Will other countries adopt policies to speed up energy transition? If they do, will that affect demand for Alberta’s crude oil?
How fast do we want to decarbonize? That’s the question raised by a recent IRENA report about prioritizing the technologies we support in order to speed up the global energy transition – effectively the electrification of the global economy. If the answer to the question is, “really fast,” then Alberta might find its energy-focused economy in trouble sooner rather than later.
“Technology innovation has been and will continue to be a critical enabler of progress, but innovation priorities need to be refreshed to address the new challenges of integrating high shares of renewable power and electrifying the end-use sectors of transport, industry and buildings,” says Dolf Gielen, director of innovation and technology at IRENA.
The International Renewable Energy Agency – Canada is in the process of joining, making this a relevant discussion for Canadians to be having – wants governments to spend more money to speed up the transition.
This really is the bottom line.
Humans can have the energy transition as quickly as they like if they are willing to spend the money and accept the risk of breaking stuff (think electricity power grids or transportation systems) or the new technology not working as hoped.
For instance, what if Canada decided to speed up the adoption of electric vehicles? This is relevant to Alberta because EVs are currently the only credible threat to displace oil.
Let’s assume the Justin Trudeau Liberals, in their upcoming zero-emissions vehicles policy, decided to give subsidize EV purchases to the tune of $11,000. Just over 24 million cars, trucks, and SUVs are registered across the country.
Under this scenario, replacing the entire national auto fleet with EVs would cost $264 billion.
That’s a lot of cash.
But we know from experience in other countries that an $11,000 subsidy toward a $45,000 EV will only motivate Innovators and Early Adopters, without making much of a dent in the adopter groups further to the right on the bell curve.
For sake of argument, let’s up the subsidy to $20,000, which will lower the purchase price of EVs like the Nissan Leaf or the Chevy Bolt to the point where they’re competitive with similar gasoline-powered cars.
The bill now climbs to a whopping $480,000 billion. Even if Canada spreads the program out over 20 years, $24 billion annually is still a lot of money (2/3 of what the Canadian government spends on healthcare, for instance).
This is a back of the cocktail napkin calculation and we can quibble over whether the cost would be higher or low than my estimates, but either way it will be a big number.
Are Canadians willing to pay it?
Polling data suggests they are not. In fact, in a best case scenario Canadians would prefer policies supporting the energy transition to come with the smallest possible price tag – or, ideally, no price at all.
“We’ve noticed an increasing recognition that we have to change our behaviours both at the macro level and the micro level,” Abacus Data CEO David Coletto told Energi News in a recent interview.
“That a transition towards a lower carbon economy is actually a good thing, something that we should be looking toward, even in Alberta, where we know that there’s been far more resistance to some of the policy choices. It’s about finding a balance. “
On the one hand, people want it, says the Calgary-raised pollster. Most Canadians believe that climate change is something we need to address, but on the other hand, they don’t want it to hurt too much.
Coletto says his firm’s surveys over the past two to three years have shown that the usual 60 to 70 per cent of Canadians sit in the pragmatic middle, while the remaining 30 to 40 per cent is split between left (get off fossil fuels NOW!) and right (fossil fuels pay the bills, go as slow as possible) wing fringes that make the most noise.
A telling insight, according to Coletto, is that Canadians don’t really understand energy and climate policies like carbon taxes.
“The public hasn’t caught up and yet environmentalists are pushing harder and wanting governments to move faster, which creates a window for enterprising politicians like Jason Kenney and Doug Ford and Andrew Sheer to come into that space and say they’re going to get rid of carbon pricing, that it’s just a tax grab,” he said.
What about the energy transition in other countries? Not every country is pragmatic and cost-averse as Canada.
A number of European countries – e.g. France, UK, Germany – have said they will ban the sale of internal combustion engines by 2030. China is rumoured to be considering a ban, perhaps even earlier.
Scandinavian countries are heavily subsidizing EV sales. Just under 35 per cent of Norway’s auto sales are now EVs and the country has set a target of zero emissions for all new cars by 2025, according to the Financial Times.
Dr. Jessica Jewell, a visiting associate professor in the field of energy transitions at the University of Bergen, Norway, says that while “teasing out” the exact impact of policy compared to other factors, such as technology development, is difficult, there is no doubt that policy plays a role in speeding up transitions.
“The policy environment matters as to how well a technology can complete. Policy definitely plays a role because it bends the S-curve,” she told Energi News in a 2017 interview.
What Jewell means by policy being able to “bend the S-curve” is basically that a new technology – in this case, electric cars – will be adopted in larger numbers sooner than it would in the absence of government policy.
The IRENA report calls for more aggressive policy to bend the S-curve of electrification, including transportation, which consumes 75 per cent of global oil production.
Alberta should be paying attention to this kind of global pressure for policy change from outside Canada.
Banning ICE cars. Increasing subsidies for EV purchases. Public investment in EV charging infrastructure. Carbon pricing.
These are the types of policies that could affect demand for Alberta’s crude oil sooner than industry and government expect.
And public policy is just one disruption that stands out as a risk factor for oil producing jurisdictions like Canada. The otjer big ones are the introduction of next generation batteries (e.g. solid state) that are cheaper and have much longer range (late 2020s); Mobility as a Service using autonomous EVs (cities like Calgary are already thinking about policy changes to accommodate MaaS, which could be ready as early as 2025); and China, which has made clear its objective to become the global leader in EV development and manufacturing (watch out if China does for EVs what it did for solar panels from 2008 to 2014, driving down costs by 85%).
The oil and gas sector – production and services, pipelines, petrochemicals, etc. – accounts for 17 per cent of Alberta GDP. Crude oil is far and away Canada’s biggest export, $67 billionCDN in 2017 according to the National Energy Board.
Accelerate the energy transition more quickly, as IRENA wants, and Alberta’s economy could suffer a lot in a hurry.
While Canadians and Albertans are not willing to bear more cost and risk to speed up the energy transition, we shouldn’t assume that other countries share our comfort with the status quo.