Canada Energy Regulator’s Chief Economist: What Could Canada’s Energy Future Look Like?
This week, Jean-Denis Charlebois joins the podcast. Jean-Denis is the Chief Economist at the Canada Energy Regulator (CER). The CER released a report in June outlining three potential future energy scenarios, titled “Canada’s Energy Future 2023: Energy Supply and Demand Projections to 2050.”
Here are some of the questions Peter and Jackie asked Jean-Denis: Why did the CER publish net-zero scenarios for the first time in this recent edition? Are you concerned about how these scenarios are implicitly being used as predictions by politicians or other commentators on energy in Canada? How much does Canadian electricity consumption increase in the CER scenarios? What is the potential market share for heat pumps? How does the mix of power generation change? What is the future cost of carbon? Canada’s oil production is assumed to decline significantly in the net-zero scenarios; however, could supply be more resilient considering Canada’s advantages as a stable, secure, and low-carbon supplier? What energy-focused capital spending is required for the Canadian net-zero scenarios, and how does that compare with history?
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Episode 218 transcript.
Speaker 1:
The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.
Speaker 2:
This is the ARC Energy Ideas podcast with Peter Tertzakian and Jackie Forest. Exploring trends that influence the energy business.
Jackie Forrest:
Welcome to the ARC Energy Ideas podcast. I’m Jackie Forrest.
Peter Tertzakian:
And I’m Peter Tertzakian, and welcome back. So, Jackie, I see you’re finally into the 21st century. You’ve got yourself a new watch.
Jackie Forrest:
Yeah. Peter, I think you bought your first Apple Watch 10 years ago, so you’re the early adopter and I’m the very, very late adopter. But it’s great. I’ve enjoyed setting timers, constantly.
Peter Tertzakian:
Well, if you have any attention deficit disorder, it’s not a very useful thing for that because it tends to be quite distracting.
Jackie Forrest:
Yeah, there’s a lot of buzzing going on here.
Peter Tertzakian:
Yes.
Jackie Forrest:
If I’m distracted during this podcast, it’s because of my new watch telling me something.
Peter Tertzakian:
Well, listen, we are here again, live podcasts from the Electricity Transformation Canada conference, put on by the Canadian Renewable Energy Association. So, there’s a lot of buzz around us with all sorts of renewable energy companies. Half of them, all sorts of really niche type companies, some of them service the very niche components of wind turbines and so on and so forth, so it’s great to be here.
Jackie Forrest:
Yeah, no, it’s a lot of fun for sure. And it’s also great to be here because there’s some great speakers at the event that we can take advantage of the fact they’re here in Calgary, even though they’re from far afield and have them on our podcast.
Peter Tertzakian:
And we’ve got an audience.
Jackie Forrest:
Yes. Yeah. Thanks, audience.
Peter Tertzakian:
All right. Well, we also have a special guest, so I’m delighted to have with us, Jean-Denis Charlebois, Chief Economist for the Canadian Energy Regulator. Welcome. Bonjour, Jean-Denis.
Jean-Denis Charlebois:
Merci Peter, merci Jackie.
Jackie Forrest:
Yes, and Jean-Denis, I know you used to live in Calgary, but you’ve moved, right? So, where did you come from to get to the conference today?
Jean-Denis Charlebois:
I flew from Montreal yesterday, in a rather mountain climate here in Calgary, because fall is nearing its end.
Jackie Forrest:
Before we start, let’s get the audience to know you a bit better. Maybe just tell us how did you become the Chief Economist of Canada’s regulatory body?
Jean-Denis Charlebois:
I’ve been at the Canada Energy Regulator and the National Energy Board, its predecessor, since 2006. I was a federal civil servant the whole time of my professional career, starting at the Canadian International Development Agency, then the Department of Finance. And in 2006, yes, I moved to Calgary and started working for this great organization that we’ll talk about the mandate later through the podcast but has been a very engaging mandate through the whole of the Canadian Energy System.
