
Political leadership needed to push Canada’s oil/gas sector toward low-carbon business models
“It is incredibly rare for an industry to get a decades-long notice that its business is under threat. Not only does the oil and gas industry have the luxury of clear warning, it has significant cash flow coming its way from higher prices. The commodity price upcycle provides a golden opportunity to accelerate emissions reduction [and new low-carbon businesses], with a clear financial framework.” – Tom Ellacott, senior vice president, corporate research, international consultancy Wood Mackenzie in an August 19 press release.
Step outside Canada, especially Alberta, for a moment and this is a common view of the oil and gas sector: the energy transition is accelerating, climate change is an existential crisis, hydrocarbon producers have to both decarbonize and switch to low-carbon business models, and the 2020s is likely their best (and possibly last) shot at doing it. Given that Canada ranks fifth in global oil production and fourth in natural gas, why aren’t Canadian politicians discussing this on the campaign trail?
The question is especially important because Alberta oil sands producers recently said they will ask taxpayers to fund $50 billion of the $75 billion cost for their industry to reach net-zero emissions by 2050. That’s today’s estimate. If Canadians have learned anything from mega-projects like BC Hydro’s Site C dam or the Trans Mountain Expansion pipeline it’s that costs balloon over time.
The oil and gas industry also hasn’t suggested a cost to decarbonize production in Alberta outside the oil sands or in Saskatchewan, and Newfoundland and Labrador. Then there are environmental liabilities, estimated at $58 billion to $260 billion in Alberta alone.
There is a big bill coming due, probably sooner rather than later. Shouldn’t Canadians have a say about how much of the burden, if any, they are willing to shoulder? Shouldn’t Canadian political parties have an energy transition plan that includes the future of the country’s largest export sector ($134 billion in 2019, far larger than the auto industry), one that accounts for over 10 per cent of national GDP?
Of the four major parties, only the Greens have taken an explicit position on the future of the oil and gas industry: it should be phased out as quickly as possible. The party had not released its 2021 platform as of publication, but their 2019 election promise was to put Canada on a “war footing” (similar to the massive government intervention of World War II) to battle climate change. The party wants an immediate end to the expansion of oil and gas extraction and an orderly phaseout, to begin as soon as possible.
The NDP is positioned between the Greens and the Liberals – ending fossil fuel subsidies, but stopping short of promising to phase out production. “I want to fight the climate emergency for real…It’s about choices,” leader Jagmeet Singh said Monday. “We can choose to subsidize clean, renewable energy instead of Big Oil.” Given the high number of unionized workers in the sector, don’t expect to see Singh advocating for a Green-style phase out.
The 2021 Liberal platform will be released in early September, but after six years in power, the strategy is clear: decarbonize oil and gas extraction while letting market forces dictate supply. This why the Trudeau Government approved two new pipelines, spending billions to buy one of them (Trans mountain Expansion), and allowed approval of the recently-cancelled Keystone XL project to stand when President Donald Trump re-approved it in 2017. At the same, Ottawa worked with both the NDP and UCP governments on the design of Alberta’s large emitter carbon tax and methane emissions reduction regulations while introducing a slew of other regulations like the Low Carbon Fuel Standard.
Suncor CEO Mark Little has already said that the oil sands players can lead Canada’s energy transition. Those companies employ tens of thousands of highly skilled technical professionals, are experienced project managers, highly profitable, and they have robust balance sheets. They seem ideally positioned for a low-carbon pivot.
Thus far, however, only Suncor is exploring a low-carbon business model. It owns wind and solar farms, has invested in sustainable jet fuel maker LanzaJet and other cleantech firms, installed EV chargers at PetroCan stations across Canada, and supports scientific research into using bitumen as feedstock to make carbon fibre. But Canada’s largest integrated oil and gas company is also in no hurry to abandon its core business.
Could Suncor be motivated to do more, faster? Might the other big players then emulate Suncor with a bit of encouragement? Canada should take up Little’s offer and find out. The hydrocarbon-friendly Liberals are well positioned to lead such an approach, but have shown little interest thus far.
Erin O’Toole and the CPC are taking the opposite approach to the other parties, arguing for a significant expansion of traditional oil and gas extraction, including a big boost of exports.
The backward-looking Conservative platform contains planks ripped straight from the playbook of Kenney and the industry: “fixing” the new environmental impact process (Bill C-69), reversing the northern BC oil tanker ban (Bill C-48), legislation “to prevent protestors from blocking key infrastructure” (shades of Texas), active federal support for LNG development, a tax credit for carbon capture storage and utilization, fast-tracking review of hydrocarbon projects that allegedly reduce emissions in other jurisdictions (e.g. substituting “green” LNG for coal in China), and fighting harder for existing pipelines (Lines 3 and 5) while building more.
The fixation with pipelines is especially troubling. Even with another 900,000 barrels per day of oil production expected by 2030, according to IHS MarkIt, new pipelines (TMX and Line 3 replacement) augmented by some extra rail shipments should suffice well into the 2030s. By that time, even the IEA thinks peak oil demand will be here. There is no rational argument for even one more new pipeline in Canada.

Given that oil and gas production is the biggest contributor to Canada’s GHG emissions (26% for the industry, 11% just for the oil sands) and still growing while other sectors are stalled or declining, pledging to expand hydrocarbon production contradicts the CPC’s improved climate plan.
To sum up: the Greens are missing in action, the NDP focuses on ending oil and gas corporate welfare, the CPC is deeply wedded to the hydrocarbon status quo, and the Liberals have not signalled a departure from business as usual.

Meanwhile, Wood Mackenzie says oil and gas companies have only this decade to allocate more capital to “low-carbon businesses” and to “accelerate corporate transformation.”
With a $50 billion ask on the table and hundreds of billions in environmental liabilities up in the air, plus the potential for Big Oil to positively contribute to the energy transition, when should Canadians discuss the future of the hydrocarbon sector if not during a national election? Canada is running out of time to have this conversation.
Readers can find the relevant portions of the party platforms here:
NDP (pages 38, 46, 51).
CPC (pages 32-33, 80-81, 121, 141-142)
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