Our Take on Canada’s Budget 2025
This week on the podcast, Jackie and Peter share their insights on Canada’s 2025 federal budget, released last week and expected to pass on November 17. They also briefly introduce the topic of COP30, which started the day they recorded, and Bill Gates’ recent memo on climate.
They discuss several aspects of the budget, including the size of the deficit and debt, government plans to reduce day-to-day operating expenses, and several tax measures—notably, new Productivity Super Deduction and the updated accelerated capital cost depreciation rules for LNG, which are supportive, but still less generous than the Productivity Super Reduction.
They also examine the introduction of new investment tax credits (ITCs) for clean energy. These incentives were largely anticipated, having been announced in the previous budget but never enacted.
A major focus is the proposed Canada Climate Competitiveness Strategy, which aims to strengthen industrial carbon pricing while preventing carbon leakage. Jackie and Peter explore related policy commitments, including maintaining methane-reduction regulations and the Clean Electricity Regulation, along with signals of possible flexibility around the removal of the oil and gas emissions cap. However, they note that such flexibility may depend on the deployment at scale of carbon capture and storage, which remains uncertain.
Content referenced in this podcast includes:
- Canada Budget 2025
- Bill Gates Memo “Three tough truths about climate” (October 2025)
- The Hub.ca article by Trevor Tombe “There’s a big gap between rhetoric and reality” (November 2025)
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Episode 302 transcript
Disclosure:
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.
Announcer:
This is the ARC Energy Ideas podcast, with Peter Tertzakian and Jackie Forrest, 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. Welcome back. Well, Jackie, it all started with cups of coffee first thing in the morning, 7:00 AM in my office discussing energy issues. And that spawned the idea that, hey, maybe we should have a podcast. Some people might be interested in what we have to discuss. And so, what was that? It was seven years ago, in 2018 we started this podcast and we have just passed another milestone, which is 300 episodes.
Jackie Forrest:
That’s right. So I calculated, Peter, if you wanted to listen 24 hours a day to us, it would take you over eight days to listen-
Peter Tertzakian:
Eight days. Okay.
Jackie Forrest:
… to all our podcasts. So we’ve done a lot of talking.
Peter Tertzakian:
Yeah, we sure have. And we’ve had a lot of great guests. Thank you to the guests. But most importantly, thank you to our audience who continues to provide us with feedback and really positive vibes as they say.
Jackie Forrest:
Yeah, no thanks to our listeners. Couldn’t do it without you. And of course, there’s always more to talk about with energy, including today. We’ve got Canadian budget 2025. Today at the day we’re recording is the first day that COP30 begins in Brazil.
Peter Tertzakian:
Yes, that’s in Belém. If somebody knows the proper Brazilian Portuguese pronunciation, please let us know. But I’m going to go with Belém in Brazil. It’s on the Amazon. It’s a very famous place. From my recollection, it was one of the places that was central to the rubber industry because there’s a lot of rubber plants in the Amazon.
Jackie Forrest:
Didn’t know that.
Peter Tertzakian:
So the rubber, not robber, rubber barons are from Belém. Okay. So it’s only a place that’s about the size of Calgary, maybe even smaller actually now that’s 1.4 million.
Jackie Forrest:
And Calgary is actually greater than that now.
Peter Tertzakian:
Yeah, they’re greater.
Jackie Forrest:
It’s grown a lot. So there’s issues with hosting the apparent 50,000 attendees that are expected, which is actually down a bit from the last year version of this, the COP29, which was nearly 70,000. But I think that’s been one of the issues is just the size of the place and the ability to accommodate all the people.
Peter Tertzakian:
Well, and I think the lack of the American contingency, I don’t think there’s anyone from the American contingency that’s going, certainly from a government perspective.
Jackie Forrest:
Yeah. Well, they pulled out of the Paris agreement. And it is an important year, 10 years since the beginning of the Paris Accord. Of course, that always brings the question of what is it accomplished? And even this year they’re asking countries to step up to even greater emission reduction targets. But the reality is that emission targets, most countries haven’t made their 2030 goals and emissions continue to go up. But I will say, when I pulled up this data to look at greenhouse gas emissions and there certainly is a change in trajectory, a bit of a flattening out. Still increasing slightly, but emissions have certainly changed their trajectory in terms of growth over the last 10 years.
Peter Tertzakian:
Yeah, I’m looking at the charts, Jackie, and I wouldn’t say that emissions have leveled off, whether they’re total emissions which are tracking around 55 gigatons per year or whether they’re just the energy related CO2 emissions, which are in the mid 30s I think or high 30s, the slope, the trajectory has definitely eased, which is good. But I would say, in terms of the aspirations 10 years ago that I remember, emissions were supposed to be down substantially by this time, 10 years on, and they’re still growing.
Jackie Forrest:
Yeah. The agreement 10 years ago was to ideally get to the 1.5 degrees scenario, but at least keep global warming well below two degrees C’s of warming. They didn’t actually have a specific emission target. But projections at that time were in order to accomplish that they would certainly need to be down a lot more. In fact, they’re up about 3% over the last 10 years. But I will say, back then, there was a lot of projections that the track we were on the world would probably mean we’re getting towards that four degrees of warming. And I think today the consensus view is it’s probably somewhere between two and three degrees of warming. And I did want to point out, Bill Gates released a 16-page memo, which has had a lot of talk. It was ahead of this COP meeting calling for a middle ground approach to climate change.