Peter Tertzakian:
Well, let’s talk about that mandate. Just to remind our audience. As you said, it used to be the National Energy Board for years, then it became the Canadian Energy Regulator a few years ago. Can you talk about the main functions of the Canadian energy regulator? What jurisdictional span the organization has?
Jean-Denis Charlebois:
So, we have two main functions. First, we are a lifecycle regulator for federal energy infrastructure. So, this is for pipelines that cross a provincial or international border, as well as international power lines. We also regulate oil and gas development in northern federal lands. And along with this regulatory work, we are a provider of energy information for Canadians, and this is really from that function that the report that we’re going to talk about today comes from.
Peter Tertzakian:
Yeah. So just to be clear, if a pipeline is being built within, say Alberta, and only in Alberta, you don’t get involved. But the minute it crosses across a border, then that’s where the Canadian Energy Regulator comes in.
Jean-Denis Charlebois:
Absolutely. And while it is a relatively small segment of the value chain of the energy system, it is one that intersects with many areas of interest for Canadians. Sure, it’s about transportation of oil and gas, electricity, and it intersects as well with landowner concerns, environmental aspects of pipeline development, as well as something that is very top of mind for the regulator these days and into the future, is a reconciliation with indigenous people.
Peter Tertzakian:
And just for one more point of clarity, do you get involved in anything to do with say, transport of energy by rail?
Jean-Denis Charlebois:
Good question. In fact, along with our regulatory mandate of physical pipelines, the export of energy out of Canada is also under our jurisdiction. So, if someone wants to export oil and gas, or electricity, that person or entity needs to have an authorization from the commission of the CER. And that includes oil that moves by rail, and this is actually a data set that is always very of interest to analysts because exporters have to report how much oil they export by rail, as well as via pipelines, or even trucking.
Jackie Forrest:
Right. So, some of the functions that you do, I think all the listeners know I got involved in a regulatory hearing, so I really appreciate all the work that goes into those. But I was curious because within that regulatory hearing, people were referring to your report. So, your most recent report is Canada’s Energy Future 2023. You put out reports that show scenarios of how Canada’s energy system will change, how the production of oil and gas will change. What’s the history of that? Was that put together to help facilitate those regulatory processes or why did that come about?
Jean-Denis Charlebois:
Our market analysis function, based off of energy futures, started in 1967, so it’s been decades in the making. And originally the NEB then was doing this kind of analysis to better understand the extent to which oil and gas was surplus to Canadian needs in order to assess applications to export such commodities. And then through the years we’ve obviously developed expertise and that function is squarely part of the CER mandate, which is to analyze and advise on energy matters. And through the years we strive to provide, develop scenarios that are relevant to the energy dialogue in Canada. Net-zero scenarios that we’re going to talk about today. But also, in the recent past we had scenarios about evolving climate policies, high carbon pricing, as well as constrained pipeline capacity. So always striving to provide relevant and timely energy information for Canadians to understand the dynamics at play.
Jackie Forrest:
Well. And so, it’s important, these scenarios are used within regulatory processes. People on all sides of debates will show them in terms of making their arguments. We know that governments use them, federal ministries use them. So, they are very important. And so, you did issue your new report sometime in June 2023 and there’s three scenarios. There’s the global net-zero scenario and the Canada net-zero scenario. The global one assumes the whole world achieves the net zero and the 1.5 degrees and uses the IEA assumptions on the global basis, and then you layer on your Canadian assumptions.
The Canada net zero assumes the rest of the world doesn’t achieve that. They get to a state similar to the IEA’s announced pledges, where many countries achieve their targets like net zero 2050 but fall short of achieving the 1.5 degrees scenario. And you put in the Canadian specific assumptions and then the current measures. Now there was a big difference in this report because your previous report did not have net zeros. So, explain why did you decide to put in the net-zero scenarios in this new edition?
