International Energy Agency- Bombshell Report

Until about five years ago the International Energy Agency was beholden to Big Oil. It is no more. Its blockbuster report dropped on an unsuspecting world on 18 May raises deep questions about Big Oil’s survival much past the next decade. The report of 223 pages entitled Net Zero by 2050- A Roadmap for the Global Energy Sector, contains four main chapters, four appendices, and six pages of references. With ESG investing in ascendance, Alberta’s regulatory system of setting security requirements broken, now there is considerable doubt that long-term bitumen reserves have the value they once had..

The IEA volume is organized in four parts:

1. implications of country’s net-zero pledges;
2. global pathway to net-zero CO₂ emissions in in 2050;
3. sectoral pathways to net-zero CO₂ emissions by 2050; and
4. “wider implications of achieving net-zero emissions.”

It has an executive summary for policymakers which is 15- pages long.  This useful summary should be required reading material for prime ministers, presidents, and corporate energy executives. ABpolecon.ca reviews the following key points in the summary and their implications for Alberta.

Content and Implications for Alberta.

1. The path to net-zero emissions is narrow: staying on it requires immediate and massive deployment of all available clean and efficient energy technologies.

Alberta must seize the opportunities, but is it culturally, financially, politically and economically willing to change? This will be a time of great uncertainty which must be managed with care. People in this province are anxious- many tenuously holding on to a high paid job, jobs which place undue strain on them and their families.  It is not only about COVID. It runs much more deeply.

Key opportunities may be developed out of the Emissions Reductions Alberta which has been funded by a pollution levy on large scale emitters; namely utilities and oil companies. Its funding comes from the provincial government’s “Technology Innovation and Emissions Reduction (TIER) Fund, is helping to shape a province with a diverse economy, a healthy environment and a robust innovation ecosystem.” The members of the board of directors represent the oil industry and

university personnel with oil and gas connections, or consultancies attached to the oil and gas sector.

      2. Scaling up solar and wind rapidly this decade, reaching annual additions of 630 gigawatts (GW) of solar photovoltaics (PV) and 390 GW of wind by 2030, four‐times the record levels set in 2020;

Initial resistance and suspicion of Alberta’s industry, voters and governments is slowly breaking down. A key issue will be how utilities respond to their monopoly position as base loader providers. Historically virtually all base load was derived from coal generation. Under the NDP plans, coal was to be phased out and replaced by gas generation and renewables like solar and wind. It is difficult however to envisage the current UCP government subsidizing both centralized renewable generation and decentralized power generation. “solar panels on every roof in the province.” The downside of subsidies is subsidies in the first instance and leakage to Chinese and foreign producers of solar panels and windmills.

3. All the technologies needed to achieve the necessary deep cuts in global emissions by 2030 already exist, and the policies that can drive their deployment are already proven

These technologies include carbon capture and new ways to develop low-carbon hydrogen. Alberta has announced a natural gas strategy which includes a hydrogen strategy and will be  co-operating with the federal government on a strategy. A hydrogen hub is being promoted for the Edmonton region.

4. It is essential that the resulting wave of investment and spending to support economic recovery is aligned with the net zero pathway

This will present a particular issue with Invest Alberta and corporate and government officials who are focused on attracting major investment in the petrochemicals sector. Energy and CleanTech, financial services and aviation and logistics are other major targeted sectors. This imitative grew out of the Alberta Recovery Plan.

5. Fossil fuel subsidy phase-outs, carbon pricing and other market reforms can ensure appropriate price signals. Policies should limit or provide disincentives for the use of certain fuels and technologies, such as unabated coal-fired power stations, gas boilers and conventional internal combustion engine vehicles.

