Energy East saga demonstrates the need for a climate test

TORONTO—This month’s cancellation of the Energy East pipeline sparked a divisive debate about the prospects for new fossil fuel infrastructure in a world moving rapidly to tackle climate change. But there’s a clear path forward to provide industry with policy clarity for future energy projects: the federal government must put in place a climate test that ensures that projects are aligned with Canada’s international and domestic climate commitments, and are economically viable in a world that limits global warming to well below two degrees Celsius. The federal government and many industry analysts chalked up TransCanada’s cancellation of Energy East to a simple business decision. Amidst low oil prices, declining investment in the tar sands, the approval of alternative pipelines, and signs that global oil demand is approaching its peak, the business case for Energy East evaporated. That didn’t stop Energy East’s proponents from blaming TransCanada’s decision on climate policies and changes to the pipeline review process. The pipeline’s backers complained that “a dysfunctional regulatory process” and more stringent rules to cut carbon pollution are scaring away investment. Fortunately, there is an opportunity to put in place an assessment process that provides industry with clarity and ensures energy projects are aligned with Canada’s climate commitments and make economic sense in a world that requires a rapid decrease in oil production and consumption. The federal government is currently overhauling Canada’s environmental laws, including the process to review energy projects. It is planning to introduce legislation this fall that will reform environmental assessments and the National Energy Board (NEB). One of the government’s key proposals is to conduct a strategic assessment for climate change. This entails the creation of a policy framework that focuses on the implications of Canada’s commitments to decarbonize its economy for assessments of energy projects that would emit greenhouse gases (GHGs). Essentially, the strategic assessment for climate change is a means of putting in place a “climate test” that provides the policy clarity for energy projects to proceed in a carbon-constrained world. The climate test must include two fundamental features. First, it must determine if energy projects fit within Canada’s climate commitments. That is, how much carbon can each project, province or industrial sector emit over its lifetime while staying within Canada’s climate targets of 30 per cent below 2005 levels by 2030 and 80 per cent by 2050? The implications of each proposed project for meeting Canada’s climate commitments must be understood before project decisions are made. Second, the climate test must determine whether an energy project is economically viable in a climate-safe world. Limiting global warming to well under 2°C necessarily means leaving some fossil fuels in the ground and reducing global oil supply and demand to zero around mid-century. With lower global demand, the economics of oil production change. The dirtiest, most expensive, most difficult fossil fuels to extract and transport—such as tar sands oil—would be the first to become uneconomical in a carbon-constrained future. The potential for a project to become a stranded asset in a two-degree world must be understood before project decisions are made, especially since many proposed energy projects have life expectancies decades beyond Canada’s mid-century deadline for decarbonization. The NEB’s decision to consider GHG emissions and the impact of climate policies on Energy East was a good first step toward a climate test, but it was devised outside of an overarching federal framework that aligns energy policy with climate science and Canada’s domestic and international climate commitments. That’s why the federal government’s proposal to conduct a strategic assessment for climate change is needed. It would create the policy clarity that industry needs, while providing a framework to ensure new energy projects don’t blow through Canada’s climate targets or become stranded assets. The Energy East saga laid bare the need for an energy project review process in tune with the 21st century reality of rapid transition to a clean economy. We now have an opportunity to put in place an updated review process that only green-lights projects that are economically viable in a climate-safe future. If we don’t seize this opportunity, Canada will remain vulnerable to regulatory uncertainty, protracted battles over energy projects, and stranded assets in a low-carbon world. Patrick DeRochie is climate and energy program manager at Environmental Defence. The Hill Times