(Knee) Capping and Contradictions

December 11, 2024

The Oil and Gas Emissions Cap Policy

Much ink has been spilt over the Liberals’ announced attempt to cap emissions from the oil and gas industry by 35% below 2019 levels by 2030

The oil and gas industry, along with the provincial regulators, have clearly responded that such a cap is a de facto ‘cut’ to current production levels.

The narrative from Environment and Climate Change Canada (ECCC) is a continuation of the ‘smokescreen’ approach to crippling Canada’s oil and gas industry, which is a hallmark of this Liberal government. With contestable double-speak narratives like, “This is a cap on emissions, not production” and their rationale that the oil and gas industry needs to reinvest its ‘record profits’, it’s safe to say their perspective is skewed unrealistically.

‘The proposed regulations put a limit on pollution, not production.’

(I’m trying to find an industry participant that agrees with this double-speak)

‘(The) oil and gas sector is well positioned to reinvest record profits into projects that drive cleaner production. . . . .The draft regulations will encourage the sector to redirect these record profits into decarbonization.’

(This statement lacks a basic understanding of commodity economics)

‘Countries around the world are moving actively, including Canada’s democratic allies and other major countries, including China.’

(This is demonstrably self-serving in its selection of inputs)

‘Oil and gas production is projected to grow by 16% by 2030-2032 from 2019 levels, provided the sector implement technically achievable decarbonization measures.’

(note that 2024 production is already up 9% from 2019 levels)

‘The policy will put the sector on a pathway to carbon neutrality by 2050, while enabling it to continue to respond to global demand.’

(this is inane double-speak)

‘Oil and gas companies in Canada have proven repeatedly that they can innovate and develop new technologies to produce more competitive oil and gas with less pollution’

(there is some nonsense in that sentence, but I agree with the sentiment)

The ‘Consultation’

‘The Government of Canada has engaged a broad range of partners and stakeholders on the oil and gas GHG pollution cap, including provinces and territories, Indigenous partners, industry, environmental groups, and Canadians.’
Environment and Climate Change Canada, Oil and gas greenhouse gas pollution cap backgrounder to CGI Regulations

I give full credit to ‘consultation’. However, of 250 written submissions, how many came from the environmental groups? I agree that we should allow them their say – but as I’ve exposed at Parliamentary Committee hearings, many of these groups are heavily government-funded; have a pre-formed opinion on removing the oil and gas industry from Canada as quickly as possible; and typically lack practical experience and knowledge. They are not accountable for their positions or outcomes. In other words – free riders – and well-compensated with your tax dollars.

Of the other set of stakeholder input, I haven’t found one that concurs with the path put forth by ECCC.

ECCC is a passenger department of government that thinks they work for the environmental groups. ECCC pays these third parties for their input, even when they have proven they are out of their depth.

Those ‘expert’ voices are much less equipped to comment on technological advancements than the organizations that are developing, advancing, and working with the technologies. And –getting good results for their efforts.

The Contradiction

Just three days later, Canada’s Commissioner of the Environment and Sustainable Development (CESD) released five more environmental audits on the Liberal government’s approach to delivering environmental solutions The thrust of the reports is always the same.

In short, the Liberals policies and programs to reduce emissions are a complete failure – words in the wind, accomplishing no environmental outcomes.

Let me provide some quotes from the CESD’s Report on the ‘Canadian Net-Zero Accountability Act’.

In March 2022, the Minister of Environment and Climate Change
published the 2030 Emissions Reduction Plan. This first plan under
the act outlined the measures1
that the federal government intends to
take to achieve Canada’s 2030 target. Our office published a report on
the 2030 Emissions Reduction Plan in November 2023, which concluded
that missing and inconsistent information, delays in launching important
measures, and a lack of reliability in projections hindered the credibility
of the plan. The plan had not been updated since that audit.

Since 2021, the Commissioner of the Environment and
Sustainable Development has published 15 reports related to climate
change measures. These reports examined 11 measures included
in the 2030 Emissions Reduction Plan. In these audits, our office
had similar findings on the implementation of these measures
(Appendix A), including
• delays in implementation
• lack of direction from federal government in emerging areas
• unreliable emissions reduction estimates
• lack of value-for-money assessments of measures for
emissions reductions
• lack of transparency on emissions reductions and projections
• issues related to the equity of measures for vulnerable groups and
Indigenous peoples

As for the magnitude of policies and regulations this Liberal government is throwing at its failing attempt to reduce emissions:

The 2023 Progress Report on the Emissions Reduction Plan
reported on a variety of measures and their sub-measures that aim to
directly contribute to reducing greenhouse gas emissions or enable other
measures to do so. These include over 40 funding programs; 20 policies,
plans, strategies, and codes; 20 legislative and regulatory instruments;
and at least 7 working groups and committees (Exhibit 7.5). For example,
the Clean Electricity Regulations aim to directly reduce emissions
by regulating emissions from the electricity sector, while the Smart
Renewables and Electrification Pathways Program aims to support
utility-scale electricity generation projects like solar panels and wind
turbines to decarbonize the electricity system.

