Canada Can't Hit Net-Zero without Fossil Fuels, RBC Maintains

Even as a growing number of activists urge financial institutions to take action against climate change by reducing funding to the fossil fuel sector, executives with Canada’s largest bank say the country won’t reach its net-zero goals without the oil and gas sector.

Global financial institutions have been increasingly supporting the scaling up of green technology projects using innovative new methods of financing, such as green bonds, The Canadian Press writes. But last week, Lindsay Patrick, head of ESG and strategic initiatives for RBC Capital Markets, said there’s growing belief within the financial sector that some of these innovative tools may need to be used to support more conventional industries, as well.

“There’s a very strong view that those green investments themselves aren’t going to be enough to get us to the full transition we need to achieve by 2050, and they don’t support the decarbonization of many heavy industry sectors that have an important role to play,” Patrick told CP. He was in Calgary for the Energy Disruptors Summit, a three-day conference that aimed to tackle issues related to the global energy transition.

With 80% of the world’s energy supply still coming from fossil fuels, Patrick said all sectors have to be involved in the solution if countries aim to meet their Paris agreement pledges and keep global temperature increases below a dangerous 1.5°C tipping point.

“The new idea is to support companies that aren’t 100% green, but that have specific projects that are aligned with a 1.5° scenario,” she said. So there may be opportunities for banks to invest in emission reduction projects in the oil and gas, industrial manufacturing, metals and mining, transportation, and other heavy emitting industries.

RBC, Canada’s largest bank by market capitalization, has been singled out in the past by environmental groups for its avid approach to fossil fuel financing. A 2021 report from Rainforest Action Network showed RBC invested $201 billion between 2016 and 2021 in lending to and underwriting fossil fuel companies, making the Canadian bank the fifth-highest on Rainforest’s ranking of 60 global financial institutions’ fossil fuel exposure.

But RBC Capital Markets CEO Derek Neldner, who also spoke at last week’s conference, said the bank has estimated it could cost C$2 trillion to get Canada to its committed target of net-zero greenhouse gas emissions by 2050. To minimize the social and economic consequences of such a massive shift, he told CP, investments will have to be made not just in renewable technology, but also in improving the environmental performance of every other industry.

“As we think about transitioning our energy supply, we really do need to look at all sources,” Neldner said. “There are pockets of innovation and advancement going on everywhere.”

In recent months, the Canadian oil and gas sector has issued a flurry of announcements of proposed projects—from hydrogen plants to renewable diesel facilities to carbon capture and storage—all said to be aimed at lowering the industry’s emissions profile.

But none of those projects have received the green light from the fossils that say they want to invest in them. “For companies and investors to mobilize capital, they have to have a certain level of clarity and certainty on what the environment is going to look like,” Neldner said. “And right now there’s just a lot of uncertainty on the economic environment, on commodity prices, on where the economic transition is going.”

Some critical analysis in the last week has suggested another key source of that “uncertainty”: Fossils’ hope that the political environment around fossil fuels and decarbonization will shift if newly-anointed Conservative Party leader Pierre Poilievre wins the next federal election.

Last week, as well, the Pembina Institute issues a scathing report that took fossils to task for failing to invest in decarbonization in an era of dizzying, record profits. “Canadian oil and gas companies’ free cash flow is estimated to reach C$152 billion in 2022,” their highest profits ever, Pembina wrote in a summary of the report. But “this boom is not being accompanied by new projects in Alberta’s oilsands sector, or a significant expansion of jobs. It is also not being invested in decarbonization.”

Pembina said its analysis found a notable gap between tar sands/oil sands companies’ decarbonization promises and the action they’re actually taking to reduce their carbon footprints. “We need those two things to align,” said Pembina oil and gas director and study co-author Jan Gorski. “If they’re willing to make these commitments, then we need to see the details and the actions to back up those commitments.”

Neldner told CP that government also has an important role to play in helping to finance some of these projects, echoing fossil executives’ demands that taxpayers cover the lion’s share of their future investment in as-yet unproven technologies like carbon capture and storage.

“There may be some technologies and sources of energy that, stand-alone, aren’t economic today, and so they won’t attract the capital from corporations that are still making sound risk-return decisions,” he said. “And that’s where government incentive mechanisms can be very useful.”

Greenpeace Canada Senior Energy Strategist Keith Stewart told CP he doesn’t buy the banks’ argument. He said Canada’s largest oil and gas companies still anticipate increasing the overall volume of fossil fuels they produce in the long-term, even as they aim to drive down emissions from their production process.

“If they had a plan to transition from fossil fuels to renewable energy, then the banks could legitimately say, ‘yeah, we need to finance that,”’ Stewart said. “But they’re still talking about increasing production. When you’re providing this kind of blanket finance to these companies, you’re funding the bad stuff along with the better stuff.”

The main body of this report was first published by The Canadian Press on September 20, 2022.