Natural Resources Minister Seamus O’Regan has issued a mighty challenge to Canada’s oil and gas sector to embrace the technological innovations that will help the industry and the country reduce greenhouse gas emissions to net zero by 2050.
O’Regan’s call to action is the latest iteration of the Liberal government’s “balanced” policy, in which it pledges tough action on climate change while supporting the oil and gas industry’s growth aspirations.
The Liberals’ stance is criticized by those on the right as essentially kneecapping western Canada’s leading industry with environmental rules, and by politicians and activists on the left as propping up a sector that has been the country’s fastest-growing source of GHGs.
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The Liberal vision — backed by some of the biggest oil sands companies — faces tremendous hurdles. The industry will have to make massive investments in technological change even as experts say that global oil demand must soon decline if the world is going to limit the damage of climate change.
Therein lies the problem. It is highly doubtful that capital markets will provide the debt and equity financing needed for such an expensive effort. At least, not without huge government subsidies to underwrite the technological changes.
In a conversation with Calgary-based ARC Research Institute last week, O’Regan touted the importance of the industry to the Canadian economy. And he insisted the country will not meet its net-zero target without a successful effort by oil and gas sector to essentially eliminate its own emissions.
It’s understandable that the Liberal government is eager to see a healthy oil industry that can be part of Canada’s climate solution.
Even in its comparatively weakened state, the oil and gas industry generated $62 billion in export revenues last year, and it remains a crucial contributor to jobs and tax revenues, especially in western Canada and in Newfoundland and Labrador.
But its fast-paced growth is over. When oil prices collapsed in 2014, the industry slashed its capital expenditures, which topped $34 billion that year for the oil sands alone. With the impact of the COVID-19 pandemic, industry budgets are being hammered again, and oil sands capital spending is likely to fall below $10 billion this year.
With nearly two decades of growth behind it, the sector has been a major contributor to Canada’s emissions problem.
In 2018, oil and gas companies accounted for a quarter of Canada’s GHGs. All told, they emitted 193 megatonnes, up from 158 MT in 2005. More than 40 per cent of the sector’s emissions came from the oil sands in 2018.
Some major producers have set targets to reduce their GHG intensity by as much as 30 per cent — meaning they’ll reduce emissions per barrel. A few have expressed their “aspiration” to eventually get to net-zero emissions from their extraction processes.