Canada’s oil and gas sector may think it’s well positioned to ride out a long-term decline in fossil fuel demand, but it’s not, a new report warns.
So far this summer it’s more than apparent that global warming is hitting home like never before: raging forest fires across the country; floods in Quebec and B.C., a monster tornado tearing through central Alberta on Canada Day.
Des chercheurs de trois universités ontariennes entament cet été une étape importante de leur étude sur l’effet à long terme des microplastiques sur les cours d’eau douce, menée au centre de recherche de la Région des lacs expérimentaux (RLE), dans le Nord-Ouest de l’Ontario.
Markham interviews Aaron Cosbey, development economist with the International Institute for Sustainable Development, and co-author of "Setting the Pace: The Economic Case for Managing the Decline of Canada’s Oil and Gas Production."
Canada, alongside much of the world, has plans to become net-zero by 2050. And one of their main action-items is to move away from fossil fuels. But does Canada have an economic plan for when the oil and gas sector declines?
Alors que le secteur de l’énergie propre se développe à l’échelle mondiale, les communautés et les travailleurs canadiens qui dépendent du secteur pétrolier et gazier s’inquiètent également de plus en plus, car un nouveau rapport indique que les gouvernements fédéral et provinciaux pourraient être « mal préparés » pour une transition en douceur.
As the clean energy sector grows on a global scale, there's also growing concern for Canadian communities and workers dependent on the oil and gas sector as a new report says federal and provincial governments may be 'ill-prepared' for a smooth transition.
Canada’s oil and gas sector faces significant headwinds with global demand in fossil fuels projected to drop significantly as world leaders set their sights on a carbon neutral economy by 2050, according to a new report.
The finalized National Adaptation Strategy presents a clear way forward
The final version of Canada’s first-ever National Adaptation Strategy (NAS) was released today after undergoing a consultation process. The NAS presents a whole-of-society approach to climate change adaptation that aims to safeguard Canadian communities and strengthen our economies in the face of the increasing risks of climate-related disasters.
“We are thrilled to see Canada’s first National Adaptation Strategy cross the finish line,” said Jo-Ellen Parry, Director, Adaptation (Canada), International Institute for Sustainable Development (IISD). “This marks a significant step forward for Canada, one with the potential for global leadership by having equity and environmental justice as core principles of the adaptation strategy.”
The announcement took place in Vancouver, British Columbia. It was attended by the Honourable Steven Guilbeault, Minister of Environment and Climate Change; the Honourable Jonathan Wilkinson, Minister of Natural Resources; and the Honourable Bill Blair, Minister of Emergency Preparedness.
“The feedback we received from provinces, territories, and national Indigenous organizations since its initial release in fall 2022 has made it truly reflective of the experience of people living in all parts of the country,” said the Honourable Steven Guilbeault.
Among its key components, IISD welcomes the strategy’s commitment to a 5-year review cycle; the establishment of concrete targets and progress indicators; and the objective of having sustained, sufficient, and equitable public and private funding to support adaptation action. The updated NAS also recognizes the potential for climate change impacts to amplify existing vulnerabilities and socio-economic inequalities and the role of Indigenous Knowledge Systems in informing adaptation planning.
“We are now looking for more details on the governance, implementation, and monitoring of this adaptation strategy,” stated Jo-Ellen Parry. “A significant amount of funding and collaboration will be required to not only implement the country’s adaptation priorities but to track its progress and adjust the strategy over time.”
The day before the announcement, Canada’s federal parliament building sat in a haze of wildfire smoke—a fitting representation of the urgency facing all levels of the Canadian government to address and prepare for climate-related disasters. The impacts of Quebec’s wildfires across Canadian provinces also illustrate the clear need for collaborative efforts to address the collective problem of climate change, incorporating both short-term and long-term objectives.
Additionally, Canadians need to be prepared for the slow onset impacts of climate change—such as warming winters and the decreasing predictability of weather conditions—as much as the immediately apparent climate-related disasters like the recent forest fires. As mentioned in today’s announcement, building climate resiliency will require greater coordination across and between levels of government and local communities. The NAS will support the guidance of these adaptation governance processes.
