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Is Canada Spending Enough on Clean Energy? John Stackhouse from RBC Disruptors

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This week, John Stackhouse, Senior Vice President, Office of the CEO at RBC joins the podcast. John is also the host of the Disruptors podcast. This episode is a joint podcast that is being made available on both the ARC Energy Ideas and Disruptors podcast channels.

John, Jackie, and Peter discuss sustainable finance and Canada’s dearth of capital spending on energy transition and decarbonization.

Questions covered during the podcast: Is the lack of a national taxonomy that defines what projects count as clean, green, and sustainable slowing investment? Should decarbonization projects, including reducing emissions from oil and gas, be included in the definition of sustainable finance?  What are the barriers to increasing private spending on Canadian clean energy projects? Considering the situation, is Canada’s 2030 emissions reduction goal achievable? To what extent are upcoming elections in the United States, Canada, and Europe slowing down clean energy investing?

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Episode 232 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 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, unless you’ve been asleep, you would’ve noticed that the markets, the stock markets have just been rocketing largely as a consequence, not surprisingly, of artificial intelligence and the big seven companies, NVIDIA, Apple, Microsoft, etc. And so, that’s not universal. Right?

Technology companies related to clean energy are not following suit, and we’ve talked about that in a previous podcast. Right, Jackie? So, today we’re going to talk about climate finance, and I think no better person to do that with than someone we had on our show three years ago, and a lot has happened since then. So, we’re delighted to have with us John Stackhouse, who’s Senior Vice-President in the Office of the CEO at RBC from Toronto, and he’s also the host of his own podcast called Disruptors, which we highly recommend. And so, actually this is going to be a treat because it’s going to be a joint podcast with both John releasing this on his podcast and ours as well, so… and this is a first, isn’t it? So, well, welcome, John.

John Stackhouse:

Hey. Great to be with you both in this new version of the multiverse.

Jackie Forrest:

Yeah.

Peter Tertzakian:

Yeah.

Jackie Forrest:

So, now, maybe it’s worth telling our audience, your Disruptors podcast. What do you cover and why should people tune into it?

John Stackhouse:

I should say, by welcoming you both to Disruptors, since we’re doing this as a joint podcast, but Disruptors is about disruption. You may get that from the name. It seeks to explore how technology is disrupting everything around us. So, we look at everything from artificial intelligence to smart homes, to a lot of clean tech, and how technology is positively in our view, disrupting energy systems. And I imagine we’ll talk a bit about some of those ideas here.

And thank you for asking that question and allow me to flip it back to you. Tell us a bit about the Arc Energy Ideas podcast. And what makes it so special?

Jackie Forrest:

Well, we’ve been at it for over four years. I’d say we’re one of the top, but because I can’t get all the stats of energy podcasts in Canada. We cover a lot of issues across the country when it comes to energy, energy transition and the broad set of energies all the way from hydrocarbons to the newest forms. And so, yeah, if you want to know about energy in Canada and beyond, we’re the one to listen to.

Peter Tertzakian:

Yeah.

John Stackhouse:

It’s one of my favorites. And I can say quite honestly, wherever I go in the country, people who are curious about energy and about climate tend to listen to your podcast and it is accessible no matter what your degree of expertise is.

Jackie Forrest:

Well, thanks for that, John.

Peter Tertzakian:

Yeah. Thanks.

Jackie Forrest:

Okay. Well, let’s get into the podcast. We are going to have a couple of topic areas today. RBC recently released a sustainable finance framework with your approach to what is a green investment. We want to talk about that. We also want to talk about a report that you released last month, which I also heard across the country people talking about, which was Climate Action 2024, an annual report on Canada’s net-zero journey. I’m not going to do too much of a spoiler here, but it does say that we’re not spending enough on clean energy, and I think a lot of people probably realize that. So, we’re going to talk about your findings in that report.

Before we get to that, we might want to just talk a little bit about RBC’s Climate Institute. When we had you on in April of 2021, that didn’t exist. So, can you tell us why did RBC start the institute? I was looking on your website. It says it was to inform, engage, and act on all aspects of the climate challenge. So, why would a bank want to take on this public service?

John Stackhouse:

Well, as Canada’s biggest and we think leading bank on a range of issues, we’re deeply committed to the transition to net zero. We’ve made a number of public commitments on that front and continue to work with a wide range of clients across a number of sectors in the Canadian economy, as well as globally on their transitions. In addition to that, we felt it is important, maybe critical, to be part of the public conversation on how we get there. If Canada doesn’t get to net zero, it’s going to be pretty hard for RBC and our clients to get there. It’s probably stating the obvious. But accepting that, we felt we can use our databases, our access to information, what we’re learning from clients, and share that with the public and with policymakers, we have some ability to convene. We can bring together people from different sectors as well as policymakers and community leaders and citizens in different parts of the country to talk about a lot of the challenging choices as well as opportunities that I hope we get into in this discussion.

Peter Tertzakian:

Yeah. Well, it’s actually not unusual for a financial institution to bolt on an institute where it’s tasked with thinking about the big picture issues and the macro. I mean, even Jackie, the Arc Energy Research Institute in this podcast is bolted onto Arc Financial, and that was started like 10 years ago.

Jackie Forrest:

Well, John, that’s a good intro actually to some of the themes for the rest of the discussion. So, you’re providing not only a public service, but a service to the clients of the bank in terms of thinking about how to get to net zero themselves.

But let’s come to your new sustainable finance framework. Now, RBC has committed to facilitating 500 billion of sustainable finance by 2025. That’s not very far away. And your framework, which you recently updated, and we will put a link to in the show notes, helps define what types of investments are going to count as being green as you go towards that goal. So, maybe, first of all, tell us how are you in terms of getting towards that goal, and also why do you think you need to put out this definition of green? Don’t people know what that is?

John Stackhouse:

We’re on course to hit the $500 billion target, and we imagine that increasing through the back half of the decade. It’s a global commitment, and we do a lot of business in the United States, in Northern Europe, and there’s great demand for sustainable finance in those markets as well as Canada.

It’s really encouraging to see how many clients in very different sectors are now thinking about sustainable finance as they think about their own strategies, and are coming to us, as well as to our competitors, to see how we can mobilize and generate capital for sustainable investments.

Defining sustainable and related terms like “green” and “decarbonization” is a really important challenge that the sector, but our clients and the general public by extension are up against. We want to be sure that there’s transparency as well as consistency, so that when we say, “Hey. This is a green bond or a mutual fund that has green investments in it,” that there’s clarity and consistency on the definition of “green,” and ideally consistency with the rest of the market. And we can get into the challenges there of coordinating different financial institutions.

Peter Tertzakian:

Yeah. I want to probe this a little bit more, this definition of sustainable finance, sustainable company, I mean, and the 500 billion and what goes into that? I mean, an accounting firm that says RBC lends to is clearly not emitting very much versus say, a steel plant or some other industrial plant. So, what fraction of this 500 billion is including, what I call service sector component versus industrial?

John Stackhouse:

There has to be a clear sustainability outcome. Now, sustainability in the context of this commitment is more than environmental or climate. So, we finance, for instance, a lot of social housing, and a lot of social housing in the United States where municipalities and subnational jurisdictions can access through the bond market and other channels, their own finance. So, good example there of where that’s sustainable finance. And it may or may not be climate-oriented finance depending on how the buildings are operated.

Jackie Forrest:

Now, I want to ask you quickly about this taxonomy. Taxonomy is a new word, but sometimes that’s the word that’s used.

Peter Tertzakian:

Is that a zoological term, like kingdom, phylum, genus?

Jackie Forrest:

Yeah. Maybe that’s where it came from.

Peter Tertzakian:

That is where it came from.

Jackie Forrest:

But it’s being used to define what is truly “green.” And in places like Europe, they’ve come up with a taxonomy that everybody uses. So, banks like yours don’t need to put out their own document. The European government has a definition of green. Here in Canada that’s been under development for many years. In fact, we’ve had a few podcasts about it and it never gets done. It’s always been very slow. We still don’t have one. And a lot of people argue, “Well, we can’t just take the European one because it’s very narrow in its definition,” and Canada, we need to include decarbonizing of high carbon industries like oil and gas. They are like 28% of all our emissions. So, that has to be part of the definition. So, question for you, John. Do we need this in Canada? Would it make it easier for you than having every bank having to put out their own definition?