And that memo, it really deserves a fulsome discussion. We want to talk about the budget today, so we will talk about that next time. But he talks about this same thing, that there has been some progress because we’re not talking about these extremely high emission scenarios or the four degrees C world. It’s really, people are probably seeing that a likely outcome is somewhere between two and three degrees of warming and probably right in the middle of that. So that is some progress.
Peter Tertzakian:
That Bill Gates memo is quite important and we’ll talk about that some more because it’s not only Bill Gates, there’s just a broad change in sentiment in terms of how climate change is viewed. 10 years ago when the Paris Agreement was agreed to, it was that climate change is a problem and we have a solution and it’s embedded in this agreement, problem-solution. Whereas today, it’s not just one problem the world is dealing with. There are many competing problems and it’s much more of a dilemma situation that the world is faced with. Dilemmas don’t have solutions, dilemmas only have options, sometimes none of which are particularly good. So for example, the dilemma between energy security, national security, economic prosperity, and so on, versus dealing and spending money on climate change versus poverty versus, versus, versus. These are all things that have to be dealt with.
So it’s not a one-dimensional problem with a one-dimensional solution the world has to deal with. It’s a series of dilemmas which are really complicated. And I think that’s what Bill Gates really is talking about is, well, there’s poverty we’ve got to deal with. And other people, not just Bill Gates, are saying similar sorts of things that we’ve got a lot of issues to deal with, so which one’s the priority?
Jackie Forrest:
Okay. Well, with that, we’ll talk more about Bill Gates next week, but let’s talk about this Canadian government budget 2025 called Build Canada Strong. And it actually speaks to some of these issues too, for sure, the need to grow the economy. I just wanted to think about the tone of the budget. So it has a picture of a big polar Class 4 icebreaker, which apparently regularly travels to Deception Bay and Northern Quebec, so into the Arctic, very different than the picture of previous budgets. The 2024 I went and looked, it was called Fairness for Every Generation with photos of families and dogs and things on it. And the one before that was about a strong middle class, affordable economy, healthy future. It had workers and grads. So we’ve really gone to a picture of a very strong icebreaking bulk carrier. And there’s a lot of discussion around industrial growth and investment in this one as opposed to social programs, which was really the focus of a lot of the budgets in the last decade.
Peter Tertzakian:
Yeah, it’s very much a high level view of what is important. Now we are in a global geoeconomic conflict. We have military conflicts, we have reshoring, in other words, de-globalization going on. We’ve got a neighbor that is being very aggressive with its economic policies and not particularly favorable to Canada. So it’s all fine to have families and dogs, but families and dogs will not live in harmony if we don’t address the top line issues of growth, investments, security, prosperity, and so on. And I think that’s what this budget’s about.
Jackie Forrest:
And of course, as always, there’s a lot of critics on these budgets saying it’s not spending enough to spur the economy. The current government set big expectations in terms of building faster, and better, and bigger than we have in a generation. I will just say, well, it may be not enough, I still see it as a welcome shift. It’s really focused on things that I think have been missing in the last 10 years, productivity, private investment. Well, it may not go far enough, but at least it’s moving for once in the right direction. So I like it a lot better than a lot of budgets.
Peter Tertzakian:
I see. Yeah, I’m with you. I like it a lot better. I would say that the reason probably it didn’t go further is because of the reality of the politics, which is that the current government is still a minority government. And if it went even further than this, it may be at risk of not passing. And actually it hasn’t passed yet. It passes, when is it? November 17th.
Jackie Forrest:
November 17th. And of course, I know all of our listeners know there’s a lot of uncertainty. We had a floor crossing from the conservatives to the liberals with one member. We had a conservative member of parliament resign, although they’re still not resigned until the spring, so it’s uncertain if that vote is not going to be there or if it is. We’re not sure if it’s going to pass. We know one thing, the liberals will need somebody, maybe an individual or two to support this or a party and we just don’t know how that’s going to play out. I have a feeling this will pass, though.
Peter Tertzakian:
I think it will pass. Canadians are not in any mood to have an election. I know I’m not. And I think the government and all the parties know that, and if they trigger an election, then people will be going to the polls in a very grumpy mood over Christmas. There’s a big plan in this budget to cut bureaucracy, consolidate services, and the numbers quite large, 60 billion in savings over five years. So that by my calculation is 12 billion a year in terms of cutting basically people from government.
Jackie Forrest:
And they actually had a lot of detail in the back of the documents on that. For every department, they had information on what they were trying to cut in the range of 15% for a lot of the departments. So I think that’s good. There was kind of an eye-opening chart in there that talked about the growth of the public services. So the public service sector, the number of people grew about 25% in government compared to about 10% in the overall population since 2019. And I don’t know if you remember when Stephen Poloz, former head of the Bank of Canada came on the podcast. He discussed that his concerns around the growth of the public service, that it actually crowds out private investment and private company’s ability to hire people. I knew it was growing a lot, but I’d never seen the figures.
Peter Tertzakian:
So it grew 25% relative to when is that based?
Jackie Forrest:
2019.
