What will Alberta oil sands producers say now when Wall St. asks about climate policy?

By Eric Denhoff,  former Alberta deputy minister of environment and climate change

I was in Calgary last year meeting with a major US investment house that is heavily involved in financing the Alberta oil patch. With their New York team of the usual hot shot investment gurus was their VP of sustainability, who is a very sophisticated, well-travelled, and well educated environment sector expert. Why did this fellow want to meet with Alberta officials about climate change policy?

We discovered that his investment house was being swamped – more than 10,000 emails, letters, and phone calls – with demands from its own shareholders that the company stop investing in the Alberta oil sands. For his company to continue investing he needed answers. His questions were tough, detailed and demanding.

This is Alberta’s new reality.

The growing ESG (environment, social, and governance) responsibility industry has embedded itself into major publicly traded companies – investment, energy and others. Large pension funds (even unions in some cases), socially responsible investors, foundations, university endowment funds, and just regular investors all look to these ESG experts (like Canada’s Responsible Investing association) for guidance on which companies have strong environmental sustainability plans to guide their investment decisions.

Our team outlined Alberta’s impressive turnaround from international climate change pariah to climate policy leader:

1. Economy wide carbon pricing, which even conservative economists and bankers view as the most efficient market tool to address greenhouse gas reductions and address climate change. They were impressed at the speed of implementation, breadth of coverage, and projected GHG reductions;
2. Huge investments in energy efficiency for businesses and homeowners – they were surprised Alberta had been virtually the only jurisdiction in North America without an energy efficiency program, and size of budget – $645 million over five years;
3. Creating parklands which, when combined with existing protected areas, create the world’s largest boreal forest protected area, including key caribou habitat. The VP was particularly keen on this and obviously thought this was a good tool to push back on the perception of Alberta as just a giant industrial zone. He knew the new Castle Park area and had hiked in the Rockies, so Alberta’s push for new protected areas appealed directly to him and he thought it would appeal to his shareholders;
4. Winding down coal power generation, the most polluting source of electricity, and the Province’s commitment to buying one-third of domestic power from renewables. This was a big deal to them and demonstrated a new Alberta they were unaware of. Alberta ended up purchasing thousands of megawatt hours of wind power at the lowest recorded price in Canadian history, much of it from Indigenous partnerships. We described, as well, the indigenous involvement in a special solar power program for their communities, and their deep and productive involvement in the oil industry;  this was an absolutely key area for them and they arranged to meet individual Indigenous leaders, for and against oil sands development;
5. They loved Alberta’s 100 megatonne emissions cap on the oil sands for several reasons. One, they can tell their shareholders that Alberta isn’t going to endlessly expand the oil sands and endlessly expand its GHG footprint, that oil sands producers can build plants with newer, cleaner technology to stay under the limit. Two, as investors themselves they realized that they could continue to make 50-year investments in proposed oil sands projects because there is room for more as long as they are increasingly energy efficient and can stay under the cap. We took them through scenarios that enabled that—industry generally reduces emissions one to three or so per cent a year, so in a decade, you’d have another 20 per cent room, arguably, for new plants. So, no stranded investments. This is a big deal for investment houses;
6. Methane reduction program: we described how Alberta and Canada were tackling this tough issue, methane being much worse than many other pollutants for the environment. Again, they had no idea Alberta was a Canadian leader in this regard and no idea of the gains industry had made even prior to the new standards;
7. Best Barrel: we described how the carbon-intensity of the average Alberta barrel of oil is now in the range of the average North American barrel, and that some oil sands barrels had equal to or lower GHG’s than a barrel of some California oil. And that our newer technologies, in place now, with even newer ones being tested, would further reduce our GHGs;
8. Our arguments for Best Barrel were tha even if you accept a long-term transition away from oil and started to think about a world where oil production dropped by 10 per cent and then 20 per cent and then 30 plus per cent, global customers would want Alberta oil because it would be the Best Barrel. That is, oil from the most heavily regulated oil industry in the world, oil from one of the most comprehensive climate change jurisdictions in the world, oil from one of the most democratic governments in the world, and so on. We turned ghg reduction and strict environmental regulation into a market advantage. They loved this;
9. We described the huge reductions in water use for the oil sands over the last decade and the potential of newer technologies that is quite breathtaking, really. Again, they were impressed.
10. They learned about the more than $1.4 billion the government was putting into investments in green technology, greener oil sands technology and the more than $1 billion a year industry already spent on GHG reducing and other innovations.

At the end of our presentation, they were absolutely enthusiastic about the story we had told them. They told us, “this is a fantastic story, nobody knows about this, you have to get out there and tell the story.”

In fact, they offered to set up meetings in New York with the other key investment and financing houses that fund Alberta oil companies. They also promised to do the same in London.

For the first time, perhaps ever, Alberta has a story to take into international markets that can resonate with investors and shareholders. 

While that story would never convince environmental organizations, it could well convince the middle ground in the US, Europe and elsewhere that Alberta is serious about both addressing climate change and encouraging investment. After all, Alberta still has the lowest overall tax burden in Canada, the best educated and trained workforce, tremendous ingenuity and creativity in Calgary’s financial sector, as well as the research and development side of the oil and gas industry.

The room was filled with positive vibes and congratulatory missives as these tough, hard-nosed investors headed back to New York, happy that they had found an inoculation against the critics of investing in Alberta.

Less than a year later, there’s a new government bent on undoing all those policies and initiatives that so impressed the New York investment bankers.

The coal phase out is in question. The economy-wide carbon levy is being eliminated on May 30. The carbon levy on large polluters – Alberta creates almost 40% of all pollution in Canada – is being reduced from $30 a tonne to $20 and stringency is being weakened. New government promises to eliminate energy efficiency funding and agency. The Jason Kenney government is cancelling the proposed new Bighorn Park. Industry lobbying hard for pullback on new methane regulations. The $1.4 billion in innovation funding – including $400 million for GHG reducing technologies in oil sands and hundreds of millions for other business energy efficiency projects – all gone, to be replaced by $30 million or $40 million a year in grants through ERA from the reduced big polluter levy. And of that, $10 million for the “energy war room” to fight the environmental lobby. The 100 Mt emissions cap is at risk because Premier Kenney has indicated he would like it gone, maybe not right away, but eventually.

But if you are an oil sands company pitching to prospective investors, you want to know if the emissions will stay or go before you make $10 billion or $20 billion investments. What are the rules for the cap? If the government is taking it off, will it lead to investor boycotts of my company because it looks like backsliding?

Alberta faces a real dilemma.

By dismantling North America’s (and one of the world’s) most comprehensive climate change plan, Alberta can no longer make a compelling case for being the future Best Barrel. If our new narrative is Angry Alberta, War Room Alberta, Screw the Environment and Drill Baby Drill Alberta, then our largest oil and gas producers will become pariahs in international markets.

This would be a disaster. The Alberta industry is so capital-intensive that there simply isn’t enough capital available within Canada. Those companies are already struggling to procure debt and equity capital from outside Canada.

Now Alberta is about to make that struggle much harder. Is that smart?

For more than 30 years Eric Denhoff has been an executive in the private and public sectors. He recently served as deputy minister of environment and climate change in the Alberta government and an advisor on market access.