Federal Budget and the Energy Transition
By Bruce Carson
NATIONAL ISSUES
Volume 6, Issue 5, May 1, 2021
INTRODUCTION
It is hard to imagine a busier two weeks in the energy and environment sector than the ones we have just witnessed.
There has been a federal budget, at long last, which addresses this sector, albeit briefly, the Bank of Canada talking about the possibility of increasing interest rates next year, emission reduction targets have changed twice in a week, the Conservative Party has released its plan to address climate change, the future of Enbridge’s Line 5 is still unresolved, the Federal Court of Appeal has delivered a decision, positive for Alberta and a flock of hummingbirds without the aid of lawyers or lobbyists have brought construction on a section of the TMX to a temporary halt.
FEDERAL BUDGET AND THE ENERGY TRANSITION
Among the deluge of spending contained in this budget is a commitment of $17 billion to a “green recovery” and job creation.
There are measures targeting heavy emitters, new incentives to encourage companies to adopt technologies that trap carbon dioxide into the ground from fuel combustion. Alberta MP Greg McLean pointed out during question period in the House of Commons that enhanced oil recovery was not included in this part of the budget.
There are consultations promised for the development of a tax credit for capital spent on CCS technologies.
$5 billion of the $17 billion is designated to go into the Net Zero Accelerator fund to be spent on projects used by industry to reduce GHG emissions. This is to be added to the $3 billion already in the fund. The fund will provide support for heavy emitters like steel and cement to decarbonize.
There are incentives for energy retrofits for homeowners in the total amount off $4 billion over five years with homeowners eligible for up to $40,000 for a retrofit. There are tax reductions for corporations and small businesses manufacturing zero emission technologies such as solar panels and electric buses.
But there is no direct help for struggling oil and gas workers who have suffered through the pandemic and now face transitioning into other jobs or unemployment. If the federal government wants the energy transition it is contemplating to be positively received in Alberta, Saskatchewan and Newfoundland and Labrador effective transition for workers is key.
If measures are not introduced to ease the transition, dislocation of energy workers could grow into a national unity crisis, pitting East against West once again.
EMISSION REDUCTION TARGETS
The federal budget introduced on April 19 set a new emission reduction target at 36% below 2005 levels by 2030. That target did not last the week as Prime Minister Trudeau upped the ante at the international climate change conference convened by President Biden. Trudeau pledged Canada to reduce emissions by 40-45% below 2005 levels by 2030.
Trudeau said on April 22 “Canada is a committed partner in the global fight against climate change, and together we will build a cleaner and more prosperous future for all.”
There is an absence of specifics as to how these targets are to be met.
At the meeting, the U.S. pledged to cut its emissions by 50-52% below 2005 levels by 2030.
Will there be border taxes in Canada and the United States to address carbon leakage?
Chris Varcoe in his Calgary Herald article asks; how do we accomplish these reductions in nine years, what will be the impact on Canada and will there be new government measures?
Andrew Leach, of the University of Alberta is quoted as saying the reductions are attainable; the question is whether “we will have the policy push to get there.” He has also said that “whatever Canada’s government commits to in terms of emission reductions must translate directly into changes in the oil sands sector or our commitments are not credible.”
Varcoe quotes Jim Carter, retired Syncrude President and former chair of Alberta’s Carbon Capture and Storage Development Council, as saying “I am very sceptical, I don’t think we have had enough discussion around how these targets can be accomplished. He added “we are moving too fast setting targets without any study on the broader implications for the Canadian economy, for one thing; but also recognizing the role science and engineering plays in all of this. There are limitations.”
Kevin Bird of IHS Markit stated “the industry is capable of making material large scale reductions, it’s a question of time and money.”
Again, there is nothing here on transitioning those most affected by these decrees from Ottawa, energy workers. These targets cannot be set in a vacuum without regard to their real life implications.
CLIMATE PLAN OF THE CONSERVATIVE PARTY OF CANADA
This controversial plan is based on a carbon charge on fuel starting at $20 per tonne, rising to $50 per tonne. The money is to go into a “Personal Low Carbon Savings Plan.” This amounts to one-third of the amount of the Liberal plan. Large emitters will be treated in a fashion similar to the Liberal plan subject to regulation. There will also be a low carbon fuel standard.