John Stackhouse:

Yes, it would be easier and better if we had a national and collective approach. We’ve just put out, as you’ve noted, RBC, our own definition and approach to decarbonization. Some of our competitors have taken similar steps. It would be better if there was something for the whole market. So, you had consistency that you could buy a green bond, let’s say from a number of banks and know that green means green or if we’re working with a pension fund to help drive some of its capital into green investments. We’ve got a shared definition of what that is. Canada is somewhat unique economy, and our taxonomy is going to and should be different certainly from let’s say a European taxonomy. It should reflect the realities of our large diverse resource-based economy. A number of us have worked for a few years on that through the Sustainable Finance Action Council and have a taxonomy roadmap. It’s not a taxonomy per se, but it’s certainly a very detailed roadmap to what would be a final taxonomy that’s sitting with the federal government. And we’re still hopeful it will go through. It’s a very strong and thoughtful document, and there’s elements of it that will continue to be reflected on. And they’re not deal breakers in our view. And we think in a reasonable period of time we will have that Canadian taxonomy and each firm may have its own approach within that taxonomy. That’s not uncommon in any standard setting approach, but better to have that whole Canadian approach than a whole bunch of different approaches.

Peter Tertzakian:

To clarify, and for our audience who’s not familiar with how a zoological term applies to energy, much as there’s distinction, and I don’t remember my high school biology, like the birds and primates. It’s pretty obvious, which is which. In the energy world, coal is clearly not green and solar farms are clearly green. And the issue with the taxonomy is the classification of things in between, such as is a natural gas fired power plant with carbon capture green, yes, or no? Or a steel plant with apparatus that reduces emissions. And therefore, the ultimate goal is that a banker such as yourself sitting around a boardroom table can go, okay, tick, this is green, or this is not green. And if it is green, then the company that is looking for financing, say a loan, can then be eligible for a green bond or not. Is that the basic premise of what we’re talking about here?

John Stackhouse:

Yeah, that’s very well described. If you’re building a steel mill or investing in decarbonization technologies, let’s say an electric arc to run the steel mill, that’s going to qualify. I don’t want to be declarative here because there’s usually restrictions around that, but that’s probably going to be eligible for a greener transition label depending on those factors. And there’s all sorts of investors in the world who are looking for exactly that kind of opportunity. And some of them are even restricted to invest only in those opportunities, so they may say, that’s great.

Peter Tertzakian:

It’s also similar, would you say to taking the coffee metaphor, okay, this is fair trade coffee, rubber-stamped-

John Stackhouse:

Yeah.

Peter Tertzakian:

… therefore I will invest.

John Stackhouse:

It’s a labeling system. And knowing when you buy your coffee, what is a decaf, a regular, that’s helpful to know what exactly decaf is, and the world lives by that definition.

Peter Tertzakian:

I don’t buy decaf.

John Stackhouse:

But you’d like to have the right to buy it, Peter, with proper labeling.

Peter Tertzakian:

That’s right.

Jackie Forrest:

I have one question and then I think we should move on to the next topic, but Peter had a couple of examples that I think most people would think our green. What about reducing methane or CO2 emissions from an oil and gas operation? Would that be considered green under your framework or under what you think the Canadian taxonomy should be?

John Stackhouse:

Well, that’s probably going to be counted as transition or decarbonization depending on which system you’re looking at. An important part of the Canadian taxonomy is that it has a transition approach, so it’s not just green and non-green. It has transition, which is back to that point about Canada being a somewhat unique economy is fundamental to our transition to net  zero that we find ways to flow hundreds of billions of dollars into transition investments for that kind of opportunity, for carbon capture, for methane reduction through not just the oil and gas sector, all sorts of heavy industries that are going to be in transition. They’re not green now, but they’re in transition to net zero.

Jackie Forrest:

And I think that’s important in that everyone can come up with their definition, but if the whole country and the federal government and everyone says that this is a proper definition, it helps more investors feel confident that they can take that to their investment committee. And it’s a valid definition. I think it is a really important initiative. I hope that we do get one sooner than later, but let’s move on to your Climate Action 2024 Report. We will put a link to this in the show notes. You released it last month. It looks at where we are in terms of how much money Canada is spending in clean energy and what we’d need to be doing in order to meet our goals, like our 2030 goal. As I already put out there, we’re not spending enough. According to your first key finding, we are spending about 22 billion annually on supply side spending, but we should be spending closer to 60 billion a year in order to achieve goals like our 2030 and 2050 goals.

Peter Tertzakian:

Before we go further, Jackie, who’s we?

Jackie Forrest:

That’s Canada as a country.

Peter Tertzakian:

It’s the economy as a whole. It’s the industrial base, it’s the whole, call it the economic machinery. Is that what we’re talking about?

Jackie Forrest:

Yeah, yeah. Well, actually it’s maybe a good question for John. What is supply side spending? And give us a bit of a context for what’s being spent, where areas we’re spending and where we’re falling short to get to the 60 billion. We as in Canada.

John Stackhouse:

I think it’s important to stress that we are making progress as a country and it’s not sufficient progress and it’s not fast enough, but we are moving in the right direction. Capital flows have gone from 15 billion to 22, 22 and a half billion by our calculations in three years. That’s a 50% increase. Most of that comes from government and government investment in our view is going to be limited in the years ahead. If we’re going to get to 60 billion, which is more than a doubling, most of that’s going to have to come from private markets. Back to that taxonomy question, how do we develop the tools to mobilize the billions and trillions which are out there looking for these investment opportunities if there’s good returns, but we can’t assume they’re just going to flow into Canada or flow into the sectors where the capital is needed on its own. We’re going to have to help manage that.

Peter Tertzakian:

What you’re trying to do is highlight where we’re at and also highlight that the money isn’t flowing enough to achieve decarbonization goals. What I want to ask you is getting back to the beginning of our conversation where you talked about profitability a couple of times and you just mentioned good returns, which is basically profitability. To what extent is the issue given the choice between artificial intelligence financing and the NVIDIA effect, I’ll call it, versus investing in a fuel cell option B? Well, I’m going to hitch my horse to the AI wagon and other things that are just going through the roof, therefore, it’s very nice to hear about the labeling and everything else, but I’ve got a better option over there.

John Stackhouse:

I’m so glad you raised that, Peter, because I think that may be one of the biggest challenges to the energy transition. And we should not underestimate what’s going on in global capital markets. I was lucky enough to spend a couple of days recently in California with a group of technology leaders and it was awesome, but really eye-opening to see what’s going on in that space and the ambition there to raise trillions of dollars. And this isn’t just Silicon Valley, Saudi Arabia, the United Arab Emirates, other countries are all over this working with great entrepreneurs like Elon Musk and Sam Altman to transform frankly how we think through AI. And that’s going to require all sorts of computing, also supercomputers, which are going to require those billions and ultimately trillions of dollars. Well, there’s a finite amount of capital in the world. And right now, those opportunities, you mentioned the big seven tech companies known as the Magnificent Seven, they’re on fire in the stock market and global capital is being sucked up by them.

And I don’t mean that negatively. It’s really exciting to see what’s going on. But those involved in the energy transition or in climate more broadly, I think need to be very thoughtful about how the competitive landscape has shifted. And right under our eyes, this is real time is shifting right now. And then I’d add to that there’s another force out there which also may be underestimated, which is not to get too geeky here, but is around banking regulation in the United States and what’s known as the Basel III endgame, which is if it goes through going to require banks to set aside more capital to protect the banking system. It’s an understandable concern, but what it may lead to is less bank capital being available for things like renewables. And we’re even this week seeing renewables, companies out there saying, this is risky. We may be shut out of capital markets. Unintended consequences, which are always interesting to watch. Here’s another perhaps unintended consequence that the climate community and the energy sector more broadly needs to be mindful of.

