A ‘carbon bubble’ is coming, and Canada’s oilsands are doomed: study

Click to play video: 'Natural Resources Minister Jim Carr speaks about what the next steps are for the Trans Mountain pipeline project'
Natural Resources Minister Jim Carr speaks about what the next steps are for the Trans Mountain pipeline project
Thu, May 31: Natural Resources Minister Jim Carr joins Global News Morning Edmonton to discuss what the next steps are for the Trans Mountain project now that the federal government has purchased the pipeline – May 31, 2018

Canada’s oilsands industry would be among the first to collapse in a possible global financial crisis within the next 15-20 years, which is when a new study predicts clean energy-technologies will all but kill demand for fossil fuels worldwide.

“This is going to have massive economic consequences,” said lead study author Jean-Francois Mercure.

The study, which is published in the journal Nature Climate Change, predicts this technological shift will drive a sudden and irreversible plunge in fossil fuel prices, wiping out trillions of dollars worth of investment known as the “carbon bubble.”

Fossil fuel exporters, including Canada, will experience “a steep decline in their output and employment due to the near-shutdown of their fossil fuel industry,” the paper suggests.

“Reducing fossil fuel demand generates an overall positive effect for the EU and China, and a negative one for Canada and the United States,” the study authors write. They add that the change will produce a greater than one-per cent shift in global GDP, with the EU and China among the “winners” and Canada, the U.S., Russia and OPEC countries among the “losers.”

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The study uses economic and automotive industry models to forecast future demand for fossil fuels based on advancements in energy efficiency and carbon emission reduction.

The study authors found that clean energy technologies will continue to push older fossil fuel technologies aside, until the global demand for oil and gas has nearly shut down by 2035. That’s under the current rate of progress, but the timeline could be moved up if participating countries meet the targets set in the Paris Climate Agreement.

‘Doom’ for Canada’s oilsands and pipeline

“The results in the study for Canada are pretty dramatic,” said Mercure, a Canadian professor of energy, climate and innovation at Radboud University in The Netherlands.

“The oil and gas industry — oil in particular — could suffer much more than other countries,” he told Global News by phone on Tuesday.

Mercure says oilsands are particularly vulnerable to major shifts in the oil and gas market because production is relatively expensive, when compared to extraction techniques used in the Middle East. That means they’d be the first to collapse if demand slowed significantly.

Mercure added that the federal government’s $4.5-billion purchase of the Trans Mountain pipeline is likely “really bad timing,” given the looming potential crisis.

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“We think the oil market is going to change and could make this investment not pay off as expected,” Mercure said.

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He added that he understands why Prime Minister Justin Trudeau is trying to help Canada’s oilpatch, even though the industry is likely to collapse within the next two decades.

“This is not a good strategy, and he should embrace change and move on to the new stuff.”

Finance Minister Bill Morneau’s office responded to an inquiry about the study by saying the Trans Mountain pipeline project will create thousands of “good, middle-class jobs, including in Indigenous communities.”

The deal with Kinder Morgan is expected to close in August.

“The agreement will guarantee the resumption of work for the summer construction season, protecting thousands of jobs in Alberta and British Columbia,” a spokesperson for the finance minister said in a statement.

“The core assets required to build the Trans Mountain Expansion Project have significant commercial value, and this transaction represents a sound investment opportunity.”

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WATCH BELOW: Morneau begins pipeline purchase promotion tour

Click to play video: 'Morneau begins pipeline purchase promotion tour'
Morneau begins pipeline purchase promotion tour

The federal government plans to move forward with expanding the pipeline into British Columbia while looking for a new buyer to take over at some point down the line.

“Make no mistake: This is an investment in Canada’s future,” Morneau said at a news conference last week.

No stopping the change

Mercure says the study’s models have undergone rigorous scrutiny over the last year, as part of Nature’s peer review process.

The models point to a likely dip in fossil fuel demand regardless of whether policymakers actively push green policies or try to reverse them, because low-emission solutions are simply becoming more cost-effective.

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The study also suggests no one country can go it alone and reverse the trend toward phasing out fossil fuels.

That includes the United States, where U.S. President Donald Trump has withdrawn from the Paris Climate Agreement and placed emphasis on creating jobs in the coal industry.

The study suggests the U.S. economy would retain more jobs in the long run by investing in clean technology and meeting the Paris climate targets, rather than by doubling down on fossil fuels and ignoring those targets.

“That employs people and pays off in the long run,” Mercure said.

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Mercure adds that the shift toward clean energy is inevitable, but could be sped up if the world meets the targets set in Paris.

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“We need more effort, and that’s going to accelerate the devaluation of carbon assets,” he said.

He says the best path forward is for businesses and lawmakers to embrace the move toward low-emission technologies and industries, so they are not hit so hard when demand dries up for fossil fuels.

Some have dismissed the study as scaremongering at a time when demand for power is only growing, thereby generating more demand for various forms of energy generation.

Critics also point out that many green-energy technologies are currently more expensive than fossil-fuel alternatives, and there’s no way to be certain that dynamic will ever be reversed.

Others argue the oilsands industry is more robust than the study authors might believe.

Avoiding a financial crisis

Mercure says there’s still time to avoid a global financial catastrophe when the carbon bubble collapses. However, it’s going to take disciplined management and more transparency in the financial sector, so investors know when their money is being tied up in fossil fuel ventures.

“We still have a good degree of agency in this, and it’s how we decide to control the financial sector and how people choose to invest their money,” he said.

“It’s possible to deflate the carbon bubble by having intelligent management.”

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Mercure says the financial crunch might be just around the corner, with investments for 2025-2030 potentially at risk.

But even if the financial markets guard themselves against a crash, governments will be hard-pressed to protect jobs in their respective oil industries, he said.

Mercure pointed to Fort McMurray, Alta., as a likely victim of the inevitable shift toward renewable energy.

“These people would potentially be unemployed (and) would have to move out,” he said.

He added there’s no guarantee out-of-work oilpatch workers would be able to transition over to the clean-energy industries that force them out in the first place. Instead, many might be forced to leave provinces such as Alberta to find work elsewhere.

That could be quite difficult, socially, if that happens,” Mercure said.

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