Canada Ready to Change Course on Climate Change

A breakthrough in the Paris climate talks suddenly seemed possible a year ago, after President Obama and Chinese Premier Xi Jinping — representing the world's biggest polluters — pledged to work together to achieve a "low carbon global economy." When the Vatican released Pope Francis' environmental encyclical in June, momentum continued to build.

Now, in the clearest sign yet of a growing consensus about heading off climate change, Canada's newly elected Prime Minister, Justin Trudeau, told delegates on the opening day in Paris that Canada "will take on a new leadership role."

Declaring, "Canada is back, my friends. We're here to help," he decisively dumped the attitude and many of the policies of former Prime Minister Stephen Harper, the tar-sands badboy who' kicked the Kyoto accord to the curb and ducked out on last year’s preliminary climate talks in New York.

Crashing oil prices

Harper offers a cautionary tale about the risks created when a first-world nation ties itself to the boom and bust cycle of oil.

Soon after Harper was elected prime minister in 2006, he quickly unveiled his plan to open up his nation's western oil reserves, speaking of the "the emerging energy superpower our government intends to build."

The new prime minister managed to romanticize extracting and converting bitumen into a shippable franken-crude. "It requires vast amounts of capital and an army of skilled workers," he said. "It's an enterprise of epic proportions, akin to the building of the pyramids or China's Great Wall. Only bigger."

For several years, high oil prices made Harper's big tar-sands bet look visionary. The boom drove a seven percent surge in national income, helping Canada ride out the Great Recession of 2008. Eventually, fossil fuels swelled to almost 40 percent of net exports.

But during the campaign nine years later, after Canada had become road kill in Saudi Arabia's fight for market share, Trudeau could bash Harper's weak economy. "It's not fiscally responsible," he declared, hammering home his message to voters, "To pin all your hopes on oil prices remaining high, and when they fall, being forced to make it up as they go along."

Harper's failure to broker a deal with Obama on Keystone XL even incited resentment with his normally loyal voters in the west. Rolling Stone reported that when Trudeau spoke at the Calgary Petroleum