Phase-out, not expansion of fossil fuels – some recommendations for Canada

Oil, Gas and the Climate: An Analysis of Oil and Gas Industry Plans for Expansion and Compatibility with Global Emission Limits was published by the Global Gas and OilGas-ReportCoverOil Network (GGON) in December 2019.  The report analyzes the expansion plans of the oil and gas industry in relation to the global Paris climate goal of a 1.5C warming limit, and concludes that “if the world uses all the oil and gas from the fields and mines already in production, it will push us beyond 1.5°C of warming. This is true even if global coal use were phased out overnight, and if cement emissions were drastically reduced.” This report is the latest to sound this alarm: for example, Oil Change International, part of the GGON , began to publish such warnings in 2016 with The Sky’s Limit: Why the Paris Climate Goals Require a Managed Decline of Fossil Fuel Production , followed by Drilling towards Disaster in 2019.

Oil, Gas and the Climate states that from now until 2024, oil and gas companies are set to invest a further $1.4 trillion U.S.  in new oil and gas extraction projects – with 85% of that expansion in North America, and with the impact of the U.S. alone putting a 2 degree warming target out of reach.  Further, it states that over 90% of U.S. expansion would be shale production dependent on fracking.  It highlights that the Permian Basin (west Texas and southeastern New Mexico) would account for 39% of new U.S. oil and gas production by 2050. “It holds the greatest risk for new oil and gas development in the United States and in the world.”

Projected Canadian investment is a distant second to that of the U.S., but even so, the report states that “new oil and gas development in Canada between now and 2050 could unlock an additional 25 GtCO2 , more than doubling cumulative emissions from the sector.” The report highlights the approved Exxon Aspen Oil Sands project and the pending Teck Frontier Mine, but warns  “…Shale gas extraction, particularly the Montney Shale Basin in British Columbia, is a major focus of the industry…From 2020 to 2050, new gas projects could be responsible for as much CO2 as new oil projects.” (For a recent overview of the extent of Canada’s LNG infrastructure, see The New Gas Boom, published by Global Energy Monitor in June 2019).

“A better future is possible”, and here’s how to get there:

Despite the grim projections, Oil, Gas and the Climate  argues that “a better future is possible” and calls for “the launch of a well-planned phase-out of oil and gas production that addresses the needs of workers and communities impacted by fossil fuel developments. ” The report recognizes the impact of recent civil society actions such as Fridays for Future and Extinction Rebellion, and calls on governments and investors to catch up with such leadership.

Based on the findings of the report, Environmental Defence makes the following recommendations to support Canada’s phase-out:

Clear new federal rules under our environmental assessment law that review possible expansions of oil and gas projects against our commitment to climate goals. If we cannot credibly demonstrate how investing in a fossil fuel project is consistent with a 1.5C warmed world then the project should not be permitted to go ahead.

Institutional investors should apply a similar screen that will guide their decisions regarding whether to provide financing for new projects.

The federal government must invest in research and development of new energy technologies like geothermal electricity that have huge employment and energy production opportunities in places like Alberta and northern British Columbia. At a minimum, the government should make available an amount equivalent to the billions in subsidies that have been given to the fossil fuel industry through tax breaks or direct investment in pipeline infrastructure (e.g. Trans-Mountain) – subsidies that should be phased out rapidly. Success will create skills-linked jobs and massive supply of electrical energy for export to a North America that must replace the energy of fossil fuels.

Domestic demand for fossil fuels must be rapidly driven down through improved efficiency (e.g. buildings, appliances, manufacturing), electrifying transportation and home heating and increased renewables generation and storage.

The Oil, Gas and the Climate report is a project of the Global Gas and Oil Network , supported by Oil Change International; 350.org; Center for Biological Diversity; Center for International Environmental Law; CAN-Rac Canada; Earthworks; Environmental Defence Canada; Fundacin Ambiente y Recursos Naturales:FARN; Global Witness; Greenpeace; Friends of the Earth Netherlands (Milieudefensie); Naturvernforbundet; Observatorio Petrolero Sur; Overseas Development Institute; Platform; Sierra Club; Stand.Earth.

European Investment Bank stops fossil funding; Bank of Canada acknowledges the dangers of stranded assets

european investment bank energy_lending_policy_enThe long-awaited decision came on November 13, when the European Investment Bank (EIB) issued a press release announcing that “ We will stop financing fossil fuels and we will launch the most ambitious climate investment strategy of any public financial institution anywhere.”  Also, “…..The EIB will work closely with the European Commission to support investment by a Just Transition Fund. The EIB will be able to finance up to 75% of the eligible project cost for new energy investment in these countries. These projects will also benefit from both advisory and financial support from the EIB.”  The Guardian summarizes the policy here ; details are in the full document, EIB Energy Lending Policy: Supporting the energy transformation.