Peter Tertzakian:
- So that’s over the Trudeau years and we’re going to cut by 15%. So that’s roughly net 10% growth since 2019, which is in line with the population growth is what you’re saying, right?
Jackie Forrest:
Yeah. So we get that kind of back in line and actually the chart shows that it trends towards more population growth as you go out into the future. So I think that is welcome. There’s this saying in the budget, which is a little counterintuitive, we need to spend less and invest more. So what they’re saying is they want to cut spending on things like staffing and the government departments, but actually invest in capital projects. And so there was a commitment to really ramp up the investment over the next five years in private capital investment as well as public. And with a goal of all together, when you consider the policy changes they’re making, the public spending, and the private spending they’re expecting will come along with that. Something like a trillion dollars of capital investment over the next five years into the Canadian economy. Of course, that is a projection. We don’t know that all of these changes they’re making are going to create that private capital to come in, but that’s the goal.
Peter Tertzakian:
Yeah. The preliminary tone of all this is very positive. Whether or not the private investment will follow the public investment that is being proposed in this budget is going to happen or not is the big question. And is also going to be predicated on the things that we’ve talked about on this podcast along with many guests, which is the cleanup of all the regulatory and other policy layering and those sorts of issues to simplify those types of regulations and policies that impede investment.
Jackie Forrest:
Exactly. In fact, I will put a link to Trevor Tombe’s article. I always like what he writes. He’s really thoughtful in terms of looking at the budget each year. He’s a professor at the University of Calgary. His article actually, he said that he thinks the government plan will fall short of triggering that 1 trillion because a lot of the actual public spending, there’s something like 280 billion over five years of public spending. He thinks a lot of that was already announced, and it’s not net new measures. But he does acknowledge that measures like lifting the oil and gas cap, we’ll talk about that. It’s not 100% certain, but they certainly are signaling they’re open to that. And some of the changes they’ve made in terms of fiscal terms like capital cost depreciation, which we’ll get to are helpful and will help maybe drive more investment. So we’ll put a link to that.
Peter Tertzakian:
Okay, good. Do you want to, I don’t know if there’s any merit in talking about other areas of the budget, whether that’s affordability, safety, housing, defense and security.
Jackie Forrest:
Yeah, I think one area that’s interesting before we get into energy is the focus on AI. So they want to boost AI capacity. They’re even talking about a sovereign Canadian cloud. I noticed that, Peter, because you were talking about the concerns of all this Canadian data that’s not even on our soil. So money going there, there’s some support for critical minerals and also infrastructure, defense, and housing.
Peter Tertzakian:
This is really critical area, AI, because there’s a massive AI race going on in the world dominated by China and the United States. But countries like Canada must invest in it, must create their own data centers to keep their data sovereign. And also we need to recognize that the AI play is really an energy play. It’s the creation of a whole new energy infrastructure dominated by electrification to feed these AI data centers which convert electricity into information. This is probably the biggest build out of electrification since the invention and implementation of the light bulb 130 plus years ago. This is going to be a massive investment play.
Jackie Forrest:
We’ll get to that because we actually need to build out our electricity system-
Peter Tertzakian:
We do.
Jackie Forrest:
… to support that. But I wanted to quickly talk about the debt and the deficit. The deficit for the upcoming year is forecast to be $78 billion and extends out for five years. However, in the latter years, it’s all investment, not the money for day-to-day operating because they’re planning to cut a lot of that with these reductions in the government agencies. And so they see this as going towards infrastructure projects that are going to help grow the economy. Now five years projecting fairly large deficits, they still make the point that Canada’s very strong in our fiscal position, especially compared to a lot of other countries. So they look at a ratio of what our debt to GDP is, and they show that ours is much lower than Americans, or Germans, or United Kingdom. But I just wanted to remind you, again, the former Bank of Canada governor, Stephen Poloz, came onto our podcast in June of 2024. We asked him the same question because actually in previous budgets, this has been used as a reason that deficits are okay, big deficits.
And he just felt concerned. He said that, sure, our debt to GDP looks better than many others, but it’s not comforting, especially when you consider provincial debt isn’t included in those ratios. He wanted to point that out. But he basically said, comparing ourselves to really bad countries like the US isn’t helpful and warned that high debt leaves Canada less prepared for the next major shock. Now you could argue that the shock is here and now is the time to spend, and I think that’s what the government is thinking. I know Mark Carney, I’ve read his book, he doesn’t like big deficits either, but I think maybe this is the time to be investing in Canada to build this infrastructure that we need, especially at a time with tariffs and wanting to diversify our trade, which actually was another goal of this public-private sector spending.
Peter Tertzakian:
Well, I don’t think we have a choice. We have to invest given the economic coercion and warfare that’s out there that we’ve talked about ad nauseum combined with this AI race, we need to reposition this country. And so investment is not an option. We have to do it at a public and a private level and the public in sense, the private to come. I think one of the things that anti-debt hawks don’t fully appreciate is that if you take on debt and run a deficit and use it for investment. And if that investment, and this is a big qualifier, if that investment is placed wisely in the right industries, in the right infrastructure, then your GDP grows. Because one of the major terms in the GDP calculation formula is I or investment. And so, the caveat here is that the investment that’s made by taking on deficit financing must be effective. Because if it’s effective, then it grows the GDP and hopefully it grows the GDP faster than the debt that you take on and you either maintain or even lower your debt-to-GDP ratio.
