‘Watchful Optimism’ from Climate Analysts as Canada Energy Regulator Plots Net-Zero Future

With the Canada Energy Regulator still months away from completing its next projection of the country’s future oil and gas production, climate policy watchers are cautiously optimistic that the analysis will chart a real course for a low-carbon future—and rooting for the CER to get its modelling right.

The next edition of the CER’s (usually) annual modelling report, Canada’s Energy Future, isn’t expected until next spring, after Natural Resources Minister Jonathan Wilkinson instructed the Calgary-based agency to come up with a pathway to net-zero emissions by mid-century. The 2021 edition of the report, widely used as a key planning tool by governments, industry, and investors, drew scathing criticism for projecting that Canada’s oil and gas production will continue to increase through 2032.

“It’s wildly optimistic to believe there will be a fundamental change in the workings of the CER in the future,” veteran energy and utility executive Marc Eliesen, a former CEO of four provincial utilities and energy authorities and one-time board member with Suncor Energy, told The Energy Mix at the time. “The people there are entrenched in a petro-culture with industry. Most people are not aware that 90% of the funding of the CER comes from industry, which really compromises the board’s own goals and aspirations of trying to serve the public interest.”

‘Asking Some Good Questions’

But so far, the CER seems to be taking a different approach with its latest effort. In an April 5 update to Wilkinson, CER Chair Cassie Doyle promised “fully modelled scenarios” that “reflect a global context in which the world achieves its Paris Accord goal of limiting warming to 1.5°C” and “consider relevant uncertainties, including future trends in low-carbon technology and energy markets.”

Climate policy analysts and researchers have repeatedly told The Mix that a CER analysis that fully reflected the rise of energy efficiency and renewable energy technologies and policies would remove much of the impetus for Ottawa to approve contentious fossil fuel proposals like the Bay du Nord offshore oil megaproject, just as the International Energy Agency’s Net-Zero by 2050 scenario last year is changing the conversation at the international level.

The CER recently completed consultations on a May, 2022, discussion paper on its approach to net-zero analysis, and by all accounts, the regulator’s early moves have been encouraging.

“They’re asking some good questions that we haven’t seen asked in the past,” said Climate Action Network-Canada National Policy Manager Caroline Brouillette. “It remains to be seen whether their answers will be satisfactory.”

“If we look at the consultation that happened last year before Canada’s Energy Future came out, it was basically ‘here’s what we’re going to present, do you have any feedback?’” said another close observer who took part in the consultations. “But it was too late to do anything about it, so it felt like the consultation process was very token or moot.”

This time, Wilkinson has formally directed the regulator “to do this modelling and to show a net-zero pathway, and that implies that Canadian oil and gas production can’t just keep unrealistically growing into the future as the world decarbonizes, especially not the high-intensity, low-quality oil that represents much of our Canadian production,” the observer added. “Low-cost producers are going to win out as the world chases the diminishing market share.”

So while “of course you don’t know what’s going on inside the CER and how far they are into the modelling, the fact that they’re asking what’s in scope and what’s out of scope is hopeful,” the observer added. “The key thing that is being reiterated across the board is, look at what the IEA did with its net-zero scenario,” along with the expectation that oil prices will fall once the world economy gets past the current crisis brought on largely by Russia’s war in Ukraine.

Looking to the Long Term

That wider view should be baked into Canada’s Energy Future because “this is a long-term scenario,” said Nichole Dusyk, senior policy advisor at the Winnipeg-based International Institute for Sustainable Development. “It’s a different frame than what’s happening over the next two or three years. So they can jump out of that short-term thinking into the long-term goal. This is not a projection. It’s not a forecast. It’s how do we get to where we need to go, and can they get there in a credible way, thinking realistically about what’s economic and can get us all the way to 1.5°. Not just part-way there, and not by deploying a whole bunch of carbon removal technologies beyond what’s prudent or economically feasible.”

One essential technical shift, she said, will be for the CER to reverse the way it models a 1.5°C future. “One of the challenges the CER faces is to adapt its existing model so it can start from an outcome which is a 1.5° world and work backwards from there, which is not currently how the model it uses works.”

While the CER’s conversations with stakeholders are “still very high level”, Dusyk added, “I was glad to see that they proposed using the IEA’s net-zero scenario and a number of assumptions within that model, which is great. In my view, really, that was the gold standard, and now they need to translate it to the Canadian context.”

By the time the CER’s work is done, “it’s absolutely required that anything they produce is aligned with the models that are used to make policy within the federal government,” she cautioned. “So for them to produce a 1.5° scenario that does not align with what Environment and Climate Change Canada is using to model emissions reductions across the country, and the emissions reduction potential of policies, would not serve Canadians well.”

How Bad Projections Become Bad Reality

The CER’s analysis is also the basis for much of the recent conversation about whether the fossil industry can meet the federal government’s 2030 emissions reduction target. That story was back in the news Saturday, with Environment and Climate Minister Steven Guilbeault saying his proposed oil and gas emissions cap might allow companies to blow through the 2030 deadline.

“One of the reasons it seems like it’s going to be difficult for the oil and gas sector to meet those targets is that the government had to rely on the CER’s projection of production, which was really optimistic—not from a climate perspective, but from an oil and gas industry perspective—that we would continue to grow production out to 2030,” the observer said. “So the government really needs better scenario analysis, leading to a base case that is more relevant to assessing the policies it’s moving forward with. Because of course it’s harder to show how you’re going to reduce oil and gas if you’re assuming that sector is going to grow substantially in the next eight years.”

But the CER will have to outrun its own history as what amounts to a Captured Energy Regulator, as one harsh critic interprets its acronym, to get that analysis right.

“The concern is that there’s been a fairly high degree of industry capture in the CER, and a tendency to see more production as a good thing rather than seeing it as a tragic thing in an era of climate emergency,” the observer said. “Sure, you can export it, and there’s revenue and jobs associated with that. But it’s hardly a sign that our society or global community is succeeding when we’re using energy extravagantly and disturbing the life support system on which we all depend.”

With that in mind, the next round of CER analysis must also include the “Scope 3” emissions that occur after a barrel of oil reaches its end user, and account for 80% or more of the carbon dioxide in the barrel, Brouillette said Brouillette. “Fossil fuels produced in Canada but burned outside the country have to be accounted for in the model.”

So far, though, participants’ reaction to the discussion paper and the consultations that followed is one of watchful optimism. It remains to be seen what result the regulator will deliver when it issues its high-stakes modelling report in six to nine months.

“To their credit, I know that some of the modellers at the CER are trying to do the best job they can do,” the observer said. “But it takes a long time to change corporate culture,” and Wilkinson’s department still includes “a very strong oil and gas division which tries to slow down progress.” That’s because it “sees its role as defending Canada’s oil and gas industry, rather than helping Canada meet its climate targets, accelerating the energy transition, and keeping the planet a liveable place.”

CER Communications Officer Karen Ryhorchuk sent comments on the process but not the substance of the analysis. “Our Energy Futures team is in the early stages of analysis. Some of the key activities being undertaken right now include updating models and data, defining study design, and developing assumptions,” she wrote in an email. The spring 2023 release deadline “will allow us enough time to engage and collaborate with modelling experts and other government departments on the approach.”