Front Burner - Debating Canada's energy and climate future

Episode Date: February 26, 2020

The shelving of the Teck Resources Frontier project — an oilsands mine twice the size of Vancouver — has many arguing over the right balance between climate action and resource development. Today on Front Burner, we get two viewpoints on Canada's energy future: former TransCanada executive Dennis McConaghy and Stand.earth program director Tzeporah Berman. McConaghy says Canada is punishing itself while the rest of the world continues to profit off hydrocarbons. Berman believes markets and political leaders are turning the page on fossil fuels and Canada needs to do the same.

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hello, I'm Jamie Poisson. It was supposed to be an enormous open pit oil sands mine, twice the size of Vancouver. Supposed to be because on Sunday, the company behind it, Tech Resources, pulled the plug. And while the Alberta project may be over, the fight over why it failed certainly is not. There is absolutely no doubt that this decision was taken because of regulatory uncertainty

and endless delays created by the national government. The world is changing. You can no longer build a strong economy if you are not fighting climate change at the same time. Why did the Prime Minister wait so long before making a decision on Tech Frontier? Today, the political, environmental and financial chasm created by the decision to scrub the Frontier project. I'm speaking with Dennis McConaughey, a former executive of TransCanada and the company that is trying to build the Keystone XL pipeline.

And Zipporah Berman, a project director for advocacy group Stand Earth. This is Frontburner. Dennis, Zipporah, thank you so much for joining me today. Good to be with you. Thanks for having me. So let's get right into this because there's a lot going on here. Tech CEO Don Lindsey released a letter this week explaining why tech dropped out. And in it, he says there needs to be a better framework in place in this country.

Policies that clearly lay out how we as a country are going to reconcile resource development and climate change. He says Canada doesn't have that right now. And it's going to make it very difficult to attract future investment. Dennis, let's start with you. Do you agree with that? I certainly do. There has to be, I think, a resolution in this country as to whether the country actually wants incremental hydrocarbon production and whatever economic benefits that accrue from that. And it's not just the tech project, but it's all the other incremental oil sands expansions and LNG, potentially LNG expansions that are potentially in play over the next decade. And of course, if those projects go ahead, there will be incremental carbon emissions in Canada. All of that has to be evaluated in the context of what Canada committed to at Paris and how Canada construes its Paris commitment. And I have long said that this country does need to get to a place where it needs to reconcile those two things or clarify that it's basically prepared to go forward with no incremental hydrocarbon production or not. Zipporah, let me bring you in here. This idea that we're operating in kind of a regulatory

mess here. Do you buy that argument? Do you think that's true? I mean, I do note that there are some 70 resource projects currently undergoing environmental assessment. That number does seem to suggest that this country isn't closed to resource development. No, the country is far from closed to resource development. We have an enormous amount of resource development going on. But I think, I didn't think I would ever hear myself saying this, but I do agree with the CEO of tech in his letter. The fact is that our regulatory environment on climate is a bit of a mess. And it's a mess, I think, for two reasons. One, because of Premier Kenney and the conservative government in Alberta's tantrum and belligerence around climate policy and around rolling back the carbon tax that the previous Alberta government under Rachel Notley put in place, as well as the federal government is proposing. for industry. And especially when we're seeing major banks and major insurance companies say that they won't insure projects and they won't invest in companies that are not committed to acting on climate change. And I think the second reason is because although the Trudeau

government has done a lot, I would say, on climate change, the pan-Canadian climate framework in a lot of respects is very good. There are big problems. The targets that we're using as a nation are Harper's targets, ones that Trudeau criticized. They're too weak. They've been criticized around the world as Canada not doing our fair share on climate when the world's on fire. I mean, look at what's been happening in Australia, the dramatic rise in extreme weather and floods and fires, people are scared and countries are being held to account. But the big issue here is that all of our climate policies simply address emissions and not production. And we're living in this strange kind of la-la land where all governments, whether they're liberal or conservative, are trying to convince people that it's okay to increase oil and gas production while we decrease emissions

and fight climate change. And that's absurd. And the math doesn't add up. Yes, there are some projects that are becoming cleaner, less emissions per barrel, and that's great. But the industry as a whole is not, and certainly not fast enough to get to net zero by 2050. Right, this is the Trudeau government's plan. Aspiration. To be fair, they haven't released a lot of details about how they're going to get there. And is it fair that what I'm hearing from both of you is that those lack of details are what's causing a lot of problems here? That's right. But I think the question for us as a country is, are we going to plan for reduced oil and gas production or not? And if we're going to plan for it, then we can

actually look at, well, how many jobs would that mean? If we capped production now and allowed it to decline in order to reduce emissions and move to a cleaner and safer economy, what would that mean? How do we plan for it? How do we ensure economic diversification and competitiveness and support workers? That's not the conversation we're having, because the Prime Minister and certainly Jason Kenney are too afraid to actually touch that hot potato. So we talk about getting to net zero, and we talk about reducing emissions, while at the same time, we keep approving new oil and gas projects. And that's why we're seeing