So there’s no surprise here, invest wisely. It doesn’t matter if you’re a country, a company, or an individual, it’s the same thing. So if we’re borrowing and running a deficit, if it’s invested wisely, then it’s the time to do it and the time to do it is now. So it’s really incumbent on this government to make sure that the dollars, whether it’s through the Major Projects Office that’s deciding on where some of this capital’s going or the new AI fund that’s been created and so on and so forth. That these agencies, including Canada Growth Fund and the Canadian Infrastructure Bank, that they have to take the capital and invest it wisely such that it leverages the deficit financing.
Jackie Forrest:
Well, and actually that is part of, I think, the calculation here. There was a comment made that consensus view for Canadian economy this year and next year is in the range of 1% GDP growth, which is very low on that. If all of this comes to be five years from now, we could see GDP 3.5% higher than it would be otherwise because of the spending. And so that will help just like a company, as you grow your revenue, you can take on more debt and you’re growing the Canadian Corporation revenue and therefore more debt is okay.
Peter Tertzakian:
And a lot of infrastructure. It’s very much like if you build it, they will come. If you build a good port infrastructure, you build good railways and transportation systems, you build good pipelines and transmission lines, and all those sorts of things. That is the backbone for attracting industries to come here to use that infrastructure and then you torque your GDP.
Jackie Forrest:
Yeah. Okay. Well, let’s talk about the energy focused parts of the budget. One of the first things I noticed was the support for the Major Projects Office, 213 million over five years, which is about 42 million a year. I was just looking back, do you remember when we had David Nicholson from BC come on, he was working with the BC government. He talked about the LNG Canada Secretariat, which is a group in BC that did something similar to the Major Projects Office. If I look at what was spent on that initiative, and I compare that to the budget of about 42 million a year, I kind of did a back of the envelope to think, well, maybe the Major Projects Office could support around 15 to 20 projects if they had a similar spend as the LNG Canada.
So I think that’s a reasonable number of major projects to advance. Now, this is just my back of the envelope. I don’t know how many they’re going to have ultimately. But I do think that that kind of spending should support that many projects and that would be really beneficial if we could get those done in the next five years.
Peter Tertzakian:
Yes. And this spawns all sorts of additional questions, 15 to 20 projects, that sounds actually like a fair bit. Some people would say, “Oh, it doesn’t sound like very many.” But actually, 15 to 20 major projects that all have to compete for limited labor pools, electricians, plumbers, pipe fitters, you name it. It’s not clear that we have the labor pools to be able to be simultaneously working on 15 to 20 major LNG scale projects all at once.
Jackie Forrest:
Yeah, no. And of course, these will be spread across the country, but hey, when we look at some of our major projects in Western Canada, they actually pull on tradespeople from across the country. So we do have some limits in terms of labor.
Peter Tertzakian:
Well, we do, and we’ve seen this movie before, as I like to say, in between circa, I don’t know, 2008 and 2014 when 250 billion of oil sands investment came in. And the type of localized inflation, wage inflation, materials inflation that we had here in Alberta was far in excess of the broad inflation rate in the economy. And so we don’t want to create that kind of a situation either.
Jackie Forrest:
Yeah, I think we all learned from that period, especially the developers. It created a lot of risk for their projects. We are going to learn about some additional major projects, I think, this week, so hopefully we’ll be able to talk about that next week.
Peter Tertzakian:
Yeah. So what do football and the economy have in common.
Jackie Forrest:
Yeah, I guess, we now have major projects announced around football games, right?
Peter Tertzakian:
If we have a Grey Cup.
Jackie Forrest:
A Grey Cup. Yep.
Peter Tertzakian:
Yep.
Jackie Forrest:
Okay. Another important change made in the budget was something, it’s kind of actually Trevor Tombe called it a silly name productivity super deduction it’s called. But basically it’s allowing companies to write off their assets much faster. It’s called an accelerated capital cost depreciation. Now, this is getting a little wonkish, but all the accountants that listen will understand this. If you allow people to immediately expense 100% of the capital cost of their projects, that means for a number of years they don’t have to pay taxes. And that really accelerates the payback for their projects. And you can be quite material. So it announced 100% first year write off for a broad set of assets including manufacturing equipment, clean energy generation, energy conservation equipment, electric vehicles, and also a bunch of digital assets. So this is another way to get more AI investment and things like that.
Now, my understanding is that some of these areas, like renewable energies had some of this type of treatment, but I think this is much broader and also has a bit more longevity to it. So I think that’s a real win for all of the assets that fit under that. And I would note that pre-2011, I don’t know if you remember this, Peter, the oil sands actually got this 100% expensing and it was quite meaningful to the economics when it was-
Peter Tertzakian:
Yeah, it’s very meaningful.
Jackie Forrest:
… taken away in 2011. It was a notable change to the economics for the oil sands.
Peter Tertzakian:
I think it’s important to point out here that it’s not a complete forfeiture of taxes. It’s a delay of taxes. In other words, you don’t pay taxes upfront because your capital expenses become written off. So you have very little profitability in the near years, but once the capital is completely written off, then you have to start paying taxes because you’re much more profitable with the new equipment that you’ve just built.
