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Canada's resource-based economy faces significant risks as the world steps up efforts to combat climate change, but the country will pay an even higher price if it delays the action needed to transition to a low-carbon future, says a UN-backed study being released Thursday.
The international report warns that the world's biggest energy consumers are pursuing efforts to reduce their demand for fossil fuels and could erect market barriers to high-carbon energy sources. That trend would keep downward pressure on oil prices, undermining the long-term prospects of Western Canada's oil industry while spurring the economies of other provinces.
The Canada paper is done as part of a broader effort – supported by the United Nations and the French government – to sketch out practical paths that countries could follow to achieve a 90-per-cent reduction in greenhouse gas emissions on a per-capita basis by 2050. French President François Hollande is expected to highlight the conclusions in December when governments gather in Paris to conclude an international climate deal that would aim to keep global temperatures from warming by more than 2 C.
The main report said achieving that 2-degree goal would involve "a profound transformation of energy systems through steep declines in carbon intensity across all sectors" – a process known as deep decarbonization. As a country, Canada relies heavily on energy-intensive resource industries, including oil and gas, mining and petrochemicals. As a wealthy northern land with a small population, it is one of the highest emitters of greenhouse gases (GHGs) per capita.
"To minimize both climate and economic risks, we need to become global leaders in decarbonization policy and innovation in these [resource] sectors, not laggards," said the Canadian paper, written by a trio of energy economists associated with the Calgary-based think-tank Carbon Management Canada.
"With myopic and delayed decarbonization policy, all bets are off, and Canada [lies] exposed to increasingly hawkish climate geopolitics and continued market access barriers."
In the ongoing election campaign, federal leaders have outlined sharply different policies on climate policy and what role Ottawa should play in cutting emissions and boosting renewable energy.
Widely criticized for a go-slow approach, Conservative Leader Stephen Harper has committed to an ambitious emissions-reduction goal for 2030, though his government has not as yet put in place measures to achieve them or indeed its 2020 target. The Conservatives have also condemned proposals to impose carbon pricing on industry and households as economically damaging.
New Democratic Party Leader Thomas Mulcair is promising a more aggressive federal approach, including tougher targets and a national price on carbon through a cap-and-trade plan. Liberal Leader Justin Trudeau pledges to work with the provinces to pursue a national strategy for emissions reductions, including carbon pricing. Both the NDP and Liberals promise more support for clean technology.
The federal debate is occurring as provinces commit to more ambitious action. Ontario and Quebec are joining forces in a cap-and-trade system, Alberta's NDP government is preparing to release a province-wide climate plan and British Columbia is looking to build on its existing carbon tax.
Economist Chris Bataille, who was one of the authors of the report, said in an interview that the Conservatives' 2030 target is roughly consistent with a global 2-degree strategy, but the party lacks credibility that it will follow through with the policies needed to achieve that goal. Failure to act now will result in construction of energy-intensive capital projects that would be financially unsustainable in a low-carbon world, including oil sands projects and the pipelines needed to bring the bitumen to market.
Mr. Bataille said the key in Canada – as in the rest of the world – is to encourage investment in energy efficiency and resource productivity, and to shift the electricity system off fossil fuels, while using the clean power to fuel transportation that now relies on oil. A significant and growing carbon price is an essential component of that prescription, the report said.
The direction of global crude prices will be more important than specific government policies in determining how much the oil and gas sector will contribute to Canada's GHG profile, and whether the widespread adoption of carbon-capture and storage technology would be needed to offset emissions resulting from higher production, the study says. The authors adopt the low-price scenario outlined by the National Energy Board, which results in oil production plateauing at 4.3 million barrels per day by 2020, from 3.7 million last year. Under a high-price scenario, production continues to grow, peaking at 7.6 million barrels in 2050.