outrage. One of the major reasons why we're seeing outrage, because there's a huge disconnect. It doesn't make sense. And economically, I think it doesn't make sense either. And I think that that's an important piece of what Tech was saying. I would express the decision or the dilemma for Canada, and I think what was being alluded to in the tech letter in slightly different terms. Because for me, the issue is, how much economic value is Canada going to forego by not exploiting its hydrocarbon resource base in the context of a world that has still to prove that it can actually do without hydrocarbons. Notwithstanding what was done at Paris, the fact of the matter is the world has had very little material success in actually reducing

global emissions since Paris. And the question for Canada is, how much cost is Canada going to impose on itself to meet not just its Paris targets, but anything beyond that, in a world that is yet to prove that it can actually do without hydrocarbons, or that our major trading partners are prepared to impose costs on their economy. But Dennis, can we bring in the market argument here? Because there are a lot of people who are making the argument that the real reason that this mine was scrapped was because it wasn't economically viable, because there is this transition happening in the world that, you know, we might not, we may not have proved that we've gotten there yet, but certainly big, big moves are being made. You know, BlackRock, this massive investing firm, for example, only recently said that they were going to pull one of their investing wings out of the oil sands. So what about that argument? The executives and the board at Tech can speak for themselves beyond what they wrote in their letter. And I will just say this.

It was surprising to me that they actually withdrew the application almost a week before the federal government would have had to have made a significant decision on this because to have simply gotten the approval and held that approval would have had option value even if they were prepared to wait some years until they perceived that the current value of crude oil in the world had reached levels that would have justified them going ahead with the actual project. And I will concede readily that a world that is still consuming hydrocarbons at roughly the same level as they are being consumed today

is totally at odds with the vision that was set out at Paris. Individual entities, whether it's BlackRock, BP, whatever, can all respond to those two sets of facts differently. My own view is that the question for Canada is, are we going to impose costs on ourselves that are significantly higher in terms of even just meeting our Paris commitment than what the countries that we trade with are prepared to impose on themselves.

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. Zipporah, how do you respond to that? I think one of the main questions for us as a nation is whether we're going to be looking at the economic values and economic value that we're foregoing by not acting, by not constraining oil and gas.

Just look at what we're spending already across this country on fires and on floods, billions of dollars. Imagine if we spent all the money that we spend subsidizing the oil and gas industry, which is billions of dollars, and spent that money on supporting other industries, high tech, clean tech, film, agriculture. Canada is one of the countries that has a lot of options right now. But we are being strangled by this oil and gas conversation and the power of the oil and gas industry. And we have to get out from under that. The fact is, this is a moment in history that requires leadership and it requires countries to stand up and say, yes, I recognize and signed off on, which our country did, the Intergovernmental Panel on Climate Change report, which clearly states that every country and every industry needs to reduce emissions and production of fossil fuels right now.

if we're going to have any hope of staying under safer climate levels, a 1.5 degree scenario. The IPCC actually says that production of oil needs to shrink 37% by 2030 and 87% by 2050. So we hear a lot of the industry saying, but other countries are producing it and the demand is still there, so we should get to produce. I just think that that's morally bankrupt. I think it's like saying, you know, other countries are producing heroin for kids, so let's get at it. We can invoke the cost that's been paid out in Canada related to what some people will describe to climate change. But we can also then also look at the lost value that has been foregone by this country for the last decade by not having built pipelines back when they were originally conceived to be on stream roughly 10 years ago. And the billions that have been lost in value that would have come into this country to be deployed however this country would have wanted to for whatever socially appropriate purpose that might have been. to for whatever socially appropriate purpose that might have been.

So the actual balance sheet between the costs related to forest fires versus foregone, oil sands production, costlier transportation routes through rail, et cetera. I just don't agree. That's a piece of calculus. Well, you may disagree, but the world actually does make a judgment that the reason hydrocarbon demand has persisted is because the cost of substituting is extreme. So solar and wind are now at price parity in most countries with gas and coal. You say that they're for price parity, but there is no electrical system in the world that can dispense with hydrocarbons as part of that electrical fumage. Yeah, but no one's saying we're going to turn off the taps overnight.

What we're saying is this is not the moment to expand. And there are many studies and in fact, many countries that are using less and less fossil fuels and increasing electrification and renewable energy. and many projects in the oil sands are only economic if we have a $95 barrel of oil. And as the world uses less and less oil, and even the most conservative projections from the International Energy Agency are saying that we're going to use less oil as the world uses less oil. That is only if there is massive interventions, of which this debate is a demonstration of, interventions, of which this debate is a demonstration of, to constrain the way markets would have resolved how much oil, natural gas would have been used globally over the next 20 to 30 years. My point is that Canada's is the highest carbon, one of the highest carbon and the highest cost. And that's why we've seen so many companies leave the oil sands, Shell, Total, Equinor. One of the reasons they have left is because market access has been frustrated for 10 to

12 years. That's not true. That's just not true. It is true. It is absolutely true. We have a higher cost for market access. That's true. But it wouldn't be solved with another pipeline.