The decision ends a long and contentious review process which received more than 149 written submissions and petitions signed by more than 30,000 people.  National members of the EU negotiated and compromised – the German government had been expected to abstain from the vote but ended by supporting the measure.  A press release from WWF-Europe  is generally supportive, stating “All public and private banks must urgently follow suit” – while pointing out that the decision postpones the end of financing for gas projects until 2021, and allows for further financing for any gas infrastructure that could potentially transport so-called “green gas”. A summary in Clean Energy Wire quotes Claudia Kemfert, climate economist at the German Institute for Economic Research, who calls the EIB decision “a game changer”, and says, “Even if there’s still a backdoor for fossil gas included, this is an important and necessary step in the right direction.”

Bank of Canada acknowledges climate change risks to the economy

On November 19, the Bank of Canada published its most complete statement to date about the transitions and risks which climate change will bring, in Researching the Economic Effects of Climate Change , a report prepared by Miguel Molico, senior research director at the bank’s Financial Stability Department.  On November 21, the Governor of the Bank of Canada followed up on this by raising the issue of climate change and the risk of stranded assets during an address to the Ontario Securities Commission .  The National Observer summarizes the development in “Bank of Canada warns of stranded assets and an abrupt transition to clean economy” (Nov. 23).

Also in Canada, on November 19, the Institute for Sustainable Finance was launched Housed at the Smith School of Business at Queen’s University, Kingston Ontario : “ The Institute for Sustainable Finance (ISF) is the first-ever cross-cutting and collaborative hub in Canada that fuses academia, the private sector, and government with the singular focus of increasing Canada’s sustainable finance capacity.” A more formal statement comes in the Institute’s launch report:  Green Finance: New Directions in Sustainable Finance Research & Policy  which states: “the Institute will span a continuum of expertise from across varying disciplines, including finance, economics, environmental studies, political science and others, in order to foster innovative research, education, external collaborations and partnerships. The Institute’s mandate is threefold:

  •  Generate innovative and relevant research on sustainable finance and effectively communicate this research to all pertinent stakeholders.
  • Serve as a platform for collaboration between government, academia and industry.
  • Provide educational opportunities and develop capacity in the field of sustainable finance.”

The Green Finance report summarizes the discussions by financial experts at a conference by the same name, held on June 14-15, 2019, following the release of the Report of the government’s Expert Panel on Sustainable Finance – Mobilizing Finance for Sustainable Growth.  To help readers who are not financial experts,  the Institute website offers useful “primers” to explain some fundamental concepts in sustainable finance, including  Climate-Related Financial Disclosures, Divestment, and Transition Bonds. Not to be confused with Just Transition funding, the primer explains that “Transition Bonds” are corporate financing tools, and the companies who issue them must use the proceeds to fund a business transition towards a reduced environmental impact or reduction in carbon emissions. ( The example given is that a coal-mining company could issue a  transition bond to finance efforts to capture and store carbon.)

Institute for sustainable financeAs one of its first actions, the ISF established the Canadian Sustainable Finance Network (CSFN)  an independent formal research and educational network for academia, industry and government to bring together a talented network of university faculty members and relevant members from industry, government and civil society.  A list of members, here , includes multiple faculty from twelve Canadian universities, one from Yale in the U.S., and other individual academics from universities which are not institutional members (including UBC, HEC Montreal, and Memorial University).

 

Will the fossil fuel industry hijack energy policy in Canada’s election?

As the Canadian federal election campaign counts down to October 21, The Narwhal’s Explainer from September remains one of the most readable and interesting overviews of the parties’ energy and environmental platforms;  the survey responses from a consolidated questionnaire from the major environmental advocacy groups remains the most complete.  Climate activism has been a backdrop to the campaign: according to Fridays for Future Canada, over one million Canadians in 245 communities participated in climate strikes between September 20 to September 27 (a summary from Energy Mix gives more details).  On October 7, Extinction Rebellion began their demonstrations, blockading  bridges in Vancouver, Victoria, Toronto, Edmonton and  Halifax –  and according to the Vancouver  Star, pledging to escalate actions.

