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Will Canada Quit Its Low-Carbon Diet to compete with Trump Policies?

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The Donald Trump administration threatens to leave progressive energy economies, like Canada’s, out in the cold. But how serious is the threat, really?



If there was any doubt that American electoral politics can affect the lives of Canadians, it was quickly put to rest last November. Ottawa was then in the midst of rolling out its ambitious plan for a nationwide carbon tax—a plan that was loudly opposed by Saskatchewan, Newfoundland and Nova Scotia, while embraced by others, including heavy-emitting Alberta. For Prime Minister Justin Trudeau, his government’s carbon tax announcement was both a concrete and symbolic step toward meeting the Paris climate targets he signed at the U.N. last spring. But one month and one stunning U.S. election night later, Trudeau’s call for a carbon tax on all Canadians landed like a loud and poorly timed punchline at a suddenly silent cocktail party. Early on, the editors of Bloomberg News had touted the plan as one that deserved to be “widely copied.” It now sounded to some like a global liability.

President-elect Donald Trump’s victory shut down anyone still talking about the U.S. as a global leader on climate change. Shortly after his election win, Trump reaffirmed that his administration would kill America’s participation in the Paris climate agreement. (As a candidate, Trump called climate change “a hoax” invented by China to undermine American energy and manufacturing.) Most likely, the incoming president won’t have to “kill” anything; the Paris agreement is non-binding and will die by simple foot-dragging and political neglect. If the new U.S. administration opts instead to renegotiate the agreement, the process will likely outlast a four-year presidential term.

“I don’t care if Trump says he’s not worried about [carbon]; the next guy that comes is going to and the rest of the world is worried about it. It’s in the paper every day, we’re not going to get a pass on it.”

– Ian MacGregor, CEO of the North West Redwater Partnership

New North American methane regulations and Obama’s Clean Power Plan are probably out the window too. And so might be the latest and most stringent iteration of the U.S. Environmental Protection Agency’s fuel economy standards, though the auto industry will likely continue to pursue similar targets of their own accord, due to state-level regulations and strong consumer demand for better mileage and lower emissions.

Still, the bigger question is what a sudden lack of U.S. leadership on climate would mean for Canada and the rest of the world. Alberta’s NDP government has staked its future on a full-throated embrace of carbon constraints to promote Alberta’s oil and gas industry as one of the world’s most environmentally responsible. The Alberta government was quick to downplay the significance of the U.S. welcoming a climate skeptic into the White House.

“The world will be carbon constrained regardless of one election in one country,” Alberta climate minister Shannon Phillips told reporters during a November conference call from Morocco, where she was attending the latest U.N. climate summit.

But what if that one election just threw out the rule book for North American energy and trade regulations? And what if that one country happens to be your best customer and biggest competitor in the energy trade?

The situation puts Canada at risk of losing fossil fuel investment to its red tape-cutting neighbor, where prolific oil fields in places like the Permian Basin were already ramping up production long before any votes for a new president were cast.

The Canadian Association of Oilwell Drilling Contractors forecasts that 4,665 oil and gas wells will be drilled in Canada this year, a 31 percent increase from the 3,562 estimated in 2016. The 2017 forecast, however, was collected prior to Trump’s victory, leading many to believe it is overly bullish on a Canadian recovery given the election of an American administration that’s determined to take the regulatory gloves off and spur more investment in its own fossil fuel industries.

Suppose Phillips is right and the U.S. finds itself alone on the path of climate denial. What if the world’s other major emitters—China, India and Brazil—don’t follow the U.S. in abstaining from the Paris accord, and instead choose to lead on climate in it’s absence? “We have to be focusing on CO2 because it’s not going away,” says Ian MacGregor, CEO of the North West Redwater Partnership, a 50-percent stakeholder in the new multibillion-dollar Sturgeon refinery in Alberta’s Industrial Heartland region.

When it opens at the end of this year, Sturgeon will feed into the Alberta Carbon Trunk Line, the world’s largest carbon capture and storage project, which is designed to recycle waste carbon for uses like enhanced oil recovery. “I don’t care if Trump says he’s not worried about [carbon],” MacGregor says. “The next guy that comes is going to be and the rest of the world is worried about it. It’s in the paper every day, we’re not going to get a pass on it.”

If the U.S. does take a go-it-alone approach on climate, and the rest of the world sticks to existing carbon constraints, the scenario could prove a net positive for Canada’s energy services sector. Canadian service firms with a foothold in one or more of the most prolific U.S. plays won’t be overexposed to risk from Canada’s climate commitments in either outcome. But, in a carbon constrained world, investment still abounds for some drilling and service operations, even in countries on the greener edge of the Paris crowd, such as Iceland.

“The advantage Alberta has is we have all the technology to drill geothermal wells,” says Brian Wagg, business developer at the Centre for Engineering Research (C-FER) Technologies in Edmonton. “We have basically been doing geothermal energy backwards for 30 years with SAGD and cyclic steam [stimulation]. We’re injecting steam into the ground to heat it up, while geothermal is the exact inversion of that; you’re injecting water into the ground to turn it into steam and bring it to the surface. So all the technologies of high-temperature pumping systems, high-temperature well designs, high-temperature well-heads, flow control devices, horizontal wells are all applicable. Iceland is well known for their geothermal drilling but they’ve only drilled one horizontal well ever. For us, that’s old technology, but the rest of the world still doesn’t really know about it.”

American renewable energy companies might lose considerable competitive advantage under the new Republican government. Gone, almost certainly, are the Obama renewable subsidies. And a lax regulatory regime for drillers, miners and coal power plant operators could drive down the cost of producing power, further pushing out renewables.

We can expect that will deliver a competitive edge to a handful of energy companies in Canada, where, despite a small population and subarctic weather, incentives for wind and solar technology, coupled with carbon disincentives, will likely be a mainstay for years to come. Those development incentives, paired with the low Canadian dollar, will provide export opportunities for the most renewable energy-exposed Canadian firms. The question remains, however, just how big those opportunities will be and how many countries will stay serious about achieving responsible energy development and meeting their international climate targets.

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