Olivia Woods
The joint US-China declaration on enhancing climate action through the 2020s was one of the COP26 unexpected events. Despite its vagueness, the declaration is a positive step toward reducing global greenhouse gas emissions, especially since China and the US are the world’s two largest emitters.
Researchers who have been keeping a close eye on China’s climate policy will find this news reassuring. Canadian policymakers and oil and gas investors, however, have largely ignored this resolution, in part because the Canadian mainstream media has tended to underreport China’s evolving climate governance.
Because of Canada’s lack of action on climate change, China’s increased efforts to decarbonize will cast a dark cloud over the future of Canada’s fossil fuel exports.
Growing risks of investing in fossil fuels
The Trans Mountain pipeline expansion project (TMX) will transport crude and refined oil from Alberta to British Columbia, and the LNG Canada facility (and its associated Coastal GasLink pipeline) will export natural gas to Asian markets. Both of these mega-energy projects are being developed by Canada with China as a major customer.
In exchange for public support, both projects initially promised long-term economic prosperity. However, the COVID-19 pandemic has speeded up the transition of many countries, including China, to low-cost renewables, so their economic benefits must now be reevaluated.
The Canadian Centre for Policy Alternatives published an updated assessment of the need for TMX in October 2020, based on the most recent data. According to a reassessment, the rise in bitumen production required by TMX goes against Canada’s emissions reduction target, and that exports of Canadian heavy oil to Asia will “likely sell at a loss of $4-6 per barrel.”
More than $500 billion in investment is expected to be made in Canada’s LNG industry between 2020 and 2064 according to a Conference Board of Canada report from July 2019. However, a closer look at the report’s methodology reveals two faulty assumptions that underpin its forecasts.
Initial data on Asia-Pacific natural gas demand ends in 2018, well before the COVID-19 pandemic’s macroeconomic shock. Globally, the COVID-19 crisis will result in 75 billion cubic metres of lost demand by 2025. This complicates future LNG export plans from Canada.
Second, the report’s economic projections assume the development of 56 million tonnes of LNG export capacity per year (source). For comparison, Phase 1 of LNG Canada will only be able to export 14 million tonnes per year when it begins operations in 2023.
The province must therefore not only attract enough investment to quadruple its LNG output over the next few decades, but also find ways to sell its LNG at competitive prices to countries like China. These economic calculations are unlikely.
Canadian oil and gas emissions will be capped, Justin Trudeau announced at COP26. To spend more of Canada’s already limited carbon budget on a declining industry that poses increasing economic risks is a question that deserves wider public debate.
Original source material for this article taken from here
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