New publications regarding the fossil fuel industry:

Canada’s relationship with its oil and gas industry was the subject of a country profile of Canada published by Carbon Brief on October 8, providing the basic facts and figures.  The Narwhal published an Opinion Piece highlighting  the issue of fossil fuel subsidies:  “Canada’s fossil fuel subsidies amount to $1,650 per Canadian. It’s got to stop.” The article is based on a May 2019 report from the International Monetary Fund  which estimated Canada’s fossil fuel subsidies at close to $60 billion in 2015, despite the government’s G20 commitments to phase out “inefficient” fossil fuel subsidies. A related report by Environmental Defence and the International Institute for Sustainable Development in February, Doubling Down with Taxpayer Dollars , examined $2Billion in fossil fuel subsidies in Alberta.

The Canadian Association of Petroleum Producers (CAPP)  Energy Platform – essentially  a “wish list” from the fossil fuel industry – calls for expanded production for oil and gas and Liquefied Natural Gas.  In report released on October 7, Environmental Defence estimates that the CAPP proposals would increase  oil and gas emissions by 60% from 2017 to 2030.  The report,  The Single Biggest Barrier to Climate Action in Canada – the Oil and Gas Lobby, documents the two types of barriers created by the oil and gas lobby: 1. the actual carbon emissions of the sector, which are responsible for 27% of Canada’s greenhouse gas emissions and for 80 % of the increase in Canada’s overall emissions; and 2. Industry campaigns and lobbying to block or weaken climate change policies.

env diefence re Oil-Lobbyin electionRegarding the economic benefits which the oil and gas industry claims, Environmental Defence states:  “… job creation in oil and gas is far from guaranteed even as the industry expands and reaps significant corporate profits. Despite growing production since 2014, almost 30,000 jobs (10 per cent of the workforce) have been axed in the oil patch in the following four years, with another 12,000 expected to be cut in 2019. That’s because oil and gas companies are moving increasingly towards automation, with the stated goal to “de-man” the industry. Meanwhile, the CEOs of companies such as Suncor, Encana, TransCanada, and CNRL rake in salaries north of $10 million per year.”

The report concludes: “ Canada is bigger than oil. The opportunities that are available to Canadian businesses, citizens, and governments get shortchanged when one industry is able to hijack public policy on energy development and environmental protection.”  Or, as Richard Heede wrote more bluntly in a new series in The Guardian called  The Polluters: “It’s time to rein in the fossil fuel giants before their greed chokes the planet” . Heede’s Opinion article is based on the latest research about the global fossil fuel industry by the Climate Accountability Institute.  The research found that “chiefly from the combustion of their products, the top 20 companies have collectively produced 480bn tonnes of carbon dioxide and methane since 1965 – 35% of all fossil fuel emissions worldwide in that time.”  The press release names the top 20 polluters, led by Saudi Aramco, Chevron, ExxonMobil, GazProm, and BP. All research and data is here .

With progressive policies, Canada’s clean energy sector will provide over 500,000 jobs by 2030

Two new economic studies project the potential for growth in the clean energy sector to 2030 in  Canada and in Nova Scotia.

fast laneOn October 3, Vancouver-based Clean Energy Canada announced  its new report, The Fast Lane , which predicts that “ Canada’s clean energy sector will employ 559,400 Canadians by 2030—in jobs like insulating homes, manufacturing electric buses, or maintaining wind farms. And while 50,000 jobs are likely to be lost in fossil fuels over the next decade, just over 160,000 will be created in clean energy—a net increase of 110,000 new energy jobs in Canada.”  That translates into a job growth rate of 3.4% a year for clean energy from 2020, compared to an overall job growth rate of 0.9% for Canada as a whole and a decline of 0.5% a year for the fossil fuel sector.

missing the bigger pictureNavius Research conducted the economic modelling underlying The Fast Lane, as well as a May 2019 Clean Energy Canada report, Missing the Bigger Picture  , which reports on clean energy investment and jobs from 2010 to 2017.  The more detailed economic modelling reports by Navius are available as  Quantifying Canada’s Clean Energy Economy: A forecast of clean energy investment, value added and jobs  , and Quantifying Canada’s Clean Energy Economy: An assessment of clean energy investment, value added and jobs (May).

The message for policy-makers is made clear in the introduction to The Fast Lane by Merran Smith, Executive Director of Clean Energy Canada: “The sector’s projected growth is modelled on policy measures either in place or announced in early 2019 at both federal and provincial levels. If climate measures are eliminated—as we’ve recently seen in Alberta and Ontario—our emissions will go up and Canadians working in clean energy could lose jobs.”