Jackie Forrest:

John, you’re talking about some of those global things that are potentially competing for capital. Let’s bring it back to Canada, energy transition in Canada. We need to be spending a lot more, government can’t do it all. That’s messages I got out of your report. What can we do to, in light of how scarce capital is attract more? I see some big barriers in Canada. I think our competition with US, their policies around clean energy investing are better in many areas and therefore our projects can’t compete. We are adding a lot of complexity in our policy here in Canada. A lot of uncertainty around it. The intention of it is to drive more investment, but I think it’s actually doing the opposite because of the uncertainty, the potential for legal challenges, provinces not buying into the policy. I think institutional capital is an issue too. I mean, my experience has been while many want to invest in green, organizationally they’re not really set up to have pools of capital as big as you would think in some of these areas. So, what do you see in terms of the barriers, right? In Canada to get that scarce capital and get it invested in the ground here?

John Stackhouse:

You’ve touched on a couple of them. Certainly, our ability to make things more complicated than they should be is a profound challenge to the transition and a challenge to creating these opportunities. We come up with rules upon rules and almost tilt to a European mindset versus an American mindset, and in a lot of this we’re competing more with the United States than with Europe. So how do we simplify? That includes things like a different approach to regulations, which I know the federal government is thinking through in terms of environmental regulations and approvals. But how to have one process instead of asking people to go through a provincial process and then a federal process. so simple example. How to not duplicate which happens all over the place processes in what companies are trying to set up. How not to intentionally or unintentionally restrict the amount of reward potential in any particular project which you don’t see in the United States.

If you say to an investor and it’s kind of an open market in North America, “Hey, if you’re going to do the same thing on this side of the border as in the US you may not be able to make the same kinds of returns.” Well, we’re all rational actors or at least most of us hopefully are. We’re going to go to where that opportunity is more seamless. Last point is as a country we need a few clear wins, especially in the private sector in the energy transition space. So, ensuring that those model projects if you will, are able to move at speed and get to a scale and show the world. But frankly also show the country that we can do this and then we’ll do it again and again and we just need to create that cadence of success.

Peter Tertzakian:

Yeah. Policy density and complexity is something that we’ve talked about on this podcast, and I certainly believe it’s a huge detriment to making decisions around a boardroom table. But speaking of boardroom tables your report found that 96% of CEOs surveyed are confident they can hit their 2030 targets. In some ways there’s a disconnect here, like the survey says there’s a confidence amongst these high-level decision makers yet the money’s not flowing, yet there’s all sorts of other uncertainties that are talked about including policy density, complexity, etc. So, can you break these 96% of CEOs and the seeming disconnect that I’m sensing in the report or maybe I’m wrong?

John Stackhouse:

Certainly, the CEOs I got to talk to are still confident they can hit their goals. There’s a concern that it may not be 2030 precisely, it may be 2032.

Peter Tertzakian:

It’s only five years away.

John Stackhouse:

And as we get closer yes, the deadlines people may try to push them a bit out that’s kind of natural human behavior. But they feel they’re within range of hitting it in a reasonable period of time. That’s contingent on a number of things, either staying the same or being implemented in a reasonable manner. So, if we see let’s say an emissions cap just to pick one example put in place in a way that is challenging for that sector, I think the executives and CEOs in that sector may give a different answer to that question. So, there’s a number of variables at play and it’s still a ways off six years, but we’re getting closer, and I think we’re getting very close to an important moment in time where collectively as a society we’re going to have to say can we get to 2030? And what are going to be the costs that we’re willing to absorb as a society to do that or are we going to make adjustments?

That’s going to be one of the great democratic debates I think in our country, but in other countries too over the next couple of years.

Peter Tertzakian:

Well, let’s talk about that desire to spend more or not. Your polling concluded that two thirds of Canadians want to do more to tackle climate change, but as I interpret the conclusions few want to pay for it. In fact, the report says, “Our research shows most Canadians are not willing to change their lifestyles for high impact climate action.” Can you expand on that some more?

John Stackhouse:

In one way we shouldn’t be surprised. I think that any retailer who’s been around will tell you that when you ask consumers, they’re usually not willing to pay for an additional cost, and especially in this inflationary environment. People aren’t willing to pay more for whether it’s an externality or just seen as an additional benefit to the raw value of that product. We shouldn’t be surprised. What we are seeing is that people do want climate friendly products and services, and that’s the opportunity for companies to think about whatever it is they’re making or providing. If it’s a service, to do that efficiently in a way that doesn’t drive up the price and then share the information with the market as to what the benefits are. A really good example underway is with heat pumps, which are accelerating. Not at an inflection point yet but accelerating really nicely as costs come down.

But as consumers realize the extended value of a heat pump to their overall heating costs or energy costs in their homes, so in different parts of the country and New Brunswick is an example. Sales are accelerating at a really impressive rate because the products are competitive, but there’s a broader economic benefit. This all to say people are going to do things, consumers are going to do things that is in their economic benefit, and we shouldn’t be surprised by that. We should actually look for ways to ensure that there is an economic benefit in everything we do in the transition for consumers and that’s what’s going to lead to that acceleration to scale.

Jackie Forrest:

Right. Well, making incremental improvements to show your product is better environmentally. That to me implies kind of a slower transition though, right? Because you have to do it in a way that doesn’t increase your costs so much. I wanted to switch, your report mentions the potential for political change could reduce climate ambition and change greenhouse gas policy. So that’s for sure in everyone’s minds right now with the Conservatives pulling strongly in Canada and Trump looking like a real candidate here in the United States to be the president in the next election. Do you think that’s already slowing investment on both sides of the border in your view? Like wait and see what the new regime looks like?

John Stackhouse:

And don’t leave Europe out of that calculation as well, you have European Commission elections this year. That could change some of the political dynamic there as well. It’s certainly causing a number of businesses to think about where the world or where their market may be 24 months from now. But I’m intrigued by the number who are staying the course because it’s what’s in their shareholders’ interests and we see this in the United States as well. There isn’t any apparent led up across the board, there may be in certain pockets. Sort of guessing that there may be a significant change in Washington, certainly in those sectors where there is that economic opportunity and where there is that economic opportunity and this can be in energy systems, it can also be in agriculture and housing. I don’t think you’re going to see a different government change things radically if it’s good for the economy, if it’s good for the regions of the country, particularly where they may draw support.

And I wouldn’t be surprised if that’s the case here in Canada, where a different government let’s say it’s a conservative government will change things that wouldn’t be a surprise and we all know some of the things that will be quick changes. But more fundamentally I wouldn’t be surprised if a Conservative government came out with an ambitious climate strategy that’s different from the Liberal strategy, no surprise there. But has the same goals and aligns with a number of Conservative governments at the provincial level that are all taking different courses, maybe have different ambitions or timelines. But are working towards the same goal, just have a different approach as to how to get to that goal.

Peter Tertzakian:

So, I’ve always likened to say no investment equals no transition because we have to pay for it. I think your report, I mean it’s not that black and white. You’re basically saying not enough investment equals not enough transition and so that leads to the conclusion, and I want to come back to these 2030 goals. That the ability to achieve a 40% reduction in emissions within five years seems now to be not that realistic. You’ve attended a number of UN climate meetings and attended all sorts of discussions. So, do you think it’s realistic for us or for the rest of the world, for that matter to achieve these things? And if not, I mean shouldn’t we be thinking about some kind of plan B to accelerate these things? Because my sense is… it’s more than my sense, I mean I participate around boardroom tables and attend meetings and things and it’s just like there is a paralysis out there in terms of liberating capital to get things done.

John Stackhouse:

Let me come at that from maybe a different perspective, Peter. But I want to speak to your first point about no investment, no transition, which is absolutely right.

One of my concerns for Canada is that we are not generating, we’re not attracting and generating enough business investment across the economy. It’s down over the course of a decade. There’s a number of reasons for that, the seeds of some of this has been planted years and years ago. But that’s a fundamental challenge to the country, that we are not attracting and generating enough true private sector productive capital. And if we’re not doing it for the whole economy, how are we going to do it for the climate transition?

We need to come to grips with that fundamental challenge of attracting and generating and regenerating private sector capital for productive investments in the economy. Then the climate transition is going to become much easier if you have that vibrant underlying economy. That’s point 1.

Point 2 on what you call the kind of paralysis, I wouldn’t call it paralysis. I think at Dubai we saw a real excitement around climate from a broad range of countries that are doubling down, tripling down, on renewables.

