Thanks for the invitation to share the Pembina Institute’s perspective at this committee hearing.
Pembina's mission is to advance clean energy solutions through research, education, consulting, and advocacy.
When it comes to diversification of energy markets, it's not just where you ship your products, but what you are actually shipping. In the case of Canada it is oil, led by the oil sands, that has become a dominant energy export. Oil as a share of commodity production value has risen over the past 15 years from 18% to 46%, a near tripling. That's nearly as much as natural gas, metals mining, forestry, and agriculture combined. This is not what I would consider to be product diversification.
As Canada’s economy reorientates towards oil sands production, we will see that diversity be replaced by increasing reliance on oil sands revenues to fill public and private sector coffers.
This lack of product diversity is problematic for a number of reasons, both economic and environmental.
On the economic front, oil sands have relatively marginal economics compared to most other oil sources. In last year's World Energy Outlook, by the International Energy Agency, they did a cost comparison of a variety of different oil sources, and the capital and operating costs for the oil sands for new production was up to 15 times higher compared to new production coming out of places like the Middle East. These marginal economics make the industry susceptible to prolonged price spikes or price crashes. The fate of Suncor's Voyageur project, or half a dozen other upgrader projects that have been shelved in the last decade, are a testament to this. This volatility threatens not only private sector competitiveness, but is also the source of many headaches for governments like Alberta that use oil revenues to pay for essential services.
This lack of diversity of energy products is also problematic on environmental grounds. The real and perceived dominance of oil sands exports has caused all sorts of environmental concerns along pipeline and tanker routes. For downstream markets, hands down the number one concern has been unregulated carbon pollution from the oil sands, and that's seeing an interest from downstream markets through California's clean fuel standard, a similar standard in the European Union, or the Keystone XL pipeline proposal. It's widely known that oil sands expansion will be the reason that Canada fails to meet its climate commitments.
In the absence of a credible plan to address climate change and the challenging economics that oil sands are facing, downstream markets are starting to be increasingly concerned. When you take the climate perspective into account, the International Energy Agency noted last year that two-thirds of proven fossil fuel reserves need to stay in the ground if the world is to prevent catastrophic climate change. Economist Nicholas Stern has called these reserves, the two-thirds quotient, “stranded assets”. Even HSBC, which has called these assets “unburnable carbon”, found that not burning these assets would strip up to 60% of the value of some oil companies based on their devalued portfolio. Because the oil sands are particularly carbon intensive, this has even greater ramifications here in Canada.
If Canada bases its future economic competitiveness on a product with a questionable future, then this study should cause some soul searching on what sort of energy superpower we are setting ourselves up to become. Luckily, Canada has no shortage of options in energy products and technologies that can put it on track to compete in the rapidly growing $1-trillion global clean energy economy.
I'll pass the microphone over to my colleague, Tim, now.