An article in The Energy Mix summarizes  The Fast Lane . It quotes Lliam Hildebrand, Executive Director of Iron and Earth , a worker-led non-profit which promotes upskilling and retraining for fossil fuel workers:  “It’s really important for people to know that most fossil fuel industry workers are really proud of their trades skills and would be excited—and are excited—about the opportunity to apply those skills to building a sustainable energy future …. But they need support in making that transition.”

A similar message comes through in “After oil and gas: Meet Alberta workers making the switch to solar”  , an article in The Narwhal which profiles three workers who have transitioned from jobs in the fossil fuel industry. The article also summarizes the policy environment in Alberta, where according to Statistics Canada, roughly 1 in every 16 workers in Alberta is employed in the category described as “forestry, fishing, mining, quarrying, oil and gas.” The Narwhal quotes  Rod Wood, national representative from Unifor, who states that the global energy transition “is going to happen in spite of Alberta…You’re either part of the conversation or you’re lunch. It’s just going to steamroll over you.” And  Mark Rowlinson of the United Steelworkers Union and BlueGreen Alliance Canada states: “ The market tends to move with its own feet. If the market sees that the future of the fossil fuel industry is not looking great, it will move quickly… And it will move without a plan. That means there will be wreckage left behind it, and that’s what we need to try to avoid.”

Clean economy policies could bring 180,000 jobs to Nova Scotia by 2030:

Nova Scotia’s Ecology Action Centre submitted what it calls a “Green Jobs Report” to the province’s consultation on its proposed Environmental Goals and Sustainable Prosperity Act, just ended on September 27.  EAC proposed six policy choices, including supplying 90% of the province’s electricity from renewables by 2030, with a summary  here.  A detailed report, Nova Scotia Environmental Goals and Sustainable Prosperity Act: Economic Costs and Benefits for Proposed Goals  was prepared by economic consultants Gardner Pinfold and estimates the benefits of each proposal,  with the conclusion that the proposed policies could create over 15,000 green jobs per year in Nova Scotia, for a total of just less than 180,000 job-years between now and 2030.

 

What if the financial sector moved away from fossil fuel investments?

On September 17, Bill McKibben, a leader of the divestment movement, wrote Money is the oxygen on which the fire of global warming burns , published in The New Yorker. The essay traces the progress of the divestment movement and asks, What if the banking, asset-management, and insurance industries moved away from fossil fuels?. On the same day came the announcement that “ University of California drops fossil fuels from its $80 billion portfolio”.   An article in Rolling Stone  quotes the UC representatives, stating “it wasn’t moral or political pressures that convinced them to phase UC’s hundreds of millions of dollars in fossil-fuel investments. Instead, they say, it was the growing realization that fossil fuel investments no longer made financial sense and weren’t a worthwhile investment.”

Investment performance of Fossil fuel companies

In what has been seen as an historical turning point, ExxonMobil lost its spot on the S&P Index list of “Top Ten Companies” in August 2019 –  the first time it had not appeared since the Index launched in 1957.  In 1980,  the energy sector as a whole represented 28% of the S&P 500 Index; as of August 2019, it represents  4.4%.  According to a summary by the Institute for Energy Economics and Financial Analysis (IEEFA), the energy sector claimed last place in the S&P rankings of sector performance in August 2019, following similar results in 2018 and 2017.“This is not some temporary aberration. The oil and gas sector is in decline, profits are shrinking and investment options problematic …. This is true even for companies like ExxonMobil that historically have deep pockets.”

The full Briefing Note,  ExxonMobil’s Fall From the S&P 500 Top Ten: A Long Time Coming (August 2019) also includes discussion of the role Canada’s oil sands have played in the decline of the industry.  Carbon Tracker Initiative provides further information in Exxon’s New Clothes – the tale of why Exxon lost its prized position in the S&P 500 .

Are the banking, asset-management, and insurance industries moving  away from fossil fuels?  

New initiatives launched at U.N. Climate Summit in New York in September point in that direction:

  1. 130 banks from 49 countries signed on to the Principles for Responsible Banking (PRBs), committing to align their business operations with the Paris Climate Agreement and the Sustainable Development Goals. Despite the fact that the Bank of Canada issued a report flagging the investment risks of climate change in May, the only signatories from Canada were the National Bank of Canada and the Desjardins Group . Hardly surprising, given the April 2019 Fossil Fuel Report Card from Banktrack , which showed that Canada’s big banks rank 5th, 8th, 9th and 15th in the world for fossil fuel invesment since the Paris Agreement in 2015. In response to the PRI pledge, civil society groups issued a statement, “No More Greenwashing: Principles must have Consequences ”  which highlights the lack of concrete plans and the slow time frame: signatory banks are allowed up to four years to demonstrate their implementation of the principles.  A thorough discussion published by Open Democracy asks “The UN banking principles are welcome – but do they go far enough to stop climate destruction?
  2. A new Net Zero Asset Owner Alliance  was launched, convened by the U.N. Environmental Program’s  Finance Initiative and the Principles for Responsible Investment, and supported by WWF as part of its Mission 2020 campaign. The Net Zero Asset Owner Alliance signatories are insurance and pension fund management companies which hold approximately $2.3 U.S. Trillion. Their commitment document  pledges to re-balance those investment portfolios to make them carbon neutral by 2050, with intermediate targets set for 2025, 2030 and 2040. Founding members include   German insurer Allianz, the California Public Employees’ Retirement System (CalPERS), Swedish pension fund Alecta, PensionDanmark, Swedish pension manager AMF, Nordea Life & Pension, Norwegian insurer Storebrand, and Swiss RE.
  3. European investment bank-logo-enThe European Investment Bank strengthened its climate commitments at the U.N. Climate Summit  pledging to “ position the EIB as an incubator for climate finance and expertise to mobilise others, helping our societies and economies transform to a low carbon future.” Specifically, the bank pledged that 50% of new investments will be for climate action and environmental sustainability by 2025 (previously the target had been 30% by 2020). Also,  “we aim to align all our financing activities with the principles and goals of the Paris agreement by the end of 2020. As an important first step, we will phase out energy projects that depend solely on fossil fuels.”
  4. financing the low carbon futureThe Climate Finance Leadership Initiative (CFLI) , chaired by Michael Bloomberg, released  Financing the Low Carbon Future  , a thorough but readable analysis of how clean energy investment works globally, with practical recommendations . The CFLI is composed of  senior executives of seven major private-sector financial institutions– Allianz Global Investors, AXA, Enel, Goldman Sachs, HSBC, Japan’s Government Pension Investment Fund (GPIF) and Macquarie.
  5. Over 500 environmental and advocacy groups from 76 countires supported the Lofoten Declaration at the U.N. Climate Action Summit. The Lofoten Declaration , (named after the Lofoten Islands of Norway where it was first drafted in 2017) states in part: “It is the urgent responsibility and moral obligation of wealthy fossil fuel producers to lead in putting an end to fossil fuel development and to manage the decline of existing production.”  Canada is one of those countries, and Catherine Abreu of Climate Action Network Canada was one of the supporters, stating: “True leadership in response to the climate emergency means having the courage to commit to ending the expansion of oil and gas production and make a plan to transition communities and workers to better opportunities.”  A summary  appears in “If a House Is on Fire, You Don’t Add Fuel’: 530 Groups Back Call to Rapidly Phase Out Fossil Fuels Worldwide” in Common Dreams (Sept. 23); Background to the Lofoten Declaration here  .

Much remains to be done:  Consider the September 2019 report by Carbon Tracker Initiative.  Breaking the HabitWhy none of the large oil companies are “Paris-aligned”, and what they need to do to get there. The report examines oil company investment activities , and concludes:

  • Last year, all of the major oil companies sanctioned projects that fall outside a “well below 2 degrees” budget on cost grounds. These will not deliver adequate returns in a low-carbon world. Examples include Shell’s $13bn LNG Canada project and BP, Total, ExxonMobil and Equinor’s Zinia 2 project in Angola.
  • No new oil sands projects fit within a Paris-compliant world. Despite this, ExxonMobil sanctioned the $2.6bn Aspen project last year – the first new oil sands project in 5 years.
  • The oil and gas in projects that have already been sanctioned will take the world past 1.5ºC, assuming carbon capture and storage remains sub-scale.

And Global Trends in Renewable Energy Investment 2019 , commissioned by the United Nations, was published in September, reporting the good news that  global investment in new renewable energy capacity, led by solar power, “ is set to have roughly quadrupled renewable energy capacity (excluding large hydro) in the decade ending in 2019. Renewables accounted for 12.9 percent of global electricity in 2018—and if hydropower is also included, the renewable’s share of global electricity production is  measured at 26.3%.  Cost-competitiveness of renewables has “risen spectacularly over the decade, as the levelised cost of electricity has been steadily decreasing, down 81 percent for solar photovoltaics and 46 per cent for onshore wind since 2009.”

Yet despite this good news, the report states: “Overall, we note that these figures represent a small share of the overall economic transition required to address climate change…. global power-sector emissions are likely to have risen by at least 10 percent between the end of 2009 and 2019.”