Jean-Denis Charlebois:
There were really two main reasons. The first one is that net-zero is at the forefront of policy dialogue in Canada, including the legislative objective of the Canadian Net-Zero Emissions Accountability Act. This is also in line with the commitment that Canada did at Paris in terms of Paris Agreement. So we were already on this pathway, so to speak, to model net zero. If you look at our Energy Futures 2021 report, we were already modeling the power generation system in a net-zero world setting the stage for further modeling expansions, so to speak, into the broader Canadian energy system. The second reason is that after we published Energy Futures 2021, Minister Wilkinson, Minister of Natural Resources at the federal level asked us to do the exercise within a given set of parameters, which shaped our work. But that was really the second reason, Minister Wilkinson asking us to do it.
Peter Tertzakian:
So as opposed to having open-ended scenarios in terms of thinking about, “Well the world of energy and energy in Canada is going to evolve along this path or this path or this path,” the political impetus was to say, “The paths, whatever they may be, all have to converge with a constraint that it’s net zero by 2050.” Is that the way this 2023 report evolved?
Jean-Denis Charlebois:
To a very large extent in the sense that contrary to previous iterations of our report, as you described, this one for 2023 had a very hard constraint on the outcome, which was predetermined, i.e. net-zero emissions for Canada by 2050. This was part of Minister Wilkinson’s request. This is how the request was shaped. And it is also, I think, interesting to start analyzing the scenarios or the pathways that could lead us there. So that was also, I think one of the reasons why we did it that way. Of note, we have also a third scenario called current measures that models policies that are currently in place and doesn’t actually force the outcome to net zero or whatever other specific outcome to 2050, which provides a bit of a baseline and also an understanding of the delta between what is done so far and what presumably would need to be done under those two specific scenarios.
Jackie Forrest:
Now, your report mentions, I would say in bold on the fourth page, it says, “These are not predictions about the future, nor are they policy recommendations. Rather they’re the product of scenarios based on specific assumptions” in this case that the world, we’re going to get to net zero, so how can we do it, and that you shouldn’t use them as outlooks because they imply too much certainty about what could happen in the future. So, you obviously wanted people to read that. You put it right at the front, you made it bold. Now we actually have politicians talking about these scenarios like they are predictions. Are you concerned about that and how it’s kind of framing how we’re looking at policy decisions?
Jean-Denis Charlebois:
Well, as you noted, in the report, we are very purposefully transparent about the assumptions and the premise of the scenarios. And we are also very careful when we talk about our report so that people can understand and take into account those parameters and assumptions. This is very fundamental to understanding and interpreting the results adequately.
We were always talking about the fact that the report has something for everyone along the policy spectrum in the sense that large deployment of renewables, some growth in oil and gas production in the short term, quite a bit of carbon capture and storage. At the end of the day, people need to do their own work. They need to understand the premise of this study to make an informed attempt to actually use it in their work. And the other thing I will add is that throughout the development of our report, we made a conscious effort to engage quite extensively, starting with a discussion paper that allowed all Canadians to comment on those parameters and assumptions as well as also Natural Resources Canada, Environment and Climate Change, as well as entities that had done this kind of analysis before. I think when it’s explained and understood, the report can help people illustrate or make sense of, “Okay, what does a pathway to net zero look like given the nature of the community economy?”
Peter Tertzakian:
Yeah, I’ve known you for a long time and know that in your own words, you used the word before, you’re very careful, you’re a thoughtful guy. It’s a report explaining so that people understand. But what I find, and Jackie, you and I have talked about this on our podcast before, is that whether it’s the Canadian Energy Regulator’s report or the International Energy Agency’s report, people take scenarios and call them predictions, forecasts. So, for example, I mean I don’t know how many times I’ve been to, whether it’s conferences or other gatherings, where somebody will say, “Oh, well the CER report says that oil demand is going to drop 75% by 2050” and say, “Okay, well that’s one scenario and it’s published in there,” but somebody has cherry-picked that number out and called it a prediction. And so how do you respond or how do you feel, I don’t know what the word is like, when people take what you know to be careful scenarios and convert them into predictions, which they’re not really, it’s just a scenario?
