Canada is our partner of choice. For Now, this means increasing our LNG imports. We hope that Canadian LNG will play a major role in this,” the Chancellor said while visiting Canada in August 2022.

Scholz’s visit must have been important. Angela Merkel, his predecessor, had not visited Canada since 2015 [6].

Unfortunately, Scholz left Canada empty-handed and soon turned to Qatar for a multi-billion-dollar, 15-year LNG export agreement starting in 2026.

We Can Support Energy Security & Climate Action

Today, the EU undoubtedly remains one of the most climate focussed regions worldwide. However, it is abundantly clear that energy security has also become critical for Europe's policymakers.

Many, like Scholz, are now looking to strike a balance between climate action and energy security. The EU is just one of many global jurisdictions in pursuit of a healthy balance between the two.

Japan, the world’s second-largest LNG importer, is also scrambling to shore up its own energy supplies.

Like Scholz, Japan’s Prime Minister Fumio Kishida also visited Canada asking for our responsibly produced energy, preferring Canadian energy over other sources.

“We’re facing an energy crisis and countries around the world are trying to strike a balance between ensuring a stable supply of energy, as well as the other side, the decarbonization. In that sense, I am confident that Canada will play a major role as a resource-rich country,” Mr. Kishida said to Prime Minister Justin Trudeau, via The Globe and Mail.

After the trip, Japan’s Ambassador to Canada Yamanouchi Kanji reiterated his country’s desire to obtain more Canadian energy [10].

“If everything goes well, by the end by the end of 2024, the first shipment of LNG will be will be sent to Japan,” the ambassador said.

“This will be a game changer.”

In other words, the world is adapting to meet its energy needs amid a changing landscape where energy security and environmental protection go hand-in-hand.

Canada can adapt too, by taking on a balanced and pragmatic approach to help our allies in need.

We can support the responsible development of oil, natural gas, hydro, wind, solar, nuclear, geothermal, and other forms of energy all at once.  We do not have to choose between providing energy security, taking climate action and supporting local jobs.

We can do all of the above, all the while providing our allies with the energy they are in desperate need of.

After all, Canada is one of the most transparent, regulated and environmentally conscious energy producers on the planet. Of the world’s top oil and natural gas exporters, we remain one of the most committed to emissions reductions and finding new innovative ways to produce our natural resources with lower environmental impacts.

But we are also one of the few remaining democratic energy suppliers left in the world. And as Europe and other countries were reminded of in early 2022, it absolutely does matter where you get your energy from.

Global Oil & Gas Consumption is Growing

Critical to this discussion is the fact that global oil and natural gas consumption levels are expected to continue growing to new record highs for years to come.

For example, the International Energy Agency’s (IEA) latest annual outlook predicts oil demand to reach a record 103.5 million barrels per day (bpd) by the mid-2030s in its stated policies (STEPS) scenario – higher than record levels seen in 2019.

Shell’s latest LNG outlook predicts global liquefied natural gas (LNG) demand growing 76% over the next few decades – from 397 million tonnes per annum (mtpa) in 2022 up to 700 mtpa by 2040.

Shouldn’t the world’s future energy needs come from the most sustainable and responsible energy suppliers – countries like Canada with world-class protections for human rights and the environment?

Canada is a Secure Energy Provider

Canada’s oil and natural gas sector is already working hard to continually improve its environmental footprint. Whether its implementing carbon capture and storage, increasing water recycling rates, or deploying cleantech for electricity supply, it is important to give credit where it is due.

We do not need a cap on our oil and gas production because of the stuff we’re already doing. For example [9]:

> The greenhouse gas (GHG) emissions intensity of Canada’s oil sands sector dropped by nearly 23 percent between 2000 and 2019

> The GHG emissions intensity of Canada’s conventional oil sector dropped by more than 32 per cent between 2000 and 2019

> The GHG emissions intensity of Canada’s natural gas production dropped by roughly 22 per cent between 2011 and 2019

> Despite oil and natural gas production growing by 91 per cent, Canada was one of only five countries in which the petroleum sector reduced methane emissions between 2000 and 2018 – decreasing by 16 per cent.

Furthermore, an arbitrary emissions cap on our oil and natural gas – while the rest of the world’s energy producers go on with business as usual – raises legitimate concerns about the risks associated with such a policy. For example:

> Will the emissions cap be all risk for the Canadian economy and energy security but reap no rewards through a net reduction in global emissions? A recent report by the Montreal Economic Institute points towards that being the case [7].

> Will an emissions cap do nothing but displace Canadian jobs and government revenues to less responsible producers abroad amid a time when global oil and natural gas demand is projected to grow for decades?

> Will Canada’s role as a stable and responsible energy supplier be diminished in a world where there is a growing consensus that transforming our liquids-based energy systems to materials-based will take much, much longer than thought [8]?

> Will such a policy hinder our energy companies from having the necessary funds to invest in new innovations and cleantech to help decarbonize our oil and gas production over the long run?

These are all valid concerns.

As it stands, a cap on Canada’s oil and natural gas emissions could come at the expense of local jobs and energy security – while its actual effect on global net emissions reductions is questioned and yet to be seen [7].

Canadian industry and government are better off working together to ensure a healthy and resilient energy future for our families by supporting the development of oil and natural gas while also supporting global energy security and climate action initiatives.

Canada can responsibly produce oil and natural gas and continue to reduce emissions. That is a fact. We can also step up to the plate and provide energy to our allies that need it. It will take a lot of work to get the necessary export infrastructure built, but we can do it!

Let us take on a balanced, pragmatic and honest approach to solving the problems of today, shall we? Doing so will make the world a safer, cleaner, and better place.

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1- Financial Post - Oilpatch fears federal emissions cap could require production cuts - Date Accessed: March 2023 (https://financialpost.com/commodities/energy/oil-gas/oilpatch-concerned-that-federal-emissions-cap-could-require-production-cuts)

2 - Government of Canada - Options to cap and cut oil and gas sector greenhouse gas emissions to achieve 2030 goals and net-zero by 2040 - 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)

3 – Bloomberg - Worst of Global Energy Crisis May Still Be Ahead, IEA Says - Date Accessed: March 2023 (https://www.bloomberg.com/news/articles/2022-07-12/worst-of-global-energy-crisis-may-be-ahead-iea-s-birol-warns)

4 – 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)

5 - Reuters - EU Parliament backs labelling gas a nd nuclear investments as green - Date Accessed: March 2023 (https://www.reuters.com/business/sustainable-business/eu-parliament-vote-green-gas-nuclear-rules-2022-07-06/)

6 - National Post - PM to welcome German Chancellor Angela Merkel to Canada - Date Accessed: March 2023 (https://www.canada.ca/en/news/archive/2015/02/pm-welcome-german-chancellor-angela-merkel-canada.html)

7 – 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/)

8 – The Economist Intelligence Unit - Energy Transition will move slowly over the next decade - Date Accessed: March 2023 (https://www.eiu.com/n/energy-transition-will-move-slowly-over-the-next-decade/)

9 – Canadian Energy Centre – 50 Facts about oil and gas: a summary research brief – Date Accessed: March 2023 (https://www.canadianenergycentre.ca/50-facts-about-oil-and-gas-a-summary-research-brief/)

10 - 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)

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