By Nick Martin
In the Edmonton Journal and The Province
November 11, 2017
The National Energy Board (NEB) released its updated long-term energy outlook recently with a pretty stunning conclusion — fossil fuel consumption in Canada will peak in the next two years. Yet at the same time, the NEB projects Canadian oil production will continue to increase through 2040.
These forecasts may seem counterintuitive, but in reality, they show us exactly how Canada’s energy and climate policy should work.
Combusting oil for things we do every day like driving cars and heating homes produces greenhouse gases. On the other hand, pulling it out of the ground and selling it to the world that consumes it brings big economic benefits. Canada’s domestic climate policies should be expected to reduce our own demand for the very same resources we are developing.
Yet, the rest of the world’s energy demand is going up, and our energy policies should be expected to allow Canada to reap the economic benefits of our natural resources while there is a global appetite for them.
This is the first time the NEB, the government’s energy regulator and main agency for monitoring energy supply and demand trends, has forecast a long-term decline in Canadian fossil fuel consumption. In fact, just last year the NEB’s outlook concluded domestic fossil fuel consumption would also continue to grow domestically through 2040.
So what has changed in the last year to warrant such a different result? The answer is a price on carbon.
Since the previous forecast, the federal government has detailed its approach to pricing carbon, allowing the NEB to incorporate a pan-Canadian carbon price into its models, and the subsequent result is exactly what we should expect to see. Pricing carbon reduces demand for fossil fuels.
This is because a carbon price makes it financially beneficial to reduce emissions. It also allows businesses and households to choose how to achieve these emission reductions in the most cost-effective way possible.
While pricing carbon drives cost-effective emission reductions, it does not impede carbon-emitting activities that have a greater economic benefit than the carbon price. Oil is a global commodity, and while Canada is on pace to reduce our own reliance on it in the near-term, many countries will continue to demand more for the foreseeable future. The world is awash with oil, so as long as this global demand exists, someone will supply it. And whoever can supply it, will reap the economic benefits.
The NEB’s forecast assumes Canada seizes this economic opportunity. Critically, it assumes Canada builds all required infrastructure to deliver oil to market, and it also assumes production increases subject to climate policies like Alberta’s oil sands emission cap.
This is how Canadian energy and climate policy should work. We should aggressively work to reduce greenhouse gas emissions, but we should also seek to sell our natural resources while the opportunity exists.
At the same time, we should encourage the world to follow our lead in reducing emissions. In the NEB’s models, the biggest influence on Canadian oil production are assumptions regarding global climate policies. If the rest of the world adopts more aggressive policies, global oil demand will decrease just like it’s projected to in Canada. With lower oil demand comes lower prices, which in turn leads to less oil production. While this would mean Canada would not convert as much of its oil into economic benefits, it would be for the right reason — global action to mitigate climate change. Most of Canada’s oil companies know this and are investing in other forms of energy, including renewables.
The NEB’s forecasts are not predictions. They simply model what the world will look like under current energy policy and recent technology, economic, and demographic trends. These policies can change, and many politicians are fighting to do exactly that. But the NEB’s most recent forecast shows that the policies Canada is putting in place — namely a price on carbon – are putting us on the right track for domestic consumption.
But as long as the world continues to consume, we should be allowed to meet those needs as well.
Nick Martin is a policy analyst at the Canada West Foundation.