Jean-Denis Charlebois:
Those types of things will happen. I mean, we know we live in a charged policy debate environment where people are quite camped and through their positions. And I feel like even if there is this risk that you highlight, the fact that we put this type of information out there to have actually a point of reference, to have an informed conversation about net zero, I think this is where the value we bring.
Peter Tertzakian:
I mean, I think that there’s tremendous value in scenarios to spark informed debate. But I find a lot of people, it’s quite prevalent. They take the scenarios, call them predictions, and then they don’t go back to the report and say it was a scenario, not a prediction. You know what I mean?
Jackie Forrest:
Yeah. Well and I think another danger, and we’re seeing this already is, “Oh, okay, well oil demands going down by 75% by 2050. We’re not going to need any more natural gas. We’re not going to need any more fossil fuel power generation.” And so, no one makes investments because every day you open the newspaper and there’s a prediction, which is actually a scenario, telling them that they shouldn’t invest in these things. So, it set us up for an energy shortage potentially why people sort of believing these scenarios to be likely when they may not be.
Jean-Denis Charlebois:
Oh, well, I will really encourage your audience to read the report, to understand the premise in terms of the price assumptions that we use that are based on a global context that is arguably very different than the one we see today. Cost assumptions regarding technologies that are also somewhat, I think, ambitious in terms of cost declines that are reflective of a global context, again, that sees large deployment of clean technology to fuel energy demand into the future.
Peter Tertzakian:
All right let’s talk about energy demand, particularly electricity demand as we head to the goal of net zero by 2050. So, what are some of the drivers of electricity demand growth and how are you quantifying that? Because I mean electrification is, you can even see in this conference, here’s a huge part of that, achieving the net zero by 2050 goal.
Jean-Denis Charlebois:
Absolutely. I mean, we see electricity to be the backbone of the decarbonization pathways for Canada. We see electricity demand more than doubling in a net-zero pathways for Canada compared to say an increase of about 50% in the current measure scenario. That growth and demand is really driven by the electrification of space heating for residential and commercial sectors, electrification of industrial processes, as well as the emergence of new demand sectors, so to speak, transportation, as well as hydrogen production. What’s interesting to note is that the growth on the provincial basis is different, right? We see Ontario leaving the pack in terms of demand almost tripling to 2050, whereby Quebec is on the other end of that spectrum because they start from a position of having a lot more penetration of electricity into the system. And we have Alberta, BC, Saskatchewan being kind of middle of the pack, about just shy of doubling electricity demand.
Jackie Forrest:
So, I’m interested, your report’s pretty bullish in my view on electric heating using heat pumps. In your net-zero scenarios, they grow to 50% of all residential heating versus 6% now by 2050. Are you concerned or did you model what’s that going to do to the peak load, especially in the very cold days? And what’s the cost going to be of that building up the electrical grid to support those peak days? I’m skeptical that the economics of that are really going to work out because there’s a lot of spare capacity that’s not needed in electrical grid for most of the year except for a few days to meet that.
Jean-Denis Charlebois:
Yeah, the incremental growth from heat pump deployment is definitely factored into that electricity demand growth that I just spoke about. Cold climate, air sourced heat pumps are the ones that would be deployed to a largest extent in Canada, which are effective down to -30 degrees Celsius. And sure, there would still need to be some backup system in place to ensure that people receive the same energy services that they do today. And at the same time, it is actually a source of growth of electricity demand. And our modeling, just like net-zero emission by 2050 was a hard constraint, the reliability of the electricity system was also another hard constraint that had to be preserved through the projection period. And this is why we have developed this fairly detailed electricity model that models generation and demand on an hourly basis, 8,760 hours per year to better understand how renewables can be integrated along with the existing base load and future base load growth as well.
Peter Tertzakian:
Well, let’s think about the model in the context of the growth that you outline. I mean, the doubling to tripling of electricity delivered to the economy, I’ll call it society at large, is just a staggering number in the context of 26 years to 2050. I mean the ability to do that. But let’s talk about the electrical generation side that you described. So, we have provinces that are like BC and Manitoba and Quebec that have a lot of hydro, although some of those hydro facilities and the ability to put more hydro on is becoming limited. So necessarily, that speaks to renewables. How much more renewables can we expect to come into this electrification exercise? And then what about all the infrastructure to deliver it?