We have a higher cost because this is heavy oil and it costs more for us to refine it. The more that we mine the oil sands, the more costly it becomes, right? And the more pipelines we have, the more costly it becomes because of tolling fees. This is super complicated. And I think people need to remember that it's the question of whether or not the price of oil in the world minus the cost of transportation and production provide an adequate return to the people that are prepared to take that market risk is a question that sits in the hands of those who that are taking that risk. And when tech would have utilized this permit, and when other entities who are observing how this process unfolded, would deploy capital to expand existing oil sands production,

are questions that, in my judgment, should be left to the private sector and would be left for them to determine when they know they can actually get a permit, execute on it, and seize that economic value. Zipporah, I'll leave you with this sort of the final thought on this argument. And then I have one final question for you both. The fact is that all of the trend lines show that oil and gas companies are performing now at the bottom of the S&P, that the future of energy systems globally are not in fossil fuels, and they can't be if we want to have a stable climate. And so we will move, our economy will move to a low carbon economy by

design or default. And I think the fact that we're doing it by default now instead of design is hurting us. Increasingly, companies are leaving, projects are being cancelled, insurance companies are saying they won't insure, banks are saying. The largest financial institutions in the world, the European Investment Bank, the World Bank, have said that they would not invest in oil sands because it's high carbon and high cost at this moment, given the threat and climate emergency that we're facing. No one is saying turn off the taps overnight. That would be absurd. And it would hurt a lot of workers and their families. What we're saying is, it is not the moment in history to expand this industry. We need to stop expanding. We need to start being honest about the decline of production along with emissions that needs to happen in the country and plan for it.

for it. I wonder if I could ask you both, I know you have, you're coming from different places here, but whether or not you think that we can get to some consensus here. This tech mine is yet another fracture in the relationship between the federal government and the Alberta government. And tech CEO said this in his letter as well, that we need to unify on climate policy, we need to get behind one of these roots here. And so do you see a path forward for our energy future, given the political climate right now? There's, yes, of course, there's a path forward. But the question is, you know, I think right now, there's a big question legally, because of the lawsuit that the Kenney government put forward against the carbon tax. So the the government of Alberta challenged the federal constitutional right to impose a carbon tax. They won in an Alberta court yesterday, although similar challenges have lost in Ontario and other provinces.

And this will now go to the Supreme Court. So now this will go to the Supreme Court. Yeah, exactly. And we're going to have to see what happens. So Premier Kenney and the Alberta government has created more uncertainty for investment in the business environment by their ideological tirade against the carbon tax. And I call it that because, you know, I spent four years working in Alberta with government and industry on climate policy. And we had a consensus with all of the major oil companies that they would support the carbon tax because, in fact, it was good for their business, that it stimulated innovation and gave them the opportunity to put in place the technology necessary to reduce emissions. And it made them more competitive on a world scale.

But I think, unfortunately, we are going to be forced to address some of these issues. And we're going to, I think, continue to see big projects pull out because the economics don't support them. And we're going to be forced to look more seriously at creating a more clean tech and high tech economy. Dennis, final word to you. Yes. The path forward for Canada on carbon policy is through a national carbon tax. The question is, of course, how stringent is the tax? Because it's a big difference if Canada is implicitly going to have a $200 a ton carbon tax, which is effectively the kind of stringency that many on the Canadian left would

insist on when the rest of the world can't even get to 50. So the nitty gritty of this issue is, is this country going to have a climate policy that is primarily based on carbon pricing, tax, whatever other adjustments to it, but is not uncoupled from what the rest of the world is actually doing? I'm sorry, guys, I would love to talk about this with you all day. I really appreciate you both being here. This has been a really fascinating conversation. Thank you so much. Thank you. Thank you.

Okay, so before we go today, an update on the spread of the coronavirus or COVID-19. As I'm sure you've seen, there has been a real spike in cases around the world, particularly in South Korea, Italy, and Iran. Dr. Bruce Aylward is a leading Canadian epidemiologist. He just led a team to China to study the virus. And he's got a warning. Aylward says other countries are not ready for a global outbreak.

He says they should be looking at how China is dealing with COVID-19, including the aggressive approach it took with testing, containing and treating people. We're going to dig into this a lot more on Friday. So listen for that episode. That's all for today, though. I'm Jamie Poisson. Thanks so much for listening to FrontBurner and talk to you all tomorrow. For more CBC podcasts, go to cbc.ca slash podcasts.