The Morning Brief – 10.07.20

By Bruce Carson


The Speech from the Throne (SFT) and Canada’s Energy Sector

Will Trudeau’s second gamble on the Canada Infrastructure Bank be successful?

The Need for both Renewable and Non-Renewable Energy

There was little in the now adopted SFT about Canada’s energy industry, oil and gas, except perhaps to use it to provide an accelerant through emission reduction technology to get the Trudeau government to its stated goal of net zero emissions by 2050.

In Alberta, the Speech was panned in a Calgary Herald article by Erika Barootes of Enterprise Canada. She wrote that the Trudeau government had the opportunity to reset the relationship with Alberta and Western Canada in the SFT. She added “they missed it. It’s not that they tried and fell flat, it’s that they didn’t try at all.”

The SFT promised to create a million new jobs under climate action and Canada is to become a leader in the production of clean energy. The government says it will bring forth a plan to exceed its 2030 emission target and set a path to net zero by 2050 and place this ambition in legislation.

Money is promised for building and housing retrofits as well as a commitment to provide more transit.

There was nothing in the speech addressing the double whammy suffered by Canada’s fossil fuel industry from decreased demand and a price war. Nothing about the importance of the sector to the Canadian economy as Canada embarks on a COVID-19 recovery plan.

Both Premier Kenney and new Conservative Party leader Erin O’Toole criticized the speech as divisive, weakening national unity, when there was an opportunity to strengthen the province and the sector. Kenney remarked “for real recovery, Canada needs energy.” He added “what we are asking from the government of Canada is to do no harm.”

First, do no harm to the resource industries that are backbone, not just of the Alberta economy but the Canadian economy. Kenney also wants Alberta to receive $6.5 billion from the Fiscal Stabilization Program, something he has been asking for since the last election.

It is Kenney’s view that the federal government can’t generate levels of economic growth “to support the rate of government spending by turning by turning its back on the resource industries and related sectors that have been key pillars of the Canadian economy.”

Last week the Trudeau government demonstrated that it would use the Canadian Infrastructure Bank to “Build Back Better” to reach the decarbonisation goal Minister Freeland set out when she added the title of finance minister to that of deputy prime minister.

At a news conference, attended by Prime Minister Trudeau, Infrastructure and Communities Minister McKenna and Michael Sabia, Chair of the Board of the infrastructure bank, it was announced that $10 billion from the initial allotment provided to the bank by the government will be spent on infrastructure because as Sabia said, Canada needs growth and investing in infrastructure is a path to growth.

His view is that the bank will attract investment capital which will allow Canada to prosper in a low carbon world.

The $10 billion is to be divided as follows: $2 billion to be spent on large scale retrofits to increase energy efficiency; $1.5 billion for agricultural irrigation to help increase productivity; $1.5 billion to accelerate the adoption of zero emission buses and charging infrastructure; $500 million for project development and early construction; $2.5 billion to support renewable energy generation and $2 billion to connect 750,000 homes and small businesses to broadband.

Sabia commented that the supply of capital will be there. Our challenge is identifying the projects, structuring the projects.” He believes if the bank can do that, capital will be there.

Kevin Carmichael commenting on the announcement said that the “star crossed bank will only succeed if investors are confident it’s operating free of political interference.” Paul Wells critical analysis was that this was an announcement with no projects, no private sector partners and no process for gathering private sector capital. He concluded that it was no longer a bank, but just another pot of federal money.

However, it is the pot of federal money which at least in this first phase is to move Canada closer to the Trudeau net zero goals.

But how does this fit with the energy sector which is vital to the economy of Alberta, B.C., Saskatchewan and Newfoundland and Labrador?

On September 24, Deborah Yedlin, Peter Tertzakian and Kevin Krausert wrote a piece for Globe entitled “Our Apollo 13 moment for the Canadian Energy Sector.” They make the point that the “energy transition is coming.” Therefore “we must work together to ensure the Canadian resource bounty can be developed while finding solutions to Canada’s climate ambitions.”

Their view is that both renewable and non-renewable energy can work together “to achieve net zero life cycle emissions by 2050.” They note that in the oil sands work is being done on emission reduction at both the University of Calgary and University of Alberta. There is also the Avatar program, the Clean Resource Innovation Network and the Oil Sands Innovation Alliance, all dealing with decarbonisation and building bridges with the green energy sector.

The authors note that the oil and gas industry provides livelihoods for 10s of thousands of Canadians.

The challenge as they put it is to get the old, the fossil fuel industry, to work with the new, the renewable industry. The solution they arrived at is that pathways are needed to ensure the oil and gas sector can realistically become a partner in the net zero future. Those pathways, they believe are hydrogen, carbon capture and sequestration, geothermal; “solutions we have right here right now.”

Most importantly, they conclude that “we need all energy molecules, renewable and non-renewable.”

One of those pathways listed is hydrogen, a clean burning fuel. Yesterday Alberta Premier Kenney and Energy Minister Savage announced that Alberta’s economy would be diversified by developing plastic recycling and a new natural gas strategy featuring hydrogen.

The plan is to establish Alberta as a center of excellence for plastic diversion and recycling by 2030. The plan also includes the export of hydrogen and hydrogen derived products across the world by 2040. Alberta also wants to see two or three LNG mega projects developed to export to Asia and Europe.

This should mesh with the planned hydrogen strategy the federal government is planning to unveil later this fall, proving the point that all energy molecules are needed, renewable and non-renewable.

With regard to Alberta’s ambition regarding plastics, that may hit a road block today as the federal government is to declare plastic a toxic substance and list banned single use plastics. If this proceeds it may hurt Alberta’s attempt to become a plastic recycling hub and hurt the petrochemical industry in Alberta.

The relations between Alberta and Ottawa are never dull and always challenging. How will this new plastic issue sort itself out? It seems ridiculous that these two inconsistent announcements, from two governments, federal and one provincial, would occur on consecutive days.

To Come

  • Vice president debate
  • The Parliamentary Budget Officer will produce a number of reports dealing with the cost of various recovery benefits as well as the cost of the tax free seniors benefit
October 8
  • Speech to be delivered by Bank of Canada Governor Tiff Macklem
  • PBO report to be released entitled “carbon pricing for the Paris target: closing the gap with output based pricing”
October 9
  • Jobs report for September to be released
October 16
  • Monthly survey of manufacturing for August to be released