Jackie Forrest:
Yeah. It just brings forward those years where you don’t have to pay taxes and then you pay more in the latter years. But it does make a big difference because time is money and it changes the returns when you do the calculation quite a bit.
Peter Tertzakian:
It’s important for making decisions at the boardroom table because of the time value of money and how things are calculated. And we don’t need to get into the details, but these are important incentives. It is a bit nerdy to understand from an accounting perspective, but it is meaningful because that’s how boards make decisions is based on these financial formulas and algorithms that favor the time value of money. So these are good moves to have these write offs if you want to accelerate the building of capital projects, which are infrastructure.
Jackie Forrest:
Yeah. Okay. I have one complaint, though. It does not apply to LNG 100%. It announced that it would have a different type of rule for LNG that if an LNG project were to be top quartile in terms of its carbon emissions, it would get a 30% deduction, not 100%. And if it were to be the top decile, so the top 10% in terms of its greenhouse gas emissions, it would get a 50% write-off.
And by the way, I don’t even know what we’re comparing to. Is it top decile in Canada or global? I’m hoping it’s global. We don’t have that many projects in Canada. But I’m just looking at this and saying, “Hey, if you really want…” Mark Carney just went to Asia and said, we’re going to grow to 50 million tons by 2030 and a double again by 2040. If you really want to get this industry going, you should give it the 100% like you’re giving clean energy in other areas or was given to the oil sands when the government wanted to see a lot of growth in the oil sands pre-2011. So I think that the LNG treatment could have been much more generous.
Peter Tertzakian:
Well, I just think you need a uniform treatment without any special clauses and complications across the entire economy for building anything. If you build a manufacturing plant, a data center or whatever, all of those have associated emissions. Are we putting emission targets and formulas around those about accounting deductibility eligibility?
Jackie Forrest:
No, no. All digital assets, and computers, and stuff are getting it.
Peter Tertzakian:
So why are we singling out individual industries or sectors for special GHG treatment and not others?
Jackie Forrest:
Yeah, I agree.
Peter Tertzakian:
This is ridiculous. It just makes things more complicated. Again, we’re trying to get away from complication. Simplicity is just key to attracting any sort of investment. And having these vague targets that now we have to set up a bureaucracy probably to decide your point, what exactly is top decile? What are we measuring against?
Jackie Forrest:
Right. Well, and even now, they say things like manufacturing equipment or equipment that increases productivity. So what does that mean if it doesn’t, like there’s lots of equipment in the oil and gas sector that might meet those targets. So did those assets get it? So I agree. I would’ve preferred to see, hey, all investment is good investment to grow our economy and it all gets this treatment.
Peter Tertzakian:
It gets this treatment and then get out of the way and the money will follow. And we don’t have a lot of time given the way the world is moving so quickly. And frankly, it’s not a pretty world out there. So we need to compete.
Jackie Forrest:
And we have a stated goal of wanting to grow LNG. So to me, that was one disappointment that it wasn’t given that treatment, maybe that can still change other changes made on the tax side. The federal government has only so many levers to incent investment. One is the tax treatment and the other is regulatory policy, which we’ll get into. But they did broaden these investment tax credits that were introduced over the last several years. But there were changes that were wanted about a year ago, but then that budget never actually got passed. So these are just really the things that people were expecting, like now investment tax credits can apply to tax exempt entities like Crown Corporations. They’ve extended the carbon capture credit timeline out to 2040. It was 2035. So that’s helpful since these are projects that have a very long life, not having those policies out to match closer to the life of the asset, I think, makes a lot of sense. So I think that was all welcome, but expected changes that came out with the investment tax credits.
Peter Tertzakian:
Did you read that whole section?
Jackie Forrest:
Yeah, I did. Yeah.
Peter Tertzakian:
Okay. I don’t know, I can’t do it. My eyes just glaze over when I read that kind of stuff. It’s just tax policy.
Jackie Forrest:
You’re getting about 30% of your initial capital cost back, so it’s very mature on 40 in some cases.
Peter Tertzakian:
It’s just important. It’s just important. I guess, it just, again, speaks to trying to keep this stuff simple so that we just get things moving.
Jackie Forrest:
And certainly, this is complicated what falls into it. I know why you skipped that section though, because you’re very interested in the climate competitiveness strategy because that is something we were all looking for. And I would just say on carbon policy, I think many of the details are missing. So when investors want to invest in Canada, I don’t think they got a lot of questions answered with this section. I would just say the counter to that is maybe no details are better than bad details. And I was concerned that there wasn’t a lot of consultation with industry that I’m aware of before this was unveiled. So there’s still a lot of to be determined here, but I think maybe that’s positive because it’s better to take the time and get it right.
Peter Tertzakian:
Well, I’m going straight to the top here and trying to understand this phrase, climate competitiveness. What does that mean? This is a term that I’m hearing increasingly, climate competitiveness, carbon competitiveness. Okay, quantify that for me. What does it mean? Are we trying to be the lowest intensity, the lowest emissions on a volume basis measured across what life cycle segment of an industry? What does this mean?
Jackie Forrest:
I have to say, and we’ll go through my key points takeaways, I can theorize, but it really is an answer to this document here.
Peter Tertzakian:
Well, the point is that there’s nowhere in this document or other documents that I see that actually defines this term.
Jackie Forrest:
Good point.
