Federal election campaign is best time for Canadians to debate Canada’s energy future
While Canadians furiously debate racism in Canada, discussion of policy issues is paused. When it resumes, here is a topic worthy of voters’ attention: the pace of change in the global energy system appears to be accelerating, which will have serious consequences for the Canadian economy.
The change in question is the energy transition, the process of switching from fossil fuels like oil and gas to electricity generated by low-carbon technologies like wind and solar. Transitions usually take 50 to 100 years, but we’re already a couple of decades into this one, which is about the time we should expect the pace of change to pick up.
The evidence for accelerating change is mounting, according to Werner Antweiler, associate professor in the Sauder School of Business, who says the anecdotal evidence alone is overwhelming.
“Energy has really come of age,” he told Energi media. “Some of that acceleration is caused by the co-benefits of adopting a new technology. For instance, wind and solar energy are now competitive on price, but they also reduce greenhouse gas emissions and don’t produce air pollution. Low costs plus co-benefits equals a higher value proposition than existing energy technologies.”
The biggest impetus to adopting new energy technologies is always lower cost, according to Dr. Fred Beach, assistant executive director of the Energy Institute at the University of Texas, Austin. New technologies cost more than their dominant competitors, but over time those costs drop. For example, new utility-scale wind and solar installations generate electricity at lower cost than natural gas combined cycle plants, according to the latest version of the Lazard levelized-cost-of-energy study, and far less than new coal plants.
“Business people can do math, they can operate a spreadsheet, they can look at the amortization schedule and what it does for their energy prices going out into the future and they’re saying, yeah, it makes sense now, at today’s prices,” he said in an interview.
Another example is electric vehicle batteries, which cost $195 per kilowatt hour (kwh) only a few years ago, but are now in the $125 per kwh range, says Navigant EV analyst Sam Abuelsamid. The NY Times reported on rumours leaking week from the recent Frankfurt Motor Show that suggest giant automaker Volkswagen has broken the critical $100 per kwh threshold- when EVs become more affordable than gas-powered cars – for its new ID.3 EV.
“I’m a bit skeptical about the VW rumours, but even if they’re not true, we expect $100 kwh in just a few years,” he said in an interview. “By 2023 or 2024, the sticker price of EVs and gasoline-powered cars will be the same.”
Beach worries a bit about “self-selection bias,” his tendency to read the information that confirms what he already thinks. Still, he thinks the pace of acceleration has picked up significantly.
“Within the last 12 to 18 months, big industry has really gotten on board,” he said in an interview. “I think that is really going to move the needle as far as scalability and further accelerating these cost decline curves and pushing us to the technology adoption tipping point.”
He points to the recent decision by Mercedes Benz to stop the development of internal combustion engines and the purchase of 100,000 electric delivery vans by Amazon as evidence of industry’s commitment to an electric future.
What else might move the energy transition needle? The big one is climate policy.
That’s why Friday’s global “climate strike” by school children, led by 16-year old Swedish climate activist Greta Thunberg, is important. According to CBC, Millions marched in roughly 150 countries demanding that their government take stronger action to keep temperatures from rising about 1.5 degrees Celsius by the end of the century. The strike is just one instance of the growing international resolve to combat global warming.
Evermore stringent climate policy – carbon pricing, banning gas and diesel-powered cars, subsidizing the electrification of industry, for example – will almost certainly accelerate the transformation of the global energy system.
These policies matter.
Last year, China switched from feed-in tariffs to competitive auctions, leading to a market reset and lower investment in wind and solar installations. The first half of 2019 was also slow, but the market appears to be recovering in the second half, leading the International Energy Agency to forecast growth in renewable capacity additions to by almost 12 per cent this year
“These latest numbers give us many reasons to celebrate: Renewable electricity additions are now growing at their fastest pace in four years after a disappointing 2018,” said Dr. Fatih Birol, the IEA’s executive director. “The stark difference between this year’s trend and last year’s demonstrates the critical ability of government policies to change the trajectory we are on.”
The lesson for Canada is that change is coming more quickly than we imagined. National debates are consumed with battles over pipelines or a carbon tax while global transformative change goes unrecognized.
When it comes to energy Canadians are mostly parochial naval gazers. We like the idea of a gentle glide path to a clean energy future, one that doesn’t cost too much and isn’t inconvenient. We are followers, content to leave leadership to others. Prime Minister Justin Trudeau’s pipelines and wind turbines analogy – revenue from oil and gas development paying for the energy transition – appeals to Canadians because it’s easy and someone other than the taxpayer presumably foots the bills.
Energi Media has supported that strategy until now because the pace of change suggested Canada had plenty of time to adapt to the low-carbon future. If the energy transition is accelerating, however, then a modest middle-of-the-road approach isn’t sufficient.
Canada has important questions to address.
What role should Canadian hydrocarbons play in an electrifying global economy? How does Canada mitigate risk from the energy transition? How do we seize economic opportunities created by the emergence of new technologies and markets? Is Canada already too late to the discussion, given that China, Europe, and the United States are so far ahead of us?
There is no better time to start the discussion than a federal election campaign.
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