Included in the plan is a requirement that 30% of light duty vehicles sold by 2030 must be zero emitting and that there be a 20% reduction in carbon intensity for transportation fuels. A new carbon border tariff will be studied and perhaps new taxes on frequent flyers as well as luxury vehicles that are not EVs. There is a proposal that 15% of natural gas come from renewable sources. There will be funding for small modular reactors.
For Conservative leader O’Toole the merit of this plan is that the money paid does not go to the federal government; this he believes allows him to say, this is not a carbon tax.
The Personal Low Carbon Savings plan will be managed by a consortium of companies and is to operate similar to INTERAC.
As must have been expected this proposal was not universally praised. John Ivison called it “not perfect-but credible.” The Canadian Taxpayers Federation termed it a “betrayal” because it proposes a carbon tax and breaks a pledge by the leader regarding the carbon tax. It is argued that this proposal contradicts O’Toole’s leadership campaign promises which involved scrapping the carbon tax.
However, Premier Scott Moe of Saskatchewan called the proposal, the lesser of two evils. Comparing the Trudeau and O’Toole plans, Moe said “there’s one that actually returns dollars to those who spent the dollars. That’s the one we’d choose.”
Adam Radwanski in the Globe wrote “while deeply flawed in places-is a much more credible emissions reduction strategy than anything the Conservatives have put forward previously.” It is his view the carbon price is too low to encourage climate friendly investment decisions. He asks whether the green energy account will apply in all provinces or just those that don’t have a carbon pricing equivalent.
In the end, whether this plan gains support from voters in Ontario, Quebec and Atlantic Canada may come down to dealing with a statement from Professor Andrew Leach “O’Toole’s climate plan isn’t a good one, but may be good enough for voters.”
If Conservative supporters want to see the end of Trudeau’s government, this plan, if supported, may be enough to attract voters who are sitting on the edge, to the Conservative Party.
ENBRIDGE LINE 5 UPDATE
A recent Reuters article by David Ljunggren and Nia Williams sets out that Ottawa’s strategy is to get U.S. counterparts to pressure Democratic Governor Whitmer to leave the pipeline open. She has ordered Line 5 shut down by May 13, citing environmental risks.
The case is being heard in a U.S. Federal Court with mediation that started on April 16. The question for the Trudeau government is whether to get directly involved in the legal challenge to Whitmer’s order to shut down the pipeline.
Canada may end up invoking the 1977 Transit Pipeline Treaty signed between Canada and the U.S.
FEDERAL COURT OF APPEAL DECISION ON ALBERTA’S “PRESERVING CANADA’S ECONOMIC PROSPERITY ACT”
This decision rendered last week upholds Alberta’s right to turn off oil taps to other provinces. Alberta has the right to control the amount of oil and other fuels flowing through the TMX pipeline.
The Justices agreed that an earlier injunction blocking Alberta from using the legislation should be overturned. The court held that the constitution gives provinces the right to own and develop their natural resources. The court also held that since Alberta had not imposed export limits, B.C.’s action is premature.
There could very well be an appeal of this decision to the Supreme Court of Canada.
HUMMINGBIRD POWER
Hummingbirds nesting has brought the construction of the Trans Mountain Pipeline expansion to a halt along a one kilometer stretch near Burnaby B.C.
The order to stop work came from the Government of Canada as this species, known as Anna’s hummingbird, are migratory birds protected under Canadian law.
Work has been stopped for four months on this section.
PETER TERTZAKIAN –MILD INFLATION COULD KNOCK OUT THE WORLD’S AMBITIOUS PLANS FOR DECARBONIZATION
In an article in the Financial Post last week, Tertzakian made the point that inflation could tilt choices between electric vehicles or those with internal combustion engines. He listed six points that could influence this choice.
Clean energy projects may lose momentum at higher rates of interest because of the large amount of borrowing required to get projects off the ground.
Manufactured products such as batteries, solar panels etc. are less affected by inflation.
For builders and makers of things, the price of resource commodities such as copper, steel and lumber are all going up in price and that is the inflationary wild card.
Oil and inflation; when oil prices go up so does everything else.
OPEC understands the perils of oil price inflation and will not allow prices to get too high so as to affect consumption.
Consumer price inflation accelerates consumption as there is a scramble to purchase goods, before price increases take place.
To Come
May 4
International trade numbers for March to be released
May 7
Job numbers for April to be released
May 14
Monthly survey of manufacturing for March to be released
Wholesale trade numbers for March to be released