Wednesday, December 12, 2018

Some Year-end Thoughts on Two Major BC Energy and Climate Policy Issues

B.C.’s recently-announced climate plan and GHG reduction targets clearly attempt to balance an industrial policy that incorporates major expansion of the gas industry, including LNG and other downstream processing, with a commitment to markedly reduce GHG emissions in the province. As many have noted, a critical element of the plan is electrification in transportation and gas industry and other industrial processes.

Whether the targets as set out in the climate plan are achieved will depend very much on exactly what this electrification will entail, how much it will cost and how those costs, in the many billions of dollars, will be paid for. Industry won’t be able to pay for all of their electrification costs and still remain globally competitive. Households will not want to absorb all of the costs of the electrification they are called on to do. The government won’t want to increase pressure on BC Hydro rates by forcing Hydro to absorb all of those costs. And it also will not want to crowd out other important social and infrastructure spending with large electrification subsidies. 

There is a long history of governments announcing bold GHG reduction targets but abandoning them as it becomes apparent what they require. It remains to be seen whether this climate plan will meet the same fate. This is not to say that B.C. won’t make considerable progress in reducing carbon emissions. There are many elements of the plan that will go forward and have significant effect. But whether BC will and should achieve the specific numbers and dates in the plan is very much in doubt. 

On the pipeline wars, it was unfortunate B.C. chose simply to oppose any expansion of pipeline capacity from Alberta instead of seeking common ground on port location, marine safety and all the other issues the project proposals raised. Perhaps if there was common purpose and effort to get a project built in the most safe and responsible way we might not have seen:

-the federal government feeling compelled to take over the Kinder Morgan project, exposing taxpayers to great financial risk not only with respect to project completion but also long term pipeline utilization if and when, as expected or at least widely hoped, the global demand for crude oil significantly declines;
-increased shipment of Alberta crude oil by rail with the added cost and environmental risks that entails;
-lower netback prices for Alberta crude oil because of pipeline constraints, higher rail shipment costs and near complete dependence on the US midwest market;
-less resources and commitment to needed marine safety improvements if the quid pro quo, pipeline expansion, does not proceed.

As for GHGs, it is not clear to what extent pipeline expansion would increase global emissions - that depends on how it would affect Alberta production and on the differences in the GHG intensity of the oil that would replace any reduction in Alberta supply. However, one thing is very clear. Opposition to all efforts to expand pipeline capacity has set back the progressive policies the Alberta government introduced to reduce GHG emissions, including carbon taxes, the phase-out of coal-fired electricity generation and a cap on oil sands emissions. Just like British Columbia, Alberta too was trying to balance industrial policy with commitments to reduce GHG emissions, but we are already seeing how implacable B.C. and other opposition to the former will undermine Alberta resident and government commitment to the latter.