Jean-Denis Charlebois:
Yeah, exactly. So, if demand is to double, then generation needs to follow suit. We see wind providing 50% of the incremental generation. And interestingly, because of the need for reliability, and as you pointed out to some extent, the exploitation of existing hydro resources. So, wind, 50% of that growth. And then we see nuclear power providing 25% of the incremental demand for electricity, which is interesting. And then hydroelectricity would follow at about 15% of the incremental generation. So, what this means is that renewables in terms of wind and solar, they make up in 2050 in our global net-zero scenario, about 33% of generation, which is almost on par as the share of hydroelectricity in 2015.
Peter Tertzakian:
The general view is that the wind gets backed up for stability with batteries and other energy storage medium. But is what you’re saying is that in this scenario the wind gets backed up by nuclear power?
Jean-Denis Charlebois:
It gets backed up by a portfolio of incremental sources. Nuclear is one of them. Incremental hydroelectricity is another one. Biomass is another one. Another feature of our report is that we find that the increased interprovincial trade is also very key into that equation. Interprovincial trade that we see on an aggregate basis increasing about 16% and needing, depending on the scenarios between 25% and 36% more of transmission capacity to meet the peak demand depending on current conditions.
Jackie Forrest:
I think that’s really important, to get those levels of penetration you are going to need a lot of big transmission lines across the country. So, I’m not surprising that you assume that, although in practical terms, it’s very difficult to really build those practically. I’m curious, one quick question is you didn’t have a lot of solar in there. It was mostly wind. Do you think that Canada doesn’t have much of a solar resource?
Jean-Denis Charlebois:
There’s a good solar resource. The only thing is that, so two things. One is that solar is not as good of a match as wind in meeting the peak demand in Canada. So, that is one aspect. This is why we see wind being deployed relatively more than solar. The second piece is that you’ve mentioned battery technology. So, we have about nine gigawatts of battery, which is I think on the low end of what we see estimates being out there. And that’s because the other aspect of our analysis I spoke about it is the additional transmission electricity trade between provinces that act a little bit as a battery. So, this is why we don’t have that much solar, although depending on how battery technology evolves, we could see more of it. I think it’s about 6% of incremental generation in our study.
Jackie Forrest:
I mean at my house, it seems to be coming on when the peak load is right at five or six o’clock, but it’s definitely not in the winter. It’s dark by then, right? So, hey, I just have a quick question. One thing you didn’t have in this is an assumption of prices in Canada. So, did you consider what the cost of this net-zero scenario is on what it’s going to mean for people’s electricity bills?
Jean-Denis Charlebois:
Yeah, we purposefully scoped this out for that 2023 report. This was our first report where we modeled the fold energy system for Canada net zero, and we had to scope it in a way that we could actually reach the finish line at some point, right? But that question I know is top of mind for everybody we talk to. And this is something we’re thinking about in terms of areas of improvement for the next iteration of our report. Because yeah, it’s top of mind policymakers, stakeholders, everyone is asking us that question. And arguably you can do some back of the envelope calculation with some of the data we have available on our data visualization tool, but there’s no specific analysis of that aspect in our report.
Peter Tertzakian:
Well, there’s no question. I mean that skeptics will point to, well, what’s this all going to cost? Somebody has to pay for it and therefore the cost has to be covered by what price they pay for it. And even utilities across the country will say that, well, we can’t do it for that price. There seems to be a big gap between, I’ll call it private sector skeptics of this and government modeling. So, how do you reconcile that gap and why does that gap even exist? Is this like your models are using completely different assumption from electrical power generator and transmission modelers?
