Canada is the land of energy incumbents. Incumbents impede change to protect their own self-interests, a poor strategy in the midst of a global energy transition
Spencer Dale warns that transitioning too slowly to clean energy – a disorderly transition – now will lead to a rush after 2040 that essentially breaks the global energy system as we try to stay within the 2C by 2050 carbon budget. Good advice, I suppose, but wrong. Chaos is our friend. It is the only force that can break the inertia of the energy status quo that is holding back the energy transition in Canada.
Oil giant BP’s chief economist argues in the Energy Outlook 2024 that the world is in an “energy addition” stage, consuming increasing amounts of both clean energy and fossil fuels. Instead, we must switch to “energy substitution” as quickly as possible. Until we do, greenhouse gas emissions will continue to rise, as they have inexorably done, except for the brief blip of 2020 thanks to the COVID-19 pandemic.
But how to switch from the addition stage to the substitution stage is the challenge. Dale doesn’t have much to offer on this point. There are a couple of models to consider, neither of which are particularly palatable.
The first is to treat the climate crisis as a war. Governments direct companies to manufacture solar panels, electric vehicles, and batteries instead of televisions and other consumer products. Climate activist Seth Klein outlined this strategy in his book, “A Good War: Mobilizing Canada for the Climate Emergency.”
The second is to emulate China. Its more authoritarian government decided two decades ago to invest heavily in clean energy technology manufacturing and adoption by consumers and businesses. While not a “command and control” economy, the national government sets priorities, funds them, and directs provincial and local governments to follow suit. When the Communist Party decided to pivot to clean energy, China pivoted. Now, China is easily the world’s clean energy superpower.
Neither of these options is palatable to Western citizens. Nor should they be, for reasons that ought to be self-evident.
But the West’s energy transition still has a serious problem to fix: the power of energy incumbents. Oil and gas companies, electric utilities, their supply chains (think chambers of commerce), regulators, cautious politicians and governments – in effect, the status quo.
Alberta is the Canadian poster child for the power of incumbents.
Business leader Alex Pourbaix of oil company Cenovus explicitly argues that it is “energy diversification,” not transition. Alberta Premier Danielle Smith’s conservative government first imposes a moratorium on wind and solar development, then brings in rules that are a de facto “soft” moratorium. The list of examples is long. But Alberta isn’t alone.
British Columbia only recently directed its crown-owned utility to plan for rapidly growing electricity demand. Ontario was even slower off the mark and continues to fixate on nuclear, with eye-watering bills to refurbish existing reactors. Saskatchewan, whose government refuses to collect the federal carbon tax, is a clean energy basket case.
To paraphrase Yoda, energy system inertia is strong with these ones.
A big reason is that because Canada insists on selling energy transition policies as climate action. This approach will not work, as I argued in Tuesday’s column, because Canadians (like most citizens in Western nations) mostly pay lip service to addressing climate change. The much better argument is that, in many cases and soon to be in all, electric technologies like solar, batteries, and EVs are now better and lower-cost.
What governments won’t do, markets will, and if Canada waits for the new clean energy technologies to drive systemic change, then change will not just be “disorderly” but chaotic.
Bankrupt oil companies leaving behind hundreds of billions in environmental liabilities. Stranded fossil fuel assets, many of them subsidized with taxpayers’ money, galore. Much less tax revenue to pay for healthcare and education. A decimated workforce. Failed businesses left and right.
A Canadian rustbelt like the one in the American Midwest.
Incumbents circa 1980 probably laughed at the prospect of a de-industrialized United States, just like Smith and the oil CEOs deride the idea of a rapid decline in oil demand after 2030. Well, the US switch from an industrial to a service economy was a structural one (just like the current switch from hydrocarbons to clean electricity) and look what social and political mayhem that wrought.
Canada is headed down a similar road and changing course now seems impossible. That leaves only the chaos of a “disorderly” transition.
If that’s what it takes to break the stranglehold of Canada’s energy incumbents, then so be it.
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