As an example, what’s going on in the Middle East, I think should be a wakeup call to Canada. The Saudis and the Emiratis are determined to dominate green hydrogen, to dominate solar, to dominate carbon capture, not just for their own region, but they see this as an export opportunity for the world. We should too. We can go toe to toe with them, maybe not at the same scale, but we’re really good at all those things.

That kind of excitement and private sector, capital-led transition, I think is, you call it a plan B, we’ll get into semantics here, maybe it’s plan A plus or asterisk, but I think that’s the next plan, if you will, has to be around some of what we saw at Dubai, which is this animated capital conversation around energy transition opportunities around the world, but they’re here in Canada. So, if we have a plan A, B, or C, whatever it is, I hope it’s animated by that capital opportunity.

Peter Tertzakian:

Well, I don’t want to sound too cynical here, but the Middle Eastern countries don’t have a taxonomy to my knowledge, and they don’t have layers and convoluted policy.

Jackie Forrest:

Well, there’s a lot of national companies too.

Peter Tertzakian:

And they’re not nationalized.

Jackie Forrest:

Yeah.

John Stackhouse:

They don’t have democratic capitalism.

Peter Tertzakian:

Exactly.

John Stackhouse:

Yeah.

Peter Tertzakian:

So, it’s not really a fair comparison because we’re a democracy and there’s pros and cons to that. I’d like to think largely pro. It’s hard to compete against authoritarian directives of capital from state-owned companies. I don’t know if that’s a fair comparison.

John Stackhouse:

The US is. We were talking about AI earlier.

Peter Tertzakian:

Well.

John Stackhouse:

I mean, the US is competing in AI.

Peter Tertzakian:

The US is. But the policies are simpler.

John Stackhouse:

And attracting, generating that kind of capital.

Peter Tertzakian:

The policies in the US are much simpler, although some would argue at the state level they’re not, that they are very convoluted with the regulation and all sorts of things that are inhibiting transition in things like electrical power and so on and so forth.

John Stackhouse:

But thank you for saying that word, simpler.

Peter Tertzakian:

Yeah, no, I agree.

John Stackhouse:

Keep it simple. Keep it simple.

Jackie Forrest:

Yeah, no, I think that’s a great takeaway.

Well, thank you so much, John, for coming to our podcast and we encourage everyone to check out Disruptors. We will put a link to that in the show notes. There’s going to be a lot of links here for everyone to read. But you’ve taught us a lot, learned why we need a taxonomy. I already kind of had a feeling that we weren’t spending enough, but I think you’ve really hit on a lot of the issues, and I will finish on that point.

For all those policymakers listening, keep it simple. It will help drive more capital investment in Canada. So, thank you for joining the podcast, John Stackhouse, Senior Vice-President, Office of the CEO at RBC and host of the Disruptor podcast.

John Stackhouse:

Peter and Jackie, thank you so much for having me on your show and for you being on my show in this novel, certainly for me, novel approach to podcasting. Among my takeaways is that as much as we want to keep this simple, it is complicated. There’re complicated issues out there, but we don’t have a lot of time to wrestle with this. And if we don’t come to grips with this faster, yeah, there’s a risk that people are going to give up on it. To your point, Peter, maybe they’ll search for plan B or whatever it is.

You’ve also reminded me of the power of many of our sectors, including the oil and gas sector, which continue to power, pardon the expression, a lot of the Canadian economy, but a lot of Canadian innovation as well. I’ve always enjoyed listening to your podcast to hear from many of the great innovators, not just in Alberta, but across Canada when it comes to energy. We’re going to need that kind of ingenuity and hope the listeners get excited by the opportunities that are out there. Challenges, yes, but with those come some really cool opportunities that not only are good economic opportunities but are going to help Canada thrive in the decades ahead.

Peter Tertzakian:

Well, thanks so much, John. It’s been great talking with you again. These are not simple issues. I mean, it’s trite to say, “Oh, we are not transitioning because of this reason or that reason.” It’s a collective of complicated reasons that I’ve always said are largely based on behavioral science and decision-making more than it is on technology and engineering.

Both have to work together if we’re going to execute on this transition. Thanks very much for joining us.

Jackie Forrest:

And thanks to our listeners. If you enjoyed this podcast, please rate us on the app that you listen to and tell someone else about us.

Speaker 2:

For more ideas and insights, visit arcenergyinstitute.com.

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In the Headlines: Alberta Budget and Renewables Moratorium, LNG, and IEA Backlash

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Peter and Jackie discuss the latest energy headlines and policy announcements on this week’s podcast. Listed below are the topics covered:

  • The Alberta Government is lifting the moratorium on new wind and solar project permits, a policy that was enacted in the summer of 2023.
  • The Alberta Government introduces its 2024 fiscal budget.  Before the budget announcement, Premier Danielle Smith made the case for rebuilding the Alberta Heritage Savings Trust Fund to help eliminate the revenue roller coaster that results from volatile oil and gas prices.  The budget also included Carbon Capture and Storage (CCS) funding and a registration tax of $200 per year for each electric vehicle.
  • Qatar announced it will add more LNG capacity by 2030. Given Shell’s recent projection of more than 50% growth in global LNG demand by 2040 and that the US will supply 30% of total demand by 2030, what are the implications on LNG markets and the Canadian opportunity for LNG exports?
  • The IEA has been criticized for prioritizing climate advocacy over energy security.

Content referenced in this podcast:

Please review our disclaimer at: https://www.arcenergyinstitute.com/disclaimer/ 

Check us out on social media:

X (Twitter): @arcenergyinst
LinkedIn: @ARC Energy Research Institute

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Episode 231 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 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. Welcome back from a snowy weekend here in Calgary. I was shoveling snow. Meanwhile Jackie, you were down south in Sin City.

Jackie Forrest:

Yeah, in Vegas. So, I missed all the snow, sadly. Although I had to deal with when I got home, ’cause my car was at the airport. But yeah, I got to see Madonna. Madonna was like the Taylor Swift of my childhood. So-

Peter Tertzakian:

She was high energy.

Jackie Forrest:

It was pretty fun.

Peter Tertzakian:

Yeah.

Jackie Forrest:

Yeah, it was really, really good. And I didn’t lose too much money.

Peter Tertzakian:

You’re not a gambler.

Jackie Forrest:

Not a gambler. I think I lost 20 bucks on the blackjack table, but it took me a long time to lose it, so I was proud about that.

Peter Tertzakian:

What was the temperature like? What was the weather like?

Jackie Forrest:

It was like 15 to 20, but it was very windy. So not the time of year to sit outside by the pools. They’re not even open. So, you had to kind of stay inside-

Peter Tertzakian:

Did you see the Sphere? Did you see the Sphere?

Jackie Forrest:

I saw it from the outside. In fact, U2 was playing this weekend, but Madonna tickets were quite a bit cheaper than going to the U2 Sphere.

Peter Tertzakian:

I can imagine. Yeah, that’s what I want to do. I want to go see the Sphere. I think that thing looks really cool.

Jackie Forrest:

Yeah, it’s incredibly large, for sure.

Peter Tertzakian:

Yeah. Good. Well, let’s bring it back home.

Jackie Forrest:

Yeah, there’s been so much news we thought we’d dedicate this podcast to talking about all of the kind of relevant news.

Peter Tertzakian:

What’s top of the list here? Shall we kick off with the Alberta renewable ban unban?

Jackie Forrest:

Yeah. So, February 28th last week the moratorium was lifted. Now some people say it’s not lifted. Some people are calling it a second soft moratorium because there’s still a lot of details. But I thought I would go over some of the key elements, not everything, and there’ll be a link to the actual details in the show notes for those that care.

One of the big areas was land use. So, renewables are no longer permitted on class 1 and class 2 agri lands.

Peter Tertzakian:

So, these are new projects. These are new projects …

Jackie Forrest:

Oh yes.

Peter Tertzakian:

That are going proposed for development.

Jackie Forrest:

Only ones that are not got their permits. So, if you have a permit and you’re on that land, it’s okay. So, I think class 1, apparently there’s almost no class 1 land. Class 2 there are lands but remains to be seen because what does it mean to be used for crops or livestock?