A 2020 study published by the Winnipeg-based International Institute for Sustainable Development and the Geneva-based Global Subsidies Initiative documented non-tax subsidies the largest of which was the $275 million investment in LNG Canada in fiscal 2018-19.  Other tax subsidies include the BDC’s three-year $500 million commercial financing envelope to assist smaller oil and gas enterprises and a steel tariff exemption for LNG projects. On the tax front, there are nearly a dozen Income Tax Act provisions- the two largest being the Scientific Research and Experimental Development Investment Tax Credits ($3.2 billion) and the Accelerated Investment Incentive ($3.6 billion).  Other tax subsidies not quantified include the 100% Canadian exploration expense deduction and Flow-through shares, that provide up to a 100% annual tax deduction.

   6. Governments must lead the planning and incentivising of the massive infrastructure investment, including in smart         transmission and distribution grids.

This activity is shared jurisdiction between the provincial and municipal governments. It is also one where the federal government will and should be pouring tens of billions into greening federal infrastructure and shared cost programs with provincial governments. Analysis from the Finances of the Nations and Parliamentary Budget Officer however underline that Alberta’s provincial finances are not sustainable under the current path. This will add to strains in the province’s willingness and capacity to accept federal funding directed into this area.  The two large urban areas have important roles to play with resect to public transit, local road systems, and their own considerable physical infrastructures of municipal buildings.

7. The biggest innovation opportunities concern advanced batteries, hydrogen electrolysers, and direct air capture and storage

This is another opportunity for Alberta researchers, inventors, investors and engineering firms in the area of hydrogen development, transportation via existing pipeline systems and carbon capture and storage. Alberta should have a comparative advantage in these areas.

8. Large-scale construction of the infrastructure technologies will need;

This is an area where Alberta’s construction and engineering capabilities can be utilized and excel.

9. 55% of the cumulative emissions reductions in the pathway are linked to consumer choices such as purchasing an EV, retrofitting a house with energy efficient technologies or installing a heat pump.

Whether Alberta’s anti-renewable culture will resist these developments is still an open question. Once critical mass is reached, network effects kick in to shift production structures quickly. Electric charging stations is an area where Quebec is taking a lead given its expertise in electrical energy. Another obstacle is the province’s fiscal situation.  Taking back the federal carbon tax and devoting to these areas might be a smart move.

 10. Government R&D spending needs to be increased and reprioritised. Critical areas such as electrification,         hydrogen,  bioenergy and carbon capture, utilisation and storage (CCUS) today receive only around one-third of the   level of public R&D funding of the more established low-carbon electricity generation and energy efficiency    technologies.

Significant cutbacks to university funding will stand in the way of fulfilling these opportunities.

11. Transition of the scale and speed described by the net zero pathway cannot be achieved without sustained support and participation from citizens.

Consciousness is changing in Alberta. Of particular note has been the Alberta public’s reaction to the hastily rewritten coal policy. This opposition is being led increasingly by a new generation of municipal politicians. Of  recent note is the Council of the Town of Canmore rejecting major development applications.

12. Decisions must be transparent, just and cost-effective.

This is always a challenge for any democratic government whether conservative minded or liberal. Alberta’s UCP government has developed a reputation for appointing “expert committees” whose recommendations can be predicted with considerable accuracy. The Allan inquiry, the energy war room and the lack of scientific disclosures on the COVID pandemic have let to greater distrust in government.

13. Job opportunities are often in different locations, skill sets and sectors than the jobs that will be lost as fossil fuels decline. In our pathway, around 5 million jobs are lost. Most of those

    

    jobs are located close to fossil fuel resources, and many are well paid, meaning structural changes can cause shocks for communities with impacts that persist over time. This requires careful policy attention to address the employment losses. It will be vital to minimise hardships associated with these disruptions, such as by retraining workers, locating new clean energy facilities in heavily affected areas wherever possible, and providing regional aid

What will happen to tens of thousands of high-paying jobs that will vanish in Alberta over the next decade and tens of thousands of jobs that will disappear in the absence of consumption by high wage earners? Especially critical is the geographic displacement. An out-migration from the province would be a devastating scenario for a province whose population growth has been the highest in the country for six or seven decades. Unless the provincial government quickly embraces the building of new clean energy facilities, it will be difficult to hold on to skilled workers.