“IISD will continue to be Canada’s ally through the ever-evolving adaptation process,” said Jo-Ellen Parry.
In addition to the final NAS's release, the Government of Canada Adaptation Action Plan was announced, with updates on adaptation investments since November 2022.
Federal and provincial governments put communities and workers at risk by failing to plan for a global market transitioning to clean energy.
June 27, 2023, Ottawa – As the global economy moves away from fossil fuel dependence, the Canadian oil and gas sector is not well positioned to weather the drop in demand for their products, putting the workers and communities that rely on the sector at risk, according to a new report by the International Institute for Sustainable Development (IISD).
Setting the Pace: The Economic Case for Managing the Decline of Canada’s Oil and Gas Production finds that the oil and gas sector’s historical role as one of Canada’s economic engines is changing with the global shift towards a carbon-neutral economy by 2050.
Given that Canada exported 80% of its domestic oil production in 2021 and that more than 94% of those exports are shipped to the United States, the country is far too reliant on a single market that will be buying less and less of its product. In this period of transition, there is considerable risk associated with overinvesting in assets that may be of little value in the near future.
Nor can the Canadian oil industry count on marketing itself as a producer of clean or ethical oil to preserve market share. The IISD report notes that the primary buyers of Canadian oil—refiners in the American Midwest—are focused on price, reliability, and quality. The same applies to the carbon intensity of oil products: intensity per barrel is not part of the decision-making process among Canada’s largest purchasers.
“Oil refiners in the U.S.—Canada’s main customers—simply don’t care about environmental, social, and governance credentials,” says Aaron Cosbey, Senior Associate at IISD and co-author of the report. “They just want the product at the specified price and quality. And consumers will not force them to care. Gasoline is not like coffee—you won’t see an eco-label on gas at the pump.”
The report further notes that the U.S. Inflation Reduction Act (IRA) will accelerate the shift to a clean energy economy, with profound effects on Canada’s oil and gas industry.
Near-term decreased demand for oil will be driven primarily by the electrification of passenger vehicles, which currently account for 27% of global demand. Data additionally suggests that falling demand for oil to heat buildings and generate electricity will lead to a peak in global oil demand by the end of this decade. Plastics—the second biggest end use—will be a more durable source of oil demand in the near term, but not in the long term, and that won’t be enough to stop a sharp decline in overall demand post-2030.
“As economies decarbonize, the risks and economic costs associated with Canada’s continued reliance on fossil fuels will intensify,” says Nichole Dusyk, Senior Policy Advisor with IISD and co-author of the report. “These risks and costs must be factored into policy and business decisions and signalled to investors. The consequences of not doing so are potentially catastrophic for the workforce and communities that depend on this industry.”
While the declining trajectory for global oil demand is clear, the outlook for gas is more uncertain. However, high liquified natural gas (LNG) prices have slowed demand in growth markets, while also leading to a rush of new LNG developments. The anticipated result is a glut of LNG, starting in 2025, that will drive down prices and make it difficult for Canadian exports to compete even if low prices keep demand high.
The largest share of global gas demand (39%) goes to electricity generation. Now, however, “the costs of wind, solar, and storage technologies are competitive with combined-cycle gas in many jurisdictions,” notes Dusyk. Similarly, heat pumps are emerging as an efficient means to electrify heating and cooling in residential buildings, as well as in some industrial processes.
The IISD report highlights international experience as showing that a successful transition is possible, but it needs intention, planning, and time to help avoid the consequences of a potentially volatile demand decline.
The report lists four actions that the Government of Canada can take immediately:
“The less the oil and gas sectors are prepared for the upcoming downturn, the more economically and socially painful the transition will be. As such, there is a strong public interest in ensuring that the eventual decline of Canada’s oil and gas sectors is well managed,” says Dusyk.
“The most influential factor affecting the viability of the Canadian oil and gas sector is the peak and decline of global demand, which will inevitably be disruptive,” adds Cosbey. “The oil and gas sectors of the future will not be the drivers of prosperity we've known in the past, whether we measure that in jobs, investment, or government revenues."
Victoria Foote, Communications Advisor, IISD: [email protected], 647.290.9384