Peter Tertzakian:

What are you saying, like I now have to be farm expert to understand renewables. So, there are certain, I’ll call them properties, quarter section sections of land that are designated as being of such high arable agricultural quality that you can’t cover it up with renewables. Is that what it is?

Jackie Forrest:

Well, as long as you can prove that it’s used. So, I think for wind it probably has little impact because most of the land is still used for agricultural. The question is more solar, and could you still have sheep grazing or other uses? And so, there’s questions there. But also, how much class 2 land is in the areas where renewal development may happen.

So, to me it’s yet to be determined how impactful that is because we don’t really know what the strictness will be or exactly how many lands are impacted.

But it could have been worse. I mean there were rumours that it would be broadly all agricultural land and no flexibility. So, I think wait and see how restrictive that is, but I think maybe it could be workable.

Peter Tertzakian:

So, what you’re saying is that you are allowed to propose development of say, a solar farm on class 3, whatever that-

Jackie Forrest:

Yes, that’s no problem.

Peter Tertzakian:

For sure. No problem. Class 2 is a maybe to be determined. And class 1 of which there are not a lot of class 1s, which I’m surprised to be honest, because there is a lot of high-quality arable land.

Jackie Forrest:

Yeah, I think that’s such a high bar. I was looking at a table and it looks like there’s very, very little, if any. But for class 2, which would be some of our best agricultural lands, you need to prove. So now what is the regulator? How are they going to interpret that?

And by the way, just broadly we’ll go through this, but all of these rules are to be determined. So yes, they lifted the moratorium on February 28th, but I think if you look at some of the commentary of what people have commented on, there’s so much uncertainty with the details that I think there’s still more or less a moratorium.

And we’ll get to it. There’s two other big processes going on right now in Alberta. One is how they’re going to deal with transmission costs, and they may change that. As well we talked about it earlier that this looking at the market is the type of market we have today the right one for the future? So, to me, all of these need to be resolved before we see a lot of investment. But these details associated with the rules that were set out on Feb 28th also need to be clarified.

Peter Tertzakian:

Okay. So okay, stay tuned on that.

Jackie Forrest:

So that’s that one.

Peter Tertzakian:

And just for clarification is, if I’m a landowner, rural landowner, which I’m not, but would I know if my land is class 1, 2 or 3, or that is yet to be designated?

Jackie Forrest:

No, I think there are …

Peter Tertzakian:

Designations.

Jackie Forrest:

I think that is out there. I’m not sure that everyone knows what land is, but I think that’s part of what probably people will be doing over the coming weeks to understand that. There is going to be a consultation process around these details, and I think there’ll be a process there.

I wanted to talk about this viewscapes thing because I think that’s a very curious requirement. It says buffer zones of around 35 kilometers of minimum will be established around protected areas and what is considered to be pristine viewscapes.

Nobody really knows what that means. And that wind projects will no longer be permitted within these 35-kilometer buffer zones around protected areas. That’s kind of clear where the protected areas are. But what is considered a pristine viewscape is really not understood, and they would send someone to do a visual assessment to understand does this have a pristine viewscape?

So, there has been some, I’ve been listening to some of the responses. What other industries have this? We drill oil and gas wells right into the Foothills right up to the protected area. Why are we doing that? Why is renewables having to have this very unclear requirement about whatever a pristine viewscape is? So, I think there’s some concern about that and how it will actually play out in reality.

Peter Tertzakian:

Yeah, the whole idea of viewscapes or viewshed is very subjective. It also depends where you are viewing from. But-

Jackie Forrest:

I mean, look at the west side of Calgary. If you get to the edges of Calgary, you can have a nice view of the mountains. Is that pristine landscape? So, this is part of the problem. How will that be defined and how much potential land could be sterilized because of that? And so that’s a concern.

All of this when it comes to investing dollars in Alberta, adds risk, uncertainty. Will your project actually get approval? It’s just the uncertainty around that’s gone up.

They also did some things around reclamation, which I think is probably a good thing. More transparent agreements with landowners and minimum requirements. Now they do say that you have to post a bond and there’s been some commentary. Well, oil and gas doesn’t have to post a bond. So why does renewables?

And oil and gas, I did some more work. It looks like if you don’t meet some sort of financial hurdles, you might have to post a bond in oil and gas, but it’s very rare I think. So, I think that’s fair, like why the bond. And how prohibitive the bond is really depends on how big it is. And we don’t have any details on that either.

Peter Tertzakian:

Right. Right. Okay. So, the moratorium is off, and it is subject to these new rules, be it the quality of the land for agriculture or otherwise, the viewshed and the bond that has to be put up-

Jackie Forrest:

Yeah. And there’s other things too-

Peter Tertzakian:

… for reclamation at the end of life of these projects.

Jackie Forrest:

Yeah. The other big thing, remember when we had Jason Schneider on, the Reeve of Vulcan County, they are going to give people like him, the reeve, and the municipalities a greater say in these processes, which is what he was asking for. So, there’s other details, but yeah, that’s kind of the big ones.

So, what I have to say is this adds more red tape restrictions and uncertainty, and we’ll have to wait and see how it all plays out, as well as these other two major policies, the transmission, as I said, and the review of our market design.

The one thing I want to say is that it was Alberta was the place for renewables in Canada. 2.3 gigawatts of wind and solar and energy storage was added in Canada in 2023 according to CanREA. 92% of that was in Alberta. I actually think that’s shifting. There’s huge opportunities across Canada. There’s big procurements. We heard about it in Ontario last week with Energy Minister Todd Smith, but Nova Scotia, New Brunswick, Quebec, Manitoba, Saskatchewan, BC. These provinces are all expected to have large procurements for renewable. So, considering the situation in Alberta and considering how much opportunity there is across the country, I predict in a few years Alberta won’t be the market leader for renewables.

Peter Tertzakian:

Okay. Well, I predict the other provinces will have to write rule books on renewables and how best the land is allowed to be put to use. I think that this is a growing trend and that any nascent industry that uses a lot of land has to necessarily evolve and that regulations are part of the infrastructure. It’s not physical infrastructure, but it’s part of the rural infrastructure.

When the oil and gas industry started up at the turn of the last century, there were almost no rules. And then all the rules and regulations and then the fiscal policies like royalties, et cetera, came in and now you’ve got the equivalent of binders of rules and regulations. And I think that’s coming here too. As it permeates more and more into society as it goes into other provinces, I mean necessarily you’re going to see more rules and regulations or as you called it, red tape.

I’m not saying it’s a bad thing. I mean I just think there has to be boundaries on any kind of development.

Jackie Forrest:

Well, and as it gets larger, the footprint gets larger, and it gets a bigger target on its back because it’s having a bigger impact. I think it was pretty naive to think that we could get this all sorted in six months. I predict that it’s probably another 12 to 18 months when all these pieces are understood, and investors now have full certainty.

And you’re right. As renewables grows in other provinces, there’s going to be more constraints over time, I think. If you think about how much investment risk there was before all this, there was investment risk because of these issues. So hopefully in 18 months actually Alberta is a better place to invest because the regime is more sustainable, and people will have a better idea sort of what is a sustainable set of rules that they can move forward with in terms of investing. The pause is not just going to be for six months.

Peter Tertzakian:

And by the way, I mean further to what I said and what you just said, don’t expect that these guidelines that have been put in place are the last ones. There’s going to be more. I mean that is just the way regulation works. As you said, the more it starts to impinge upon society and there’s nothing in energy that is void of environmental issues. So as it grows, there are going to be more and more rules that are put into the regulatory infrastructure.

Jackie Forrest:

Right, there’s always that risk I guess for investors as things grow that things change and that’s true to any industry. I mean think about the oil sands. When they were a million barrels a day there was a set of rules. Then, as they grew, we started to look at cumulative limits to how much water can be used, how much land can be used.

Peter Tertzakian:

Exactly.

Jackie Forrest:

The rules did change as they grew.

Peter Tertzakian:

That’s right. What’s next?

Jackie Forrest:

Let’s talk about topic number two. Alberta released their budget and there’s a number of topics we could talk about within that. I think one thing that’s interesting is prior to the announcement of the budget Danielle Smith, our premier, she had a televised thing. I don’t think you watch cable news the way I do, but I watched it.