Jean-Denis Charlebois:
In part because as I mentioned, we have a hard constraint in meeting net zero by 2050, and I think it’s not all stakeholders that conduct this type of analysis, that puts such a hard constraint on it. We believe that by having an idea of what the pathway can look like, then we can have a conversation at a next iteration or people can use those pathways to have a conversation about costs. Because yes, we hear a lot about the importance of affordability and at the same time that conveys a sense of, well, it’s going to be affordable. And I think when you look at the scale of the capital deployment required to achieve net zero, then yes-
Peter Tertzakian:
But I think this is the root of the issue is because you have been asked to put that net zero by 2050 constraint into your models. Fair enough, that’s good. Then a power utility will put that same constraint in their own model, and they go, what? That’s going to cost to do that. And so, there seems to be a big gap between, again, I’ll come back to it, the government modeling exercises and the private market exercises, and I personally don’t know where the bust is. All I know is that there’s a huge gap.
Jean-Denis Charlebois:
And I think it’s about analysts and observers like you to use all of those sources of information like the mosaic of information that is out there to make up their own mind about, okay, how much is it going to cost? The extent to which the pathways are technically economically feasible, whether there’s a business case for it. So, I think having good information, not perfect information because our modeling, just like any other modeling work, will have its pitfalls, but at the same time, it actually has the ability to ground the conversation in terms of how much renewables, how much oil and gas for example.
Jackie Forrest:
There is some elements of cost in your forecast. One is the carbon price that you need to achieve all this, and we’re going to run out of time here, but you do have a fair amount of hydrogen, which you mentioned, you do have a lot of CCS and even some direct air capture. So, what is the carbon price that you assume in those net-zero scenarios? It’s quite a bit higher than what we have today.
Jean-Denis Charlebois:
So, we might be tight on time, but it’s worth actually taking a minute or two to allow your audience to understand how we’ve done that. The carbon price as currently legislated is kept as is in our scenario, so $170 per ton to 2030, and then that is held constant to 2050, which in real term means that the carbon price declines to $95 to 2050. So, that’s one.
Jackie Forrest:
Yeah, with that inflation it makes it worth less, yeah.
Jean-Denis Charlebois:
So, that’s one piece. And then we have also modeled all of the suite of policies that are currently announced but not yet implemented. Think clean energy city regulations, oil and gas emission gap, and all of those other policies that are detailed and appendices on our report. So, with that, we see that the Canadian energy system is not meeting net zero by 2050, so we need to use a proxy for the incremental climate policies that will be needed to force the system to net zero. And that proxy is what we refer to as the aggregate cost of carbon. So, the aggregate cost of carbon in the Canada net-zero scenario, the one that is most challenging to the carbonized because the global context, we have the aggregate cost of carbon at $380 in real $2,002 in 2050.
Jackie Forrest:
Yeah, in today’s dollars.
Jean-Denis Charlebois:
So, it adds up to about $475 when you add the existing carbon pricing. So yes, it’s high because-
Peter Tertzakian:
What am I missing here? If your model is constrained to be net-zero carbon by 2050, that means no more carbon by 2050. So, wouldn’t the price of carbon be zero in 2050?
Jean-Denis Charlebois:
Well, so it’s net zero. So, there are still some sectors that are quite challenging to fully decarbonize. So, we have some sectors that have negative emissions to offset those positive emissions from other sectors. Negative emissions sector are the electricity sector, hydrogen production, DAC, land use land use change, and forestry. And that modeling proxy was required to actually force the transition away from emitters, so that the system meets net zero by 2050.
Peter Tertzakian:
Yeah. Yeah. Do you think prices are enough to achieve net zero by 2050? I sort of want to come back to Canadian energy regulator. A lot of the issues are that certainly industry brings up our regulatory drag and the amount of time it takes to permit projects, and so on. I mean, to what extent are the issues of achieving net zero by 2050 in your report related to non-carbon price signal related issues such as regulatory drag?
Jean-Denis Charlebois:
So, those matters were not scoped in our analysis at this time. For example, we assume that there was no supply chain issues, that labor was available, that also the regulatory system would enable the deployment of such capital. And we focused on our analysis on the technological and the economic aspects of the transition, acknowledging that there are a number of very fundamental factors that will influence Canada’s pathways.
