Varcoe: Report warns of $600 billion cost to Canadian economy from curbing emissions

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It's no surprise that the Alberta government and the country's oil and gas industry are strongly opposed to the Trudeau government's capping of greenhouse gas emissions from the sector, which is set to come to Ottawa this week with new proposals.

But if you go into the province's report to the federal government, it includes new economic analysis that helps explain why they're so concerned.

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A Conference Board of Canada projection of the potential fallout from the federal policy contained in Alberta's 24-page proposal shows what it calls “severe adverse effects,” including:

• By the end of the decade, 82,000 to 151,000 jobs nationwide, including 54,000 to 91,000 in Alberta;
• Nominal gross domestic product (GDP) in Canada is projected to decline by a combined $600 billion to $1 trillion from 2030 to 2040. During this period, Alberta's GDP will decrease by 3.8 percent;
• Alberta government revenue will drop by $73 billion to $127 billion over the next decade, while federal revenue will drop from $84 billion to $151 billion.

“They are big numbers. We tried to tell Ottawa that if Alberta is good, Canada will be good,” Premier Daniel Smith said in an interview Wednesday.

“I hope there will be some personal interest here. . . There is no reason for them to try to bring our industry to its knees. It hurts everyone.”

The analysis adds more ammunition to a heated debate between the federal and provincial governments over the policy, which is part of Canada's broader climate plan to achieve net zero emissions by 2050.

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The Conference Board study was commissioned by the province, and the think tank has been conducting work for the past two months.

That's part of what makes it so interesting, because it's based on a new framework for limiting waste oil emissions released by the Trudeau government in December.

“The policies announced right now will, in our view, lead to significantly slower growth in the oil and gas sector across the country and in Alberta,” said Tony Bonen, the board's director of economic research.

“And that comes at a very high cost in terms of price per megaton of reduced greenhouse gas emissions.”

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The report looked at the implications for oil and gas production if federal emissions targets for the sector are not met by 2030, particularly as government projections for technological and efficiency gains – leading to projected production cuts.

Even if the industry could take cheaper steps to reduce methane emissions, there would still be a gap to meet Ottawa's oil patch target.

That would result in production growth falling below the Conference Board's baseline of about 11 percent because oil and gas will remain “underground” for the next decade, Bonen said.

“Some more expensive, less cost-effective projects will not move forward in our scenario. And some of the ones that are working now, but with high costs, may have stopped. But still clean new wells are being drilled and new production is being produced.”

(The data is based on the board's most likely scenario, as the other two scenarios it examined had larger impacts on jobs and GDP.)

Bohnen estimated the cost of reducing emissions by cutting production would be about $1,600 to $1,700 for each megaton cut.

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It projects that the cap would result in a permanent one-time drop of 0.9 per cent of Canada's GDP between 2030 and 2040.

“We demand significant changes to our economic systems to address the climate crisis,” Boenen added.

“It's really important for us to be clear about where those impacts will be felt and to be honest about the magnitude of those impacts so we can begin to adjust and plan ahead.”

The provincial proposal also called on the federal government to release an assessment of the economic impacts of the cap starting in 2030.

That “will be available when the government publishes draft regulations later this year,” Stephen Guilbeau, a spokesman for the federal environment minister, said in an email.

“Fundamentally, capping oil and gas emissions is smart economic policy — it will help ensure the sector's long-term competitiveness in the face of rapid decarbonization.”

The oil and gas industry is the largest emitting sector in Canada. The Liberal government has introduced a number of policies, including a national carbon price, clean fuel regulations and capping emissions, as concerns about climate change.

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The federal cap seeks to reduce industry emissions by 35 to 38 percent below 2019 levels by the end of the decade. Some flexibility measures, such as allowing companies to buy offset credits or contribute to a decarbonisation fund, could reduce that to 20 percent.

This restriction is expected to be implemented in stages between 2026 and 2030.

Canada is the world's fourth-largest oil producer, and the sector directly employed 178,000 people across the country in December.

The provincial proposal says the cap would affect Canada's construction, manufacturing and service sectors, as well as the financial, restaurant and hospitality industries.

University of Calgary economist Trevor Tombe said there are too many unanswered questions about the cap to fully understand the economic implications of the policy.

But he said it was clear that the impact would be significant, with one region of the country being hit harder than others.

“Whether it's $600 billion to $1 trillion, or some other set of numbers, like the Conference Board said, it's going to be big — that's the bottom line from those numbers,” Tombe said.

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Industry groups have protested the restriction and are calling for its removal.

The Pathways Alliance, a group representing major oil producers, says the cap is unnecessary and unenforceable, saying it would deter investors from the sector and risk cutting production.

The group is working to achieve net zero emissions by 2050 and is developing a $16.5 billion carbon capture and storage network in Alberta.

“I would say that (the cap) is not very useful for promoting decarbonisation investments of any kind, including in the Pathways project. Unfortunately, all this does is send a message to investors that Canada is not open for business,” Pathways Alliance President Kendall Dilling said in an interview.

“At this point, in good faith, we'll keep our heads down, invest, keep working and trust that common sense will prevail.”

In a statement, the Canadian Association of Petroleum Producers (CAPP) noted that emissions from the conventional oil and gas sector have fallen by 24 per cent, while production has increased by 21 per cent between 2012 and 2021.

“We're hoping to put that foundation on ice so we can look at this carefully and realistically,” CAPP President Lisa Beighton said.

Chris Varco is a columnist for the Calgary Herald.

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