14. Net zero means a huge decline in the use of fossil fuels

The report does not address the long-term competitiveness of Alberta’s oilsands. It does suggest higher taxation of natural gas- a central tenet of Alberta’s energy strategy- in order to improve the competitiveness of less carbon-tensive fuels and technologies.

15. Governments need to provide credible step-by-step plans to reach their net zero goals, building confidence among investors, industry, citizens and other countries.

It seems doubtful at this point the Kenney government will play a leadership role given the fossil fuel industry’s central role in the Alberta economy and political influence it casts over government decision-making. This is slowly changing as more decision-makers understand the shifting financial criteria used in investment decision-making.

   16, Beyond projects already committed as of 2021, there are no new oil and gas fields.

This is one of the Report’s crushing pronouncements.  The Alberta Economic Recovery plan is based on oil and oilsands viability into the next several decades. Should the global investment community accept this recommendation, which is of immediate effect, prospects for rising resource royalties are off the table. Rising resource revenue was a centrepiece for both the NDP’s Path to Balance in 2018 and the UCP’s three-year budgetary projections.

17. For development in our pathway, no new coal mines or mine extensions are required.

The recommendation is aimed at steam coal used for generating electricity. There may be a route forward for metallurgical coal used in steel-making. Coal royalties are minuscule for the province’s finances.

18. Unabated coal demand declines by 90% to just 1% of total energy use in 2050. Gas demand declines by 55% to 1 750 billion cubic metres and oil declines by 75% to 24 million barrels per day (mb/d), from around 90 mb/d in 2020.

It is doubtful that Alberta will have much of a natural gas or oil industry left by mid-century. This is because fracking remains expensive and environmentally suspect. Oilsands are still among the most expensive and carbon-intensive oil in the world. Alberta will be facing a very real question by mid-decade about how long will plants and mining will be operating and what financial assistance might be required to clean up the environmental footprint from this form of fossil fuel extraction.

19. Total annual energy investment surges to USD 5 trillion by 2030.

Aside from hydrogen, solar, wind, and cleantech there are no obvious sustaining resources or technologies which Alberta can rely upon over the next three decades.  Other than a huge land base and possible agricultural discoveries to utilize the vast arable land, Alberta has run out of easy options to re-invent its economy. Expecting foreign mega-investments in areas where Alberta has no comparative advantage is a pipe-dream.

20. The major innovation efforts needed to bring new clean energy technologies to market could boost productivity and create entirely new industries, providing opportunities to locate them in areas that see job losses in incumbent industries.

This is an area where research, innovation and commercialization are important. Alberta governments for years have waxed eloquently about Albertans’ innate entrepreneurialism.  And yet, excepting the short period in the Klein years where government were forbidden to provide loan guarantees and generally eschewed expensive grant programs, the idea of an interventionist state made a resurgence under Redford and subsequent administrations. And with COVID, the government has been cranking out a variety of band-aid programs to keep Alberta businesses alive.  Is Alberta entrepreneurship more myth than reality?

  21. No new oil and natural gas fields are needed in our pathway, and oil and natural gas supplies become         increasingly concentrated in a small number of low‐cost producers.

This will likely mean a halt to new LNG platforms in B.C. which will have a negative spillover to Alberta. The development of the Montney and Duverney formations in north-western Alberta and north-eastern B.C. will stall under this regime.

22. The expertise of the oil and natural gas industry fits well with technologies such as hydrogen, CCUS and offshore wind.

Offshore wind won’t help Alberta but hydrogen and carbon capture and underground storage will grow.

23. Ensuring uninterrupted and reliable supplies of energy and critical energy-related commodities at affordable prices will only rise in importance on the way to net zero

Without much oil, natural gas and bitumen to export how will Alberta pay for consumer and capital goods from outside its borders? There will also be no capital to import and domestic savings will be emptied as oil and natural gas exports fall.

It is not hard to see where this is going. There has been no official reaction from the Alberta government to this stunning report. It seems incumbent on the provincial government to establish a cross-ministry task force of senior officials to study the full report and to inform their political masters what are the implications for Albertans in the 2020s.