Jackie Forrest:
Yeah, I want to come back to that cost. So, we talked about the heat pumps and that by 2050, half the people are using heat pumps instead of natural gas, but you still have people using natural gas. So Peter, there is some fossil fuel use, but it’s offset. But today people are already complaining about the carbon tax on their natural gas bills, which are actually pretty significant because the price of natural gas, the energy cost is pretty low. So, what you just told me is that in that net-zero scenario, they’re going to be paying eight times higher carbon tax. No wonder they’re switching to heat pumps because burning gas is going to become very expensive for people.
Jean-Denis Charlebois:
You’re right, to a very large extent, and at that point in time into the projection period, yes, we will all have heat pumps, we will all have electric vehicles. So, the exposure to the carbon price or the aggregate cost of carbon will be very different for Canadian consumers than it is today. It’s only for those emissions that are most challenging to address that would be affected by this very high total carbon cost envelope that we just spoke about.
Peter Tertzakian:
Yeah, I think one of the things that you mentioned, I want to get back to the regulatory drag, you said no regulatory drag considered, no labor constraints and so on. I think that’s where the bust is that I was talking about between industry modeling and where you are because they do factor in sort of the bottom up issues that they have to deal with on a day-to-day basis versus sort of a more top-down approach where you just sort of say, “Well, theoretically it’s possible because the technological trends are going this way and the carbon price is going this way and therefore everything will”
Jean-Denis Charlebois:
I think it’s a very reasonable interpretation of the state of affairs. At the end of the day, I think it illustrates some of the challenges and the trade-offs that need to occur for both industry policy makers and consumers along the pathways to net zero, which I think can inform decision making along the way.
Jackie Forrest:
Okay. Well, Jean-Denis here you are in Calgary, and so we have to ask you about this oil and gas prediction, or no, it’s a scenario. Under your global net-zero scenario, so this is when the whole world achieves the net zero, you have Canadian oil production dropping from about 5.5 million barrels a day now to 1.5 million barrels a day, which is about a 70% drop, which is very similar to the decline for oil demand in that overall global scenario. So, you’re assuming that Canada in that scenario would decline at the same as the global rate. Now, do you think it’s possible that a stable, secure, and zero emissions oil producing country, because by then we should be zero emissions under this scenario, would actually have an advantage source of supply and not decline as much as the global average, that we would maintain more market share because we have better oil, cleaner oil and you’re not buying it from the Middle East? Did you consider that?
Jean-Denis Charlebois:
So what we have considered is basically the work of the International Energy Agency in their Net Zero 2050 Scenario as well as their Announced Pledges Scenario, so we anchor our pricing assumption into the IEA’s work, and what this does is create a pricing environment globally that is very unforgiving for oil and gas. And to your question, we did not specifically model that Canadian oil and gas production would be preferred by potential buyers, but one thing to note is that Canada’s market share of oil market remains about the same, whether global oil demand is a hundred million barrels per day or whether it is 25 million barrels per day. It’s about the same market share. And at the end of the day we see that what drives this decline in production is really the global pricing environment rather than Canadian policies specifically.
Peter Tertzakian:
Don’t you think there’s a paradox in agency thinking, like the International Energy Agency, they go, “Oh yeah, the price of oil is going to go way down to 25 bucks as demand goes down.” Well actually if the price goes down, demand goes up. I mean, that’s basic economic theory. Why does nobody sort of factor in economics 101 into this equation?
Jean-Denis Charlebois:
What is factored into the equation is the policies that are increasingly strong to reduce emissions.
Jackie Forrest:
So IEA does have that $25. I already gave you feedback on this Jean-Denis when your report came out, that I actually think that’s unrealistic. And the IEA’s own data shows that you actually do need investment in new supply in order to, even in that net zero, so I don’t think anyone’s investing. So I think you could have a scenario where the market is still tight and prices are higher than that.