Here’s a reality check, if you ever wanted to see one:

Since the release of the previous projections in 2022 by
Environment and Climate Change Canada, there have been no new
substantive federal measures included in the modelling. In fact,
assumptions for some measures have been revised to reflect their
slow implementation status resulting in lower projected emissions
reductions than previously expected. The recent decreases to
projected 2030 emissions were not due to climate actions taken by
governments but were instead because of revisions to the data or
methods used in modelling

Our office has repeatedly made similar recommendations
pertaining to the lack of transparency of Environment and Climate
Change Canada’s modelling over the last 20 years and found that the
department had not taken significant steps to address them. In this
audit, we found the following:
• Although the department made marginal transparency
improvements on modelling assumptions for federal measures
in the emissions projection report, it still provided insufficient
details. Of the 41 measures the department included in the
modelling of the plan, it had not provided details on the modelling
assumptions for 66%.
• The department had conducted the same limited uncertainty
analysis as it had done in previous years, despite experts
recommending assessing uncertain assumptions that materially
affect the results, such as the future cost of technology or timing of
new infrastructure.
This issue of the lack of transparency in the modelling continues to be
an ongoing concern, which can undermine the trust and credibility in the reported progress.

I could go on.

Here’s a reality check:

‘The recent decreases to projected 2030 emissions were not due to climate actions taken by governments but were instead because of revisions to the data or methods used in modelling.’

The gist is:

This government’s narrative approach to greenhouse gas emissions is a complete failure!

It doesn’t know what it is doing.
It doesn’t know how to accomplish its goals.
It doesn’t even know how to measure the outcomes it seeks.

Yet this Government is returning to the same ineffective strategies and consulting the same free rider organizations to draft new regulations.

When you’ve dug a hole this deep and found nothing but failure, it’s time to stop digging, not try to dig faster.

No Global Benefits

Constraining Canadian oil and gas will not help the global environment. Countries will simply buy the oil and gas they need from other producing countries – most of which have much lower environmental and labour standards than Canada. By maintaining production in Canada, which adheres to higher standards, we can ensure that global environmental and labor practices are more sustainable.

Most of us were struck by the words used by Environment Minister Steven Guilbeault in introducing the policy, when he said:

“Look around the world, no other major oil and gas producer is doing what we’re doing.”
Steven Guilbeault, Minister of the Environment

Perhaps, the best reply came from portfolio manager Eric Nuttall, who said,

“It behooves us to take a moment and ask, ‘Well, why is that?’ It’s economic idiocy.”
Eric Nuttall, Senior Portfolio Manager, Ninepoints Partners

Ottawa’s argument that the cap will actually help the sector remain competitive globally as other economies decarbonize has been roundly dismissed in the oilpatch.

Michael Belenkie, chief executive of Advantage Energy Ltd. said,

“All we’re doing is we’re shutting ourselves down at our own expense and watching global emissions increase.”
Micahel Belenkie, Chief Executive, Advantage Energy Ltd.

A Path Forward

Here’s a couple key maxims that need to be considered in setting policy:

Effective Resource Allocation: All organizations, including governments, must allocate scarce resources efficiently. This means justifying expenditures and ensuring that funds are directed towards the most impactful initiatives.
Market Dynamics: It is crucial to recognize that politicians don’t have the expertise to dictate supply and demand. Instead, market forces should be allowed to provide optimal outcomes.

It is now absolutely clear that trying to accomplish our emissions objective with the latter is an outright failure.

Effective policy requires justifying expenditures and balancing market innovation with regulations. The current approach has not been successful. Calgary energy economist Peter Tertzakian calls for a “carbon policy time-out” to reassess environmental and fiscal policies across all energy systems.

“After ten years, the formula for adding more carbon abatement policies to accelerate lower emissions can hardly be deemed successful.“

I join with Calgary energy economist, Peter Tertzakian, in his call for a carbon policy ‘time-out’.

‘The first step is to pause and take stock of all environmental and fiscal policies – federal and provincial – across every energy system. Figure out what is working and what isn’t.
Peter Tertzakian

As is his way, Canada’s Minister of the Environment’s announcement is ‘performative’ only. He’s not where he is to deliver environmental results; his agenda is much different. He is only placating the special interests that are well-funded by numerous government organizations around the world. He’s their advocate and their benefactor(with your tax dollars).

Conclusion

The emissions (‘production’) cap is wrong-headed, and beholden to the same inane inputs and self-serving special interest groups that have got us nowhere to this point. All we have is less economy, lower productivity, and higher worldwide emissions.

Let’s start by defining what success looks like – because this new cap is another in a round of abject policy failures.