Peter Tertzakian:

I saw it. No, I saw it.

Jackie Forrest:

It was basically saying we need to save more for the future. If we had kept the Heritage Fund back from the ’70s, how much money that would be today to the province and how much income we’d be generating off that. She said that, “Going forward, we want to put more money into the Heritage Fund.” The budget that came out about a week later didn’t put too much money into the Heritage Fund because it turns out the surplus, which was supposed to be about $2 billion in the last update, was actually quite a bit smaller. It was 367 million, not much going into the Heritage Fund this year. That’s a combination of lower oil prices, things costing more. There was some increase in spending too, but if you look at their projections, they show that maybe around $2 billion or more would be surplus in coming years. The test will be will the politicians be able to put that away as there’s always a lot of temptation to spend?

Peter Tertzakian:

I was around in the Lougheed era when he started the Heritage Fund, and everybody was pretty much on board thinking it’s a great idea. Then, it maxed out around $20 billion as subsequent governments basically took the interest or even took some of the principle during the rainy days. Indeed, I mean the Heritage Fund was supposed to be a rainy-day fund and, in many ups, and downs, especially the downs, it served that purpose. To bolster that now seems like a good idea. People say, “Well, why don’t we have a big sovereign wealth fund like Norway,” which is now one point, I don’t know how many trillion dollars.

There’s big differences between Norway and Alberta. I mean first off; Norway’s oil and gas industry is dominantly state owned. The state has much more control and say in where the cash flows and up. Second of all, I don’t know anything about Norway’s constitution, but here we are a federation of provinces, and we have all sorts of federal commitments and transfers and so on and so forth. It’s just not comparable. I mean that’s the way I would characterize it. Do not compare Alberta to Norway because the circumstances are completely different.

Jackie Forrest:

Being a province versus a national entity and a national oil company, which I think makes it different. I would say an interesting thing in Danielle Smith’s cable TV address, she talked about if we had just kept that initial principle and grew it that today it could be providing about $15 billion of income each year and just not coming out of the principle, but just in terms of the earnings from investing.

She talked about being off the resource rollercoaster because when we have great prices we spend more. Then, when the oil prices go down we have to cut back our spending or increase our debt. It would’ve created a cushion that that income could help offset those bad years.

Peter Tertzakian:

Should have, would have, could have, I think Alberta is still in great shape. I think we have to think about going forward and how we’re going to manage the resource revenues given that there is ultimately a limited horizon on those revenues. I think that’s what she’s addressing.

Jackie Forrest:

No, I thought it was good at least to put it out there as a goal. Let’s hope that they save some money over the coming years. Now there was a couple of other energy related announcements I wanted to talk about. One was help for carbon capture and storage, about over 200 million from TIER, which will help get-

Peter Tertzakian:

TIER is the provincial carbon tax?

Jackie Forrest:

Yeah, the large industrial carbon tax, this is money that people pay when they emit too much carbon. They pay into TIER and that money is now going to be redirected to help with CCS projects. I still believe that we have billions of dollars of investment opportunity in this province. We have it all. We have the regulations below ground. We have infrastructure like one of the world’s largest CO2 pipelines. We have the geology. We have the people that know how to do it.

We have the liability framework set up and we have four working projects. But one thing that this budget doesn’t address is the volatility of the carbon price, which is to me the biggest barrier to why money is not being spent. We had the Canadian Growth Fund back one company here right around Christmas. We’ve talked about that already. There are groups like the Business Council of Alberta that were hoping that the province would do a contract for difference and that would be a real catalyst for investment. I actually think that’s a smart thing to do as well.

Peter Tertzakian:

Let’s back up a second. The contract for difference is basically a guaranteed price for a ton of carbon should the price of carbon fall below a certain level.

Jackie Forrest:

Right, that gives the person who’s putting in a multi-billion-dollar investment that has a 20-year payback some certainty that they’ll get paid over that period.

Peter Tertzakian:

Right, the carbon tax is expected to rise to $170 per ton by the end of the decade. Currently, the notional price is $65 per ton. What is the contract for difference floor price expected to be under these proposed CFD or contract for difference prices?

Jackie Forrest:

We only have the one example today and it was $86.50.

Peter Tertzakian:

$86?

Jackie Forrest:

Now I think it would depend on the project and it may not be the same price for each project, but right now the federal government has offered $7 billion for that type of thing. There’s one deal been done so far, but what we’re saying is actually the Alberta government could be providing similar certainty. I would actually argue that it’s going to be financially a lot lower cost for the Alberta government to offer it because the Alberta government also controls the carbon offset market. There are levers they could use to keep the price from falling too far to protect their financial exposure to offering a firm price to certain projects.

They can increase stringency. Today when you emit too much you have a choice to pay a portion of it as tax and a portion of it buying offsets from others. You can increase how much is allowed for offsets. I think the Alberta government, because they’re controlling the large emitter program, I think it makes a lot of sense. I think the dollars could go further. We could support more projects if they were backing these. Of course, we didn’t see that in the budget, but I hope we see that in a future budget.

Peter Tertzakian:

I think we need to talk about this some more on a later podcast because-

Jackie Forrest:

Yes, I think we should have a carbon-

Peter Tertzakian:

It’s a very complicated subject, but it’s super important. The Canada Growth Fund is a federal agency, and it is expected to put $15 billion towards contract. Is that what it is?

Jackie Forrest:

The whole thing is 15 billion, but they’ve earmarked 7 billion towards these contract for differences. Now they’ve already made one announcement. The 7 billion sounds like a lot of money, but when you’re backing something for 20 years and you don’t have any control of the market, I actually don’t think it will back up that many projects. It will do some and I think it will really kickstart CCS in Western Canada, but I think the Alberta government could play a role here and we could see even more projects go forward.

Peter Tertzakian:

I’m going to tell you my opinion on contract for differences and then we’re going to table it for a subsequent podcast. I’m very skeptical about contract for differences. Why? Because it’s effectively a put option in financial parlance. In option theory, somebody has to pay for the put option and in this case basically the taxpayer is funding the put to keep it at $86 in this case.

Notionally, there’s all sorts of subsidization that sounds okay. However, I think the solution lies in constructing a better carbon market because the whole carbon markets are in shambles in my opinion. They’re not transparent. They’re not liquid and they’re not fungible. In other words, many of these carbon markets, you can’t trade between the markets.

Jackie Forrest:

Yes, they’re too small.

Peter Tertzakian:

Before we start guaranteeing floor prices like a put option using the public purse, why don’t we think about harmonizing and cleaning up and making more transparent our existing carbon markets? Otherwise, it’s just layering more. I don’t know. It’s just a complex mechanism, which may or may not run out of money depending upon whether the carbon price goes below 86 bucks or not, in which case we’re left holding the bag as taxpayers.

Jackie Forrest:

I totally agree with you. I think one thing that could create a lot of stability is just being able to trade carbon credits across this country because then now it’s a bigger market, but we can’t even figure out how to trade widen with BC. I don’t know if we’re going to figure out how to do carbon credits.

Peter Tertzakian:

That’s what we got to do before it is just, “Oh, hey, the carbon markets aren’t working.” Duh, they’re not working because they’re opaque. They’re not liquid and they’re not fungible.

Jackie Forrest:

They’re tiny markets.

Peter Tertzakian:

They’re tiny markets. Let’s clean that up before we start guaranteeing prices. It’s shocking to me this whole patchwork quilt of policies that don’t seek to, first of all, just optimize what we have and then think about how to make them operate more effectively.

Jackie Forrest:

No, I think it’s a really smart idea. Let’s have another conversation. Let’s not wait too long. I think we need a whole podcast on this, but let’s go on to-

Peter Tertzakian:

We’ll bring in an expert too. I think we’ve got some ideas for some experts. Next?

Jackie Forrest:

Next topic, part of the budget and this came out. It was a little controversial, the announcement that all EV drivers are starting in 2025 going to need to pay $200 a year for road tax. Just for context, today if you had a gasoline consuming vehicle, combustion engine, you pay about 13 cents a litre. It’s called the Alberta Fuel Tax, but it’s more or less a road tax. There was a bit of a holiday where we didn’t have to pay all of it, but it was generally about 13 cents a litre.

