Canada’s economy faces a stranded asset risk of at least C$100 billion when the fossil fuel era comes to an end, says a new report, with further losses as the global energy transition outpaces the country’s climate policy and clean energy investments.
“While the stringency and ambition of Canada’s climate policy regime is increasing over time, our energy exporting sector remains the elephant in the room,” writes Re_Generation, a youth-run organization advocating for sustainable business practices in Canada. “As the clean energy transition is happening faster than predicted, this is creating significant transition risk for Canada.”
Canada is the worst performer among G7 nations because it continues to expand its oil and gas sector, “which will cause us to overshoot our 2050 net-zero target by 94%,” the report states. And ambitious as the country’s climate policies may be, its targets fall short of the Paris agreement’s aspirations—and national institutions perpetuate fossil sector growth, with banks continuing to finance new oil and gas projects. “The largest five Canadian banks have given $700 billion to the fossil fuel sector since the signing of the Paris agreement, and most Canadian financial institutions lag behind international peers in the decarbonization of their portfolios.”
But instead of making transformative changes, the federal government supports fossil companies pursuing carbon capture and storage to cut emissions, technology that is “designed to maintain the viability of fossil fuel infrastructure that will have to be decommissioned in the long-term,” says Re_Generation. So when the fossil era comes to “an abrupt and inevitable end,” Canada’s economy faces a stranded asset risk of at least $100 billion, or 35% of the book value of oil and gas properties and 31% of the market capitalization of all Toronto Stock Exchange-listed oil and gas issuers, according to the report. Even if fossil fuel demand continues growing, most of that growth is in emerging Asian markets, especially China. But China’s energy transition is accelerating as it continues making ambitious investments in renewables technology.
So is Europe, targeting a 400% increase in solar capacity by 2030, a 300% increase in heat pumps, and a 1000% increase in electric vehicle sales. In the United States, three legislative measures in the past two years could dramatically accelerate North America’s clean economy while putting a significant dent in Canada’s oil and gas market.
“Renewable power presents a superior risk-return profile as compared with fossil fuels, generating 422.7% returns over the last decade as compared to just 59% for traditional energy,” the report says. And yet, “there is not a single Canadian [fossil] energy producer that has begun to shift capital expenditures in a way that will enable the transition to a future dominated by renewable power, energy storage, electrified transport, and green hydrogen.”
In light of this disconnect from changing energy market dynamics, Re_Generation recommends a three-pronged policy approach to transform Canada’s economy for a climate-safe future. It would centre on regulations to align the financial system with the Paris Agreement’s 1.5°C pathway, better and more integrated fiscal and monetary policies to coordinate the green transition, and a robust just transition framework.
“Without a strong system to ensure equity and accountability, it is likely that the social disruptions caused by an abrupt and unmanaged transition will prevent the realization of Canada’s climate goals in the long term,” Re_Generation says.