But you know what? My concern actually is more about how this is used in Canada because our politicians are taking this as a for sure, that, “Oh, well oil demand’s going to 1.5 million barrels a day.” And gas demand, you have that too. It’s declining at a similar rate. So we’re not going to allow any more projects. We’re not going to allow pipelines. But there’s a chance here that the demand for Canada’s product could be much higher. And I think by just doing, and I know you have time constraints and that sort of thing, but by making these simple rules, it’s sending a signal to the politicians that they’re acting on which may not be a realistic view of how things are going to evolve.
Jean-Denis Charlebois:
In the event where demand would be higher than planned or expected or price would be higher, then something else has got to give. Again, in a net-zero constrained scenario to 2050, then if the oil and gas sector in Canada can produce more economically, then presumably more emissions would be produced, everything else being equal, then other sectors would need to push harder to decarbonize more or faster. Again, it’s kind of a zero-sum gain in the context of this hard net zero constraint.
Jackie Forrest:
But in this assumption it is net zero, so it doesn’t add to Canada’s domestic emissions because the industry has achieved net zero, right?
Jean-Denis Charlebois:
In fact, the oil and gas industry in our analysis, it doesn’t actually meet net zero. I think the sector has about 20 megatons of outstanding emissions at the end of the day, which are not very similar to a number of other sectors that still have outstanding emissions, heavy industry, transportation, buildings, which get offset by direct air capture and other sectors that end up being a net negative from an emission per perspective.
Peter Tertzakian:
Mm-hmm, mm-hmm. So net zero by 2050, 26 years away, it’s not very long. Let’s talk about the price tag for achieving that because many of the bank analysts in the country have put up to trillions of dollars of investment required to achieve that, especially if it’s done through electrification all the way from the upstream, midstream transmission distribution and downstream. What is your estimate for what this is going to cost?
Jean-Denis Charlebois:
I don’t have an estimate, Peter. This is something, as I said, we left out this time, but this is a question we get so often that we have very strong incentives to look at it. Maybe not to put a definitive price tag, but to venture into that space going forward to inform the very keen interest of stakeholders on that question.
Peter Tertzakian:
Mm-hmm. Well, I mean I think that I’m just trying to do the mental math in my head here, even if it’s a trillion dollars over 25 years, what is that? 40 billion dollars a year, is that right? It’s just kind of a staggering number, we’re nowhere even close to that.
Jackie Forrest:
Yeah, I mean I think adding, we’ll have to have you back, next year’s reports getting bigger and bigger as we keep moving on. But I’d like to see how many dollars of CapEx are spent in Canada annually over the last 10 years, and then how many dollars of CapEx would be needed under each of these scenarios on an annual average basis because that would help me understand how realistic this is. If it’s tripling the amount of capital investment, are we really going to track that much capital and is that practical? Or if not, what are we doing as a country to attract that capital? And it’s a very important indicator of the doability, I guess, of each of these scenarios to me.
Jean-Denis Charlebois:
And then with that information in hand, and maybe from us in the next iteration or from other entities, as the banking sector policy makers can use that to see what can be done to actually facilitate that transition.
Peter Tertzakian:
Mm-hmm, mm-hmm. Well, thank you, Jean-Denis. I mean, you’ve given us a lot to think about. Your reports are always very thoughtful. The constraint of net zero by 2050 is important for us to think about the issues. We will definitely have you back to talk further about where we’re at a year from now and look forward to the next report.
Jean-Denis Charlebois:
That’d be my pleasure. Thanks for the invitation.
Jackie Forrest:
Great. And thank you to our listeners. We will put a link in the show notes to the actual report that came out in June so people can read all the details as Jean-Denis said, before they start citing numbers. There’s a lot of good information there for sure. And thank you to our listeners. Thanks to our live listeners here. We’ve got a great crowd. So thank you for joining us. And for those that are listening on the podcast, thanks for following us. And if you like this podcast, please rate us on the app that you listen to and tell someone else about us.
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