Compounding Crises and Climate’s Place at the Table

The sun had just lowered beyond the horizon, and I’d just sat down in the driver’s seat of my car when I heard that the US had dropped bombs on Iran, this past Saturday. Societal implications of a broader war would be devastating, and it seems we’re on the edge of that. But my mind went to, as it often does - how is this going to affect geopolitics, and how are those geopolitics going to affect our broader collective effort to address the planetary existential crisis that is climate change?

Ignoring climate change - or putting it in the backseat of priorities - won’t slow it down. So how do we in Canada contend with the seemingly compounding crises of economic strife, sitting on a knife’s edge of war, and looming environmental devastation?

Growing instability in global energy

With deepening conflict erupting in the Middle East, and Iran’s reported closure of the Strait of Hormuz as of Sunday – a significant transport corridor for energy trade (oil and LNG) from multiple significant suppliers in the region (Qatar, Kuwait, UAE, and others) to global demand destinations, including Asia – there is a strong likelihood that oil and LNG prices will shoot up early this week. The discrete events of the weekend will have an upward effect on short-term spot pricing – and longer term, the uncertainty and risk associated with the region’s supply will lead to an uptick in contract pricing ranges as well.

Iran predominantly produces a heavier quality of oil, similar in some senses to Venezuelan oil and Alberta oil (Western Canada Select or WCS). With significant US sanctions existing on Venezuelan oil, and now major conflict with its second major supplier in Iran, it would appear that Alberta would be poised to fill as much demand as possible to the US’ existing complex refining capacity, as well as parts of China’s and India’s – likely filling existing Canadian pipeline capacity, including the Trans Mountain Expansion Project.

I’m anticipating in the near term there will be an excited energy sector in Canada, touting the vital importance of energy security and reliance on allies, and possibly a fresh narrative about the success of TMEP due to its full capacity in coming weeks. There will likely be renewed interest for a Northern Gateway-esque pipeline from Edmonton through to the BC coast, following on from the passage of Prime Minister Mark Carney’s Building Canada Act on Friday, BC Premier David Eby’s recent suggestion that he is not opposed to a privately-backed oil pipeline to the north coast, all buoyed by the fact that the LNG Canada project produced its first product over the weekend in Kitimat as well. There will likely continue to be a push to reduce regulatory burden such that a private proponent might step up for further investment into pipeline or carbon capture infrastructure. There will akin be renewed enthusiasm for a burgeoning critical minerals industry across the country – geopolitical strife means that we (Canada) should be pursuing diversified and secure supply chains as soon as possible.

A push for deregulation

Carbon emissions continue, unabated, in many sectors in Canada, and very much outside of our borders as well. The US, within the last 6 months, has proceeded down the road of ignoring climate as an issue altogether, and it seems that there’s been a decidedly American attitude in some Canadian energy sector actors towards deregulation as a result of the Trump Administration’s actions.

Saskatchewan, this past week, announced that it would rebuild its coal fleet in the coming decade (with Saskatchewan coal), focus on diversifying its electricity supply base with nuclear (with Saskatchewan uranium), and still meet net zero by 2050 (somehow). I’ll give the Minister who made that announcement credit with not throwing out climate as a concern in its entirety (with raging wildfires across the Prairies still very fresh), but it’s seemingly putting all the decarbonization eggs into the carbon capture and storage basket. If it works, it works. But does it?...

Within that same announcement is Saskatchewan’s position on the federal Clean Electricity Regulations – the position, that is, that Saskatchewan chooses to ignore them. I’m not a lawyer, but I will admit – having read dozens and dozens of regulations and legislation within and outside of Canada – my read of section 92A of the Constitution Act is that Saskatchewan is probably within their rights to do so.

One province west, Premier Danielle Smith has made strong vocalizations over the past couple of years (well before Trump 2.0) of Alberta’s vehement opposition to the proposed federal Oil and Gas Sector Greenhouse Gas Emissions Cap Regulations. Seemingly in lockstep, 38 oil and gas executives from Canadian energy companies communicated to Mark Carney two days after April’s election that they opposed industrial carbon pricing as well. Smith announced the freezing of Alberta’s industrial carbon price at $95/tonne for the foreseeable future, throwing investment certainty out the window not only for operations in Alberta, but across the country as well, given the design of the federal industrial carbon pricing framework.

Meanwhile, these moves are all taking place at a time when amendments to the Competition Act (known as Bill C-69), meant to prevent greenwashing, have resulted in many energy players removing almost every reference to decarbonization action, likely subduing real, meaningful conversation in doing so. 

The challenges of complexity

The raft of regulations and legislation that appeared at the federal level over the last few years to address climate change was – to put it mildly – aggressive. Having worked with the energy and resources sectors for many years, interpreting and learning how to abide by these regulations as they evolved was a lot of work, and frankly, not the actual work of decarbonization I think we need. It seems to me that in an overregulated jurisdiction, the real winners are lawyers.

What we need is efficient regulation – one, maybe two or three regulations if they’re intended to work across the economy. Namely, (tightened) industrial carbon pricing, and (renewed) Clean Fuel Regulations. Decarbonize the energy economy we have today, providing that long term signal needed for investment, while investing in the energy economy of tomorrow. Support the Canadian energy economy – upstream through consumption, for a range of different energy products. As suggested in Mark Carney’s platform, incorporate a Carbon Border Adjustment Mechanism (CBAM), linked to industrial carbon pricing, to integrate carbon considerations into trade relationships.

In today’s geopolitical world – including our new relationship with the US – I don’t think much more is helpful. Moving in a US-type deregulated direction, however, is not the answer.

The value of low carbon

The European Union and UK have both implemented Carbon Border Adjustment Mechanisms in recent years, with other countries, including Australia and parts of Asia, studying them intensely. As Canada looks to diversify its trade suppliers and increase trade across both the Atlantic and Pacific Oceans, there is a need to continue to decarbonize Canadian production of a range of products. Low carbon products are truly transforming into high value products – whether it’s oil, gas, concrete, copper, or steel. What this means is that decarbonization will still need to be a part of the story to serve markets outside of the US.

With market forces continuing to tread that road, it’s important to recognize the underlying reality. When it comes to energy or resource production, or the geopolitical crises we find ourselves in, at the end of the day, we do need to acknowledge the limits that we all obey by – planetary ones. Because at its core, our global economy only works because our society permits it to. And our society only works, because the planet’s health lets it – for now. When considerations of dropping climate as an issue are in contemplation - we would do well to remember that.