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Andrew Leach is an energy and environmental economist and associate professor at the Alberta School of Business at the University of Alberta.

Forty billion dollars. According to Alberta’s fiscal update on Nov. 24, that’s the huge sum by which oil and gas investment in the province is expected to plummet, from what was predicted as recently as in the February budget.

Investment in Alberta’s reeling oil and gas sector has already plunged by more than 50 per cent from the highs enjoyed in 2014 by the time Jason Kenney was sworn in as Premier. If November’s outlook proves prescient, that number will plunge a further 40 per cent during his first term. For a leader elected on a promise of jobs, economy and pipelines, that’s hardly a clipping to file under “promise made, promise kept.”

The bad news didn’t end there. In its longer-term outlook for our energy industry, the Canada Energy Regulator laid bare the impending collision between action on climate change and Alberta’s fossil energy superpower ambitions. From 2005 to 2015, Canadian oil production grew by an average of 9 per cent per year. From 2016 to 2020, that growth slowed to 7.8 per cent. If the regulator’s “Evolving” scenario materializes – which builds in the expectation that trends around climate action merely continue at a current pace, and that oil sands production will peak in about 15 years – growth over the next four years will average less than 2 per cent per year.

Mr. Kenney’s vision for Alberta relies not just on higher oil prices, but on growth in production. Boom-time Alberta was not just an oil economy; it was an oil sands project economy, propelled by thriving industries such as construction, engineering, logistics, service and financing. For that Alberta to return, Mr. Kenney needs people to make massive bets to produce oil here for decades to come.

At least for now, they’re not doing that. And that – not pipelines or even oil prices – is the problem.

Oil sands projects are not as expensive as some people think; some new projects can earn a healthy return at West Texas Intermediate oil prices of around $50 per barrel. But the time horizons for building oil sands projects really hurts. An oil sands project isn’t a bet on the price of oil today or tomorrow, but on oil prices at those levels plus inflation from 2025 through 2050 and beyond.

The most obvious driver of the oil sands’ pain is the price of oil – the world is awash in cheap oil at the same time as long-term demand forecasts ratchet down year after year – but it’s not the only one. The oil sands are more emissions-intensive than many other sources, and while the technology is improving, it’s not likely to improve fast enough to outrun the costs of carbon-emissions policies or the preferences of global investors and insurers, who are quickly coming to see oil sands projects as too great a risk not just to their balance sheets but to their reputations as corporate citizens.

Alberta’s typical rallying cry – “more pipelines!” – also won’t provide much, if any, relief for the pain. While the relatively nearby U.S. Midwest was once one of the premium oil markets in the world, the best markets have now moved to the Asia-Pacific region, and access to this market is why the Trans Mountain pipeline expansion remains important. And so, while there will be a strong effort to push U.S. president-elect Joe Biden to renege on his promise to revoke the permit for the Keystone XL pipeline, it’s looking less and less likely that there will be enough new production in Alberta to fully utilize Keystone XL anyway, particularly with the other expansion projects moving steadily toward completion.

The reality is that, even with pipelines being built, dozens of potential new oil sands projects that have all the required regulatory approvals in hand are not moving forward. Many companies have taken multibillion-dollar write-downs on existing and potential future assets while radically scaling back development plans.

So the challenge now – and it’s no small one – is for governments in Edmonton and Ottawa to decide how much they want to bet on the chance that game-changing oil sands innovation can allow Alberta to capture a larger piece of a clearly shrinking global oil market. But Mr. Kenney’s government is poised to swallow a multibillion dollar loss on Keystone XL, and Prime Minister Justin Trudeau is set to see the financial and political capital he’d spent to get the TransMountain pipeline built vanish. Meanwhile, federal and provincial governments will need to tackle the fiscal challenge of COVID-19 support and recovery. The table stakes might just prove too steep this time around.

The alternative – accepting a new Alberta economy without the engine of oil sands growth – is not easy to accept, either. But that’s been staring us in the face for years.

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