Peter Tertzakian:

Does that include the federal portion, which is I think about 10 cents a litre?

Jackie Forrest:

No, that’s the provincial portion. Basically, there was some articles that was ideological. Alberta government is against EVs and now they’re putting this tax on EVs. What do you think about this new policy, Peter?

Peter Tertzakian:

I think it’s needed. I think so. Here I’ve actually done a calculation to tell you why.

Jackie Forrest:

It was a snowy weekend.

Peter Tertzakian:

It was a snowy weekend. The average vehicle in Canada travels how many kilometers per year?

Jackie Forrest:

I think they’re about 15,000, 16,000, or something like that.

Peter Tertzakian:

No, it’s up to 18,000 now. The average combustion vehicle has a mileage or a kilometerage or whatever you call it, of nine litres per 100K, which means in a year the average vehicle will consume 1,620 litres. And basically, if you multiply it by the excise taxes, which are largely a road taxes, because that’s what they’re meant for, whether it’s the federal highway number one or whether it’s the provincial highways or whatever, you lump it all together, the total tax on the average combustion car road tax is depending on variability in these numbers, is about 300 to $370 per year. Base.

So that is what the average consumer is already paying for road tax. If you plug your vehicle in, as you and I do, there is no road tax on the electricity. So, is it reasonable to have to pay a road tax to fix the potholes and maintenance and expansions and what? I think so. And $200 is still a bargain. What I don’t like is the way that this thing has been communicated and positioned as if it’s something unique to your electric vehicles and electric vehicles are heavier and blah, blah blah, whatever.

Anyone who drives should have to contribute to the upkeep of the roads. It’s currently done at the gas pump. It’s between 300, 400 bucks a year. $200 a year is a bargain.

Jackie Forrest:

I think you’re right. And what I like about the current system on combustion engine vehicles, if you drive a lot, you pay more. If you drive a little, you pay less. I do think that weight does matter in terms of how hard these vehicles are on the road, but we don’t have any factor today that shows you that.

First of all, it’s a blunt tool. Like unlike you Peter, I was busy in Vegas all weekend, so I had to look at Blake Schaeffer’s X because he’s always a reliable source of information. And he had some interesting tweet, and I can put a link to it in the show notes, but that it’s not a fair … “It’s a blunt tool,” he said. So, for example, if you had a Ford Lightning and you drove it 20,000 kilometers a year as a side note-

Peter Tertzakian:

Well, and it’s a real bargain.

Jackie Forrest:

Well, it costs $200, so it’s only 12 cents a litre.  And if you’re a Leaf driver that drives 10,000 kilometers a year, it’s 25 cents a litre equivalent.

Peter Tertzakian:

There you go. Yeah.

Jackie Forrest:

So, it’s too blunt of a tool.

Peter Tertzakian:

It like we’re coming at it the same way. Yeah.

Jackie Forrest:

But the reality is we have a hard time tracking how much electricity is actually-

Peter Tertzakian:

Yeah, sure.

Jackie Forrest:

Being used by the car because in your home, you’ve got lots of sources. But these are smart vehicles. I think over time we could get more sophisticated.

Peter Tertzakian:

Yeah. I think you can get more sophisticated and I think that the burden of the road tax should be on the larger vehicles. So, if you take in the combustion world, if you’re driving a big SUV, it’s a heavier vehicle, the mileage is less. In other words, the fuel consumption efficiency is worse, so you will consume more gasoline and pay more road tax. If you’re driving a very small vehicle, your fuel efficiency is much higher, and you don’t pay as much road tax. So, there is fairness in that, and I agree with Blake because there is no fairness. But overall, I would argue that the 200 bucks a year on average is a bargain compared to what the average vehicle pays, so.

Jackie Forrest:

Hey, as a side, I got my first drive in a F-150 Lightning in Vegas. It was like an Uber vehicle. I was driving those Uber vehicles. Very nice, very smooth, totally quiet and acceleration. Anyway, not probably the most efficient Uber vehicle. He’d probably do better with a smaller vehicle, but it was fun.

Peter Tertzakian:

But hey, it’s Vegas, right?

Jackie Forrest:

All right. So, we’re okay with EV tax. You’re not going to be protesting at the legislature about tax.

Peter Tertzakian:

Well, no. I just think it needs to be communicated more effectively. That’s all.

Jackie Forrest:

All right. Well, another topic. Let’s switch topics to LNG. So, there’s a couple of things that I wanted to talk about. One is that every year, Shell puts out an outlook for LNG they did about last month. I’m going to put a link to it in the show notes. So, I want to talk to you a little bit about that. But then we’re going to talk about this news that Qatar has announced they’re going to really add a lot of capacity, but I think it’s good to have that context of how much we already have.

So, their report was that we’re going to grow something like 50% in the demand for LNG between now and 2040. Some people would say that’s not true. If you look at those IEA forecasts, they show natural gas demand is flat in steps and actually going down in the other-

Peter Tertzakian:

Are they forecasts or scenarios?

Jackie Forrest:

They’re scenarios, sorry. Yes, those are scenarios. Let’s get into that. That’s something going to be a topic to finish off with because the IEA has come under some controversy with these scenarios. But they’re saying realistically, when you look at the situation of how much coal there is in China, here’s a fun fact, did you know how much of the Chinese emissions, CO2 emissions are coming from coal today?

Peter Tertzakian:

No, I don’t, but I would say more than half if I had to guess.

Jackie Forrest:

It’s 70% as of the 2022 data.

Peter Tertzakian:

Yeah, alright there you go.

Jackie Forrest:

So, there’s just a lot of coal that needs to be replaced and they think that there’s a lot of need for LNG in Asia. Asia’s not even including India is more than half of the world’s emissions. Coal is a big driver of that. So, they’re saying we’re going to get this 50% growth. And they looked at, even with all the investments coming in the US over the next four to five years, the US is almost doubling their LNG exports. This was prior to the Biden new permits, and it doesn’t affect that. Those are projects that already had their permits.

Peter Tertzakian:

Those are still going ahead. Yeah.

Jackie Forrest:

Yeah. That even with all that new investment, this was prior to Qatar’s most recent announcement, but there was still a lot of growth from Qatar and those numbers that actually as we got into the 2030s, we would actually be short maybe in the range of 50 million tons annually. So, it’s like even with the investment we have today, they were predicting that a tight market would be available. Now what changed after their report came out, February 27th, Qatar announced that their expanding from 77 million tons per annum to 142. So basically doubling. And they want to do this by 2030.

Now they already had a lot of growth plans, so this part was lost in the announcement. It was only an additional 20 over what they’d already announced. But regardless, Qatar’s adding a lot of new supply fast. And what are the implications for Canada?

Peter Tertzakian:

Well, the implications are that there is going to be a lot of gas and when we start up our LNG operations, which is very small compared to the global situation, but it will be feeding into a global market where the price of natural gas is likely going to be much lower than expected.

Jackie Forrest:

And I think the interesting thing is that as we get into the mid-2030s, I think you will need new supply. But there’s the potential with so much coming on from the US and if the Qataris actually meet this 2030 number, that there’s just going to be a bit of an oversupply and low prices. So that has implications. And Qatar by the way, is such low-cost supply. I was looking at a Reuters article that basically said their lifting costs like the production of gas is about 10% that of North America, it’s cheaper for them to build these LNG facilities than it is for us. The labor costs are a lot lower there. And, of course, they don’t need net zero by twenty-thirty. We’re in BC layering on all these requirements that are making our facility costs very high. So this is the lesson we keep talking about. If we put costs make our gas projects too expensive, somebody else will just produce the gas, right, with higher emissions.

Peter Tertzakian:

Yeah. So, Qatar is really following an MBA 101 playbook here, which is if you’re the low-cost producer, you’ve got scales, then you’re going to make a sprint for market share. And it’s not worth billions. It’s not worth hundreds of billions. It’s worth trillions to even the Qataris over many years. And so, it’s a basic business strategy what they’re doing. And they’re also trying to flush out the high-cost producers taking advantage of the Western development bans, so on and so forth.

Now what that means for emissions is up for debate because notionally it is good. Well, more than notionally, combusting natural gas is far cleaner, less CO₂ emissions, less volatile or organics less, all sorts of nasty things coming out of the smokestack than coal. However, there is some renewed debate even recently that the whole methane supply chain from wellhead to liquefaction and transport and regasification, so on and so forth, emits a lot of methane, which is far more of a greenhouse gas than CO₂. So, I think we don’t get to get into the details of that, but I do think that also should be tabled as a future podcast that we should talk about.

Jackie Forrest:

For sure. If you’re going to have a lot of leaking of the methane that it’s not as clean of a gas, I hope the industry and they are working to make it lower and lower. And I think that’s such an important thing for it to be a fuel of the future.

I do want to say the one thing that Canada does have going for us, other than lot of policy and higher costs is security of supply. I think there’s a lot of countries like … Europe has learned you don’t want to have all your supply coming from one country. Qatar may not be the country you want to rely on for all of your energy. So hopefully there’s still rule for Canada even at higher costs.

Peter Tertzakian:

Yeah. It’s not just the Qataris that are growing their LNG capacity. There are other-

Jackie Forrest:

Yes, there are. Yes, there’s other competitors out there. African countries.

Peter Tertzakian:

It’s just the technology and the ability to transport at lower costs are all feeding into the global market share grab for the incremental jewel of energy, whether it comes from LNG or renewables or hydrogen or whatever.

Jackie Forrest:

Well, and it’s … I think a reminder to me when we just had Ellis Ross on the podcast talking about how … He talked about policy; industries being killed by policy. While we can’t compete against some of these jurisdictions, if they’re moving forward with business, pro-business, trying to get this gas out into the world, and then we have requirements that our competitors don’t have like net zero by 2030. All right. Should we change topics?

Peter Tertzakian:

Sure.

Jackie Forrest:

So, I’ve been interested in this IEA backlash. I know in our 2023 look-back podcast, we had said that one thing that we noticed over the year is that the IEA was becoming more and more a climate advocate and less balanced in terms of their data and information around energy and how polarizing these different scenarios are because politicians look at that net-zero scenario and say that’s possible. But the reality is it’d be very, very difficult, I think almost impossible to practically get your emissions down that low. And so, we felt that they needed to get back to the facts and kind of help people understand what’s an actual possible scenario and let’s plan for that. And it may be a future where we burn more hydrocarbons, but I think it’s good that we know that.

So other people have been writing about that. There was a series of articles around that. I wanted to highlight one from Bob McNally from Rapidan Energy. He called the IEA out for its imaginary net-zero scenario. I thought that was a good way to describe it actually. It kind of is imaginary when you do modeling of vehicle fleets and how fast you can substitute out the combustion engine machines. It is an imaginary scenario. I don’t know. There’s no practical path to get there and said that they were bowing to climate activists and ask that the agency restore its credibility and that its long-term forecast cannot be trusted. I called them forecast, but I guess they would call them scenarios.

Peter Tertzakian:

Right. Well, the history of the IEA I think is important to keep in context. It was founded in 1974 as a response to the ’73 oil price shocks. And it was a club of, I don’t know how many countries, but if I had to guess 25 to 30 western countries. And the whole intent was to ensure the security of oil supply, which also included agreements on strategic petroleum reserves and the release of strategic petroleum reserves in the event of other geopolitical issues. And the IEA grew to be a trusted agency that monitored worldwide supply and consumption of barrels of oil, cubic feet of gas, and then they migrated into tons of coal and …

Jackie Forrest:

And clean energy, eventually.

Peter Tertzakian:

And clean energy, eventually, and so on, and that was the mandate. But I would agree, as someone who has followed the IEA since, honestly, I think it’s like the late ’80s, early ’90s, that they have definitely swung their bias to the following the energy industry from the lens of environment rather than from the lens of energy security from which it was originally founded.

Jackie Forrest:

Yeah. Well, and to me, there’s a risk that if you put out these–I’ll use Bob’s quote–“imaginary scenarios,” and everyone believes in them and they start doing things like not investing in oil and gas, which we’re already seeing today. But the reality is hydrocarbon use has to be higher. There’s no kind of physical way to reduce it at that pace. We set ourselves up for an energy shortage.

Now, I did want to be balanced in that not everyone agrees. These articles came out around the 50th anniversary of the IEA, and they actually had a big event, and Bloomberg Green wrote an article titled “IEA Ignores the Haters”. And in this 50th anniversary event where politicians from around the world came, they only had good things to say. And I’ll just give you a quote from French President Emmanuel Macron. He supported their change of focus. He said, “The IEA has been able to profoundly shift its mandate from an agency dedicated to managing strategic oil reserves, it has now become a global hub for the debate and collective action to meet our challenge of the energy transition.” So he sees it as a positive.

Peter Tertzakian:

Yeah, I don’t agree with him because I think there are plenty of very credible institutions and organizations that follow the carbon, as I like to say. In other words, they are experts in environment, climate change, and the interrelationship and environment and energy. I think the International Energy Agency should stick to following the joules, which is giving us an unvarnished view of the business and geopolitics of how the joules flow, not how the carbon flows, and that there are other agencies can therefore, typically in government, that can marry the two together. And then we can get a much more balanced view of affordability, energy security, clean energy, decarbonization, et cetera, et cetera.

So, I don’t think this is a good, because now we don’t have an agency that just focuses on following the joules and keeping track of energy from a security perspective. Do you know? Who do you turn to now to get credible forecasts, unless you have to pay a lot of money to specialize consultants?

Jackie Forrest:

And if it’s not a public transparent outlook or prediction or forecast, then it doesn’t serve the purpose of helping with these conversations. Now, I agree with you, we’re kind of sticking our head in the sand in denial saying, “Oh, this net zero is possible.” If you really care about climate, you should look at what’s actually a realistic scenario. How much hydrocarbons will we use? And then let’s think about, “Okay, what do we need to do around the climate threat in that realistic future?” And to me it would be things like massive research and carbon removal. The DAC we have today takes a lot of energy, but there are some new technologies coming that would be less energy intense. We should be pouring money into that, pouring money into nature as a way to absorb carbon, and I’ve talked about geoengineering before.

I was even reading, there’s these white paints that are being developed that can reflect sunlight and reduce heat absorption, and this can really cool buildings and reflect a bunch of heat back away from the earth. There’s a professor at the University of Purdue, there’s a New York Times article. I’ll actually put a link to this. It’s very interesting. It says, this paint can make surfaces as much as eight degrees Fahrenheit cooler and reflect 98% of the sun’s rays away from Earth. We should be putting a lot of money into things that will help cool the earth in a scenario that we use more hydrocarbons, but are we? No, we are continuing to believe that the net zero reducing hydrocarbons at an unrealistic rate is a plausible scenario.

Peter Tertzakian:

Well, and using less energy and efficiency was also the mandate of the International Energy Agency, whether you use paint or insulation or what have you. I’ll stand by what I say is just the International Energy Agency should stick to reporting supply and demand numbers, and doing credible forecasts that are pragmatic and what they see actually happening rather than philosophizing about what may or may not happen, and being unduly influenced by one dimensional effects of the environment when there are many dimen- this is a multidimensional issue because energy permeates the veins of the global economy everywhere.

Jackie Forrest:

All right, well that’s, I think, a good way to end it. Yeah.

Peter Tertzakian:

I mean, it’s just like stick to what you’re good at.

Jackie Forrest:

Well, and stick to things that are realistic and balanced so that people can kind of trust the data, right?

Peter Tertzakian:

Well, this is just a massive trust deficiency right now. And we have lost trust in a lot of numbers out there, including, I believe, from the International Energy Agency because a lot of people don’t trust the numbers anymore.

Jackie Forrest:

Yeah. Especially when it comes to those. I would say their data on history is very trustworthy, but it’s just sort of those projections of forecasts or scenarios and what’s realistic and do we need to be investing in oil and gas or not? Those sorts of things.

Peter Tertzakian:

Okay.

Jackie Forrest:

Well with that, we covered a lot of different topics. Got through them all. So thank you to our listeners for joining the podcast. If you like this podcast, please rate us on the app that you listen to and tell someone else about us.

Speaker 3:

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