Peter Tertzakian:
And who are we competing against? Are we competing against the United States, Europe, the world at large? It’s a highly competitive world out there for capital. It’s a highly competitive world out there for market share, for export markets. What does this mean?
Jackie Forrest:
Well, and the thing is, I do have theories here because it’s not spelled out. But I think, one of my theories is maybe we’re moving more to carbon intensity, which would speak more to our carbon competitiveness. We have products that are lower carbon for every unit that we produce.
Peter Tertzakian:
Okay. But define for me a competitive carbon intensity. Is it the absolute lowest in the world for a certain industry? Is it lower than the average for the rest of the world? Is it top decile, bottom decile? I don’t know.
Jackie Forrest:
Well, this is why we do more consultation here.
Peter Tertzakian:
I just hate it when they throw these terms out and people just accept these terms as some abstract, yeah, I get it. But we need to quantify this thing because people who make investment decisions like to put stuff in a spreadsheet, sell a number. So what does this mean?
Jackie Forrest:
Yeah, and how do they model it? Well, I will just say, although it doesn’t explicitly say this, there seems to be the language in this section where carbon intensity is going to matter, talks about things like Canada must cut its carbon intensity. Before we used to say we need to cut our absolute emissions. It’s very, very different because let’s take LNG, Mark Carney’s talking about massively growing our LNG industry. It’s very hard to see how absolute emissions don’t grow. But for every BCF of natural gas that we produce, we can do it in a better way with less carbon and be better than others at it. So that’s my theory. It was notable, actually, they even acknowledged the oil sands emissions intensity reduction since 1990. We saw 40% change. Something you haven’t seen in a budget in the last decade, sort of acknowledgement of the accomplishment of the oil sands industry and achieving that.
Peter Tertzakian:
But again, sorry to belabor this point, oil sands emissions intensity. Okay, so there’s several participants in the oil sands business. Are we talking about all of them have to reduce equally or is it okay if one reduces their intensity a lot and another one is laggard and the overall average goes down? What are the benchmarks here?
Jackie Forrest:
Well, I would just say it’s at least you’re saying that they could grow. Because even though the oil sands industry has reduced their emissions per every barrel they produce by 40%, the absolute emissions have grown because they’re producing way more barrels of oil. So I think we do need to clarify it, but at least we’re moving towards what I think is a metric that allows us to grow our economy and not have these absolute emission limits.
Peter Tertzakian:
And then I think, again, getting back to competitiveness, because the question arises in my mind, is anybody in the global markets paying extra for lower carbon intensity products?
Jackie Forrest:
I think that’s a big question. I don’t know that there’s a green premium as they call it.
Peter Tertzakian:
So you can spend a lot of money being carbon competitive. As I said, that’s even vague. You can spend a lot of money being carbon competitive, but end up being uncompetitive in the market for your product because nobody’s paying extra for that product.
Jackie Forrest:
Yeah, and it costs you more. Well, we’ll get to that. Okay. Another thing I noticed, maybe this is just me reading the tea leaves, but less emphasis on net zero by 2050. There was a lot of wording about transitioning to a net zero economy without a timeframe. There were two exceptions to that, though. One exception was in reference to achieving net zero by 2050 for electricity. And another was net zero by 2050 for industry. So again, there was no clear statement there, but I just sort of was interesting that the whole 2050 timeframe really wasn’t emphasized as it might’ve been in the past.
Peter Tertzakian:
So this means, as it stands that every supplier of electrical power has to be net zero by 2050?
Jackie Forrest:
Yes. And they did actually later on in the document talk about the clean electricity regulation, and it did seem like they’re kind of doubling down on keeping that and committing to this 2050 clean electricity goal. I think this is disappointing. As written today in the reg that exists, which it sounds like they’re not going to change. There’s a lot of motivation to prematurely shut down our older natural gas generators as they get to 20 years old, because at that point, you need to put carbon capture storage on them. And that’s pretty cost-prohibitive, especially on older units. Like retrofitting carbon capture storage on a unit that’s older that was never meant for that, that isn’t maybe even located close to a place where you could store carbon, you’re just going to shut it down.
Meanwhile, you can build a new plant and not need it for 20 years, but at the same time, you’re maybe not that motivated to build a new plant because you need more than 20 years usually to get a return on investment on those assets. So at a time, come back to the mega theme you talked about that we need to grow electricity rapidly in this country, not only for AI, but for our population growth and reshoring a lot of manufacturing and all these things.
Peter Tertzakian:
Manufacturing electric vehicles.
Jackie Forrest:
And now we have this thing that’s really a barrier to investing in natural gas generation, which in many parts of this country is going to have to be part of the solution. I’m sure we’re going to have lots of renewable growth, but we’re going to need some gas. And the reality is we have a pretty clean grid, more than 80% non-emitting as it is. So it’s not that we’re real laggards globally if competitiveness means comparing ourselves to others globally.
Peter Tertzakian:
So why is it that we’re going to have absolutely every industry go to net zero? Is that the dilemma that we want to be faced with here?
Jackie Forrest:
The two sectors you did-
Peter Tertzakian:
Do we compromise our ability to grow our electrical grid, first and foremost, to turn the lights on and provide electricity for home and just broad economy? But then, second of all, to get into this AI race in a meaningful way. These are the choices that we’re faced with.
