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During a federal election in which climate change played a starring role, the Liberals, the NDP and the Bloc Québécois all promised to end fossil fuel subsidies, with Prime Minister Justin Trudeau pledging to eliminate these grants by 2023—not 2025, as per an earlier commitment.

While Canadians may now be familiar with this high-level talking point, what’s less well understood is that a sizable chunk of subsidies to the oil and gas industry—estimated by Environmental Defence to be worth $18 billion a year, much of it flowing through Export Development Canada—come in the guise of R&D investments and tax credits. These are intended, ostensibly, to reduce the sector’s carbon footprint with productivity improvements and shrink greenhouse gas intensity levels, through the development of cleaner techniques for extracting crude from bitumen and the commercialization of carbon capture and storage systems.

All in, fossil fuel research, according to Statistics Canada, accounted for $622 million in 2019, or about 37% of Canada’s entire energy-focused R&D spend, although the amount spent by the petroleum industry has been declining since oil and gas prices peaked earlier in the decade. By comparison, funding for all other energy research—nuclear, renewables, conservation and more—totalled just over $1 billion in 2019.

In fact, a report prepared last year by the Parkland Institute, a consortium of Alberta universities, found that the amount of academic research funding that goes into fossil fuel projects dramatically overshadows the grants geared toward renewables and conservation.

At a time when science has become so politically polarized, the question orbiting the debate over fossil fuel research is whether all the funding is delivering an ecological benefit or merely propping up an industry in decline. The sector, of course, loudly promotes its commitment to greening operations through research and innovation. Environmentalists and other observers, however, point to the fact that despite years of investment in R&D, emissions from oil and gas, both upstream and downstream, have continued to rise and represent Canada’s single largest source of atmospheric carbon.

Dig a little deeper, and there are also questions about the nature of fossil fuel R&D. For many years, critics have said the sector doesn’t generate much in the way of gold-standard research output, meaning patents, licences and other forms of intellectual property.

But a University of Calgary study published in Resources Policy in February 2021 took a closer look at the R&D activities of the natural resources industry and concluded that these sectors do, in fact, employ a lot of innovation—for example, in process engineering—that isn’t recognized as such.

Study co-author Chad Saunders, an adjunct professor at the Haskayne School of Business, points out that investors pay attention to metrics like patents and other forms of IP, which means it’s important for governments and firms to provide what he describes as a more “expansive” view of the innovation activities of natural resources companies. The more significant finding, however, had to do with the side benefits of regulation: “A lot of the innovation that’s happening,” he says, “is driven by regulatory change.”

As Saunders points out, a barrel of crude from Saudi Arabia is no different from a barrel of oil sands crude, in either composition or price. When governments move the goalposts—by setting tougher emission caps, for example—the producers have no choice but to figure out how to meet the new standards, and that’s the step that drives innovation activity, as has happened in the auto industry, when governments tightened fuel-efficiency standards. In the case of the fossil fuel sector, he adds, those process improvements are often developed jointly with suppliers, who also have a vested interest in satisfying tougher rules.

The research additionally sheds some new light on the old question about whether Alberta suffers from the so-called “resource curse”—a.k.a. the Dutch disease—which describes how societies that become overly dependent on a non-renewable natural resource fail to diversify their economies and build more knowledge-based industries. “We thought this curse was a real problem,” says Saunders, “because we had that very sort of limited view of innovation.” In fact, the findings suggest the oil and gas industry has attracted plenty of technical and scientific expertise, even if it doesn’t keep pumping out patents. “The skills people have,” he points out, “would be pretty transferable.”

Which is what needs to happen, according to one of the co-authors of the Parkland study, Laurie Adkin, a University of Alberta political scientist. Her view is that the innovation activity geared toward the oil and gas sector—either in the guise of academic-grade research or problem solving at the plant level—has to shift away from fossil fuel extraction, especially given the signals from global investors like BlackRock and the Ontario Teachers’ Pension Plan, which have indicated plans to decarbonize their portfolios.

“To make a radical reduction in greenhouse gas emissions and achieve a net-zero carbon economy,” she says, “logic would dictate that we actually immediately transfer funding for innovation away from the non-conventional extraction of fossil fuels—oil sands, fracking, in situ—and reallocate that funding toward the development of renewable energy technologies and materials for improving energy efficiency, and that we do that as fast as we possibly can.”

Saunders, however, points out that many of the oil patch giants are already trying to unlock the riddle of the energy transition, and that process will benefit from the fact that a majority of these firms can leverage their capacity to solve gnarly engineering problems. He explains that countries like the Netherlands and Norway transitioned away from their economic dependence on fossil fuel for the same reason. “The flip side of the curse is the advantages that arise from these industries,” he says. “That’s basically the springboard for the next big thing.”

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