Jackie Forrest:
Well, and we are trying to get a bunch of investment into this country. So to pick out the electricity and the industry as the two areas that have to stick to net zero 2050-
Peter Tertzakian:
Get investment into this country. We’re in a situation certainly here in Alberta where even the power generators and utilities are not investing as a consequence of things like the clean electricity regulation.
Jackie Forrest:
So these are policies that aren’t helping get that private capital investment.
Peter Tertzakian:
It’s kind of disappointing. Well, maybe it’ll come, but it’s disappointing that clean electricity regulation, the emissions cap are not dealt with in a meaningful way immediately.
Jackie Forrest:
Yeah. Well, let’s hope that there’s more discussion on this climate plan and that some more details come out. I did want to talk about, they talk about strengthening industrial carbon pricing. And they acknowledge that the carbon markets aren’t functioning effectively. I totally agree with that.
Peter Tertzakian:
Yeah, we’ve talked about that.
Jackie Forrest:
Yeah. They plan to stabilize the credit prices so that they can support clean investment, because places like Alberta, the prices has gotten quite low and doesn’t really incent you to invest in clean energy. So they plan to introduce a post-2030 carbon price path and ensure provinces can’t drop below the federal benchmark. So watch out Alberta and Saskatchewan, both of those provinces have kind of gone rogue here and aren’t really following the federal government policy. So more to happen here. But one of the things they have as a goal is that they want to make sure that this new carbon pricing regime supports clean energy investment while avoiding competitiveness losses, or carbon leakage. So I sit here and say, well, how can you make a more stringent carbon pricing environment and get more people wanting to invest here and make us more competitive? I just wanted to share a little calculation I did for LNG.
If you consider in BC right now the current regime in terms of how many emissions are charged under the price going to $170 by 2030 on both the upstream and the downstream, I calculated that the cost to the average project could be around 50 cents per MMBtu. That’s your carbon cost associated with producing one unit of gas. The international price for LNG is around $10, so that’s about 5% of the value of your product going to carbon tax. While other countries like the US, Qatar, they don’t have that tax. So your profit in Canada is less because you have to absorb that carbon price. It’s not something you can pass on to your clients.
Peter Tertzakian:
Okay. Gas producers don’t get $10?
Jackie Forrest:
No, no. Well, this is across the whole thing.
Peter Tertzakian:
They get three bucks if they’re lucky, Canadian.
Jackie Forrest:
Yeah. Well, they’re only capturing part of that. This is the total cumulative from the producers to the LNG producer. And by the way, this is an LNG plant that’s not using clean electricity. It’s using gas to run it, it’s operations, which is going to be the case for some time here because we don’t have enough clean electricity. So I guess my point is you’re talking about a more stringent carbon pricing regime, and then you want to attract investment. To me, those are kind of hard to see how that works together.
Peter Tertzakian:
Well, I agree. And then there’s this other thing that I’m fixated on, strengthen industrial carbon pricing in pursuit of carbon competitiveness without defining carbon competitiveness. Again, I’m struggling to understand the metrics here. Somebody’s got to define it, so that people who make investment decisions will put that in the spreadsheet.
Jackie Forrest:
Yeah. By the way, I do have a few ideas about how you could be more competitive. You could get rid of carbon leakage while increasing your carbon price. One is you increase the headline price but not increase the stringency. So the amount of emissions that fall under the policy don’t grow. So for example, right now it grows at 2% each year in terms of if a plant in Alberta had 100% of the emissions, only 18% are being taxed, and each year that goes up by 2%. You could not increase that as much. Maybe that could help. But another idea is maybe for certain projects you could cap the carbon price. These are clashing goals.
Peter Tertzakian:
I’m not just speaking oil and gas here. I’m speaking broad manufacturing. Strengthening industrial carbon pricing is going to be very difficult for many industrial sectors that emit, whether it’s steel or others, because at the margins, they become quite unprofitable as a consequence of this kind of accelerating stringency for carbon pricing.
Jackie Forrest:
And the price at the same time.
Peter Tertzakian:
And at the same time, they’re dealing with tariffs on top of that now. So we are in an era of dilemmas. We have to make choices, and the choices are very difficult. So we have to think differently, I believe, about all this carbon policy. And simplicity, and efficiency, I’m not saying get rid of carbon policy. I’m just saying we need to think very carefully and holistically and define exactly what we’re talking about when it comes to things like competitiveness.
Jackie Forrest:
Right. Well, and this is why I’m glad there weren’t a lot of details in here that it gives the time to really look at this because it’s very important.
Peter Tertzakian:
That’s fine. We have time, and I’m glad they didn’t start sticking numbers into this budget document, but I would suggest that we don’t have a lot of time in terms of finding resolutions to these questions and issues.
Jackie Forrest:
Well, and if you want to track capital to build projects over the next five years, these things have to be resolved because there are big barriers for people that want to invest here, for sure. Okay, well, let’s move on. The methane reduction rules. There was actually a goal for 75% reduction by 2030 in methane from oil and gas. And there was already draft legislation that was released about two years ago, but it was never certain if it was going to go forward. The government says they’re going to move on those methane rules. Now, of course, closely watched was a section called the update on the oil and gas emissions cap.
And this has broadly been covered as they’re signaling that they may get rid of the cap. And what they actually said is that we are committed to bring down the emissions associated with the production of oil and gas. And that effective carbon markets, enhanced oil and gas methane regs, which I just talked about, and the deployment at scale of technologies such as CCS will do the same thing as the oil and gas emissions cap. So therefore, it’s redundant and it may no longer be required. So it is signaling some willingness to get rid of the cap. But my concern is it’s sort of contingent on having a large carbon capture and storage project. Because I look at the math and say, well, if you want to achieve the same thing as the emissions cap, then you’re going to need a massive carbon capture storage project.
So while it doesn’t talk about pathways specifically, to me, it’s still uncertain if they’re going to scrap this policy because I don’t know if pathways is going forward. So I think it’s still for a investor, creates some uncertainty here about is this going to be there or not?
Peter Tertzakian:
I think so. I don’t know why they just don’t get rid of the sink. And from my perspective, and I said this, I don’t know, last year, we acknowledged also at the front of this podcast, the carbon markets don’t work. Most people in and around the carbon market and that whole constituency would agree, the carbon markets don’t work. At my last count, there’s 11 carbon markets in this country layering on a 12th, which would be the emissions cap makes zero sense.
Jackie Forrest:
Well, especially-
Peter Tertzakian:
So let’s have 12 dysfunctional markets instead of 11. That in itself means get rid of it.
Jackie Forrest:
Yeah. Well, and let’s go back to the goal. If the goal is to get to 50 million tons of LNG exports by 2030, doubling again by 2040, and potentially a new oil pipeline, then you cannot have an emissions cap. And if your goal is intensity, then that also is counter to an absolute emissions cap. So it just doesn’t seem to make sense. There’s a lot of, I think, some inconsistencies here in this section.
Peter Tertzakian:
Yeah. Well, I would just say that if it comes to getting rid of the emissions cap, which I think will happen, that’s not the end point. This whole carbon policy construct that has been created, this monster that’s been created over the last decade needs a complete rework. It needs a complete rework because of its density, it’s complexity. I’ve said that a lot on this program, and now is the time to quickly do it.
Jackie Forrest:
Okay. Well, I’m sure the topic of many more podcasts, but I’m happy that the numbers weren’t thrown into this document and there’s an opportunity to have some more consultation. Other things that were in the budget, there’s a taxonomy for identifying what are green projects. I think that’s important. Something we’ve talked about on the podcast.
Peter Tertzakian:
Why is it important?
Jackie Forrest:
Well, because it maybe helps investors that want to invest in clean energy, be more clear on what the definition of clean is.
Peter Tertzakian:
Do you think investors need help in identifying what’s green and isn’t? I really bristle at this because it assumes that investors are dumb and they don’t know the difference between, in their minds, green and not green and so on. I don’t know any investor, maybe there’s a handful out there that is waiting for a taxonomy to decide whether or not they’re going to invest.
Jackie Forrest:
Okay, well, fair. Some people would say natural gas is green because it’s helping enable a lot of wind and solar.
Peter Tertzakian:
I think we’re beyond that. This is 2025 going into 2026. The subject of this taxonomy was big news in circa 2019 to 2021-ish. It’s over. We’re going forward. And the idea that as investors, we need help in defining things. I know how to estimate risk and return and can make decisions about what industrial sectors I want to be in and what my fund allows and doesn’t allow. I don’t need government help in making these sorts of distinctions. What is the purpose of this thing?
Jackie Forrest:
Well, I think for large institutional investors, some value, we should come back to this.
Peter Tertzakian:
But it was in a time when there was a global net zero banking alliance and all that kind of stuff, and they wanted to…all that stuff’s fallen apart, it’s yesterday’s news.
Jackie Forrest:
Yeah. And even some of those companies that made these big commitments to green are kind of having to invest in more high carbon stuff.
Peter Tertzakian:
And here’s the good news. Investors are now up a learning curve to the point where they have a sense of where some of these positive clean energy, green energy technologies are going to work, and where some of them will never make money. And they’re starting to see the money get channeled into the right places. So the market is sort of working, and investors have come up a learning curve a long way since the days of 2019 when most people couldn’t differentiate between a fuel cell and a solar panel. Now they can. So why do we need this construct? So it is just excess bureaucracy that is unnecessary.
Jackie Forrest:
Okay. Note to any government people listening, don’t put Peter on your panel. Okay. Really quickly, the greenwashing rules, you’re going to like this one, Peter. Propose legislative amendments to remove some aspects of the provisions that prevented companies from putting out information around their greenhouse gas emissions. So we’ll wait and see what happens there, but I think that’s a move in the right direction. And then also some focus on money towards trade diversification. But I wanted to finish off with one of my favorite parts of the budget that they are proposing to provide $150 million next year additional money to CBC and Radio Canada. This is an addition to the 1.4 billion they already get. So another 150 million. Let’s hope it goes to getting some diverse people on their panels and when they interview people.
Peter Tertzakian:
Yeah. Well, if you want as an audience, a background to this comment of Jackie’s, you should listen to our last podcast in terms of Jackie’s experiences on the CBC. I’m going to reserve comment and say that it’s a good time to end this podcast.
Jackie Forrest:
It is. Well, thank you to our listeners. If you enjoyed this podcast, please rate us on the app that you listen to and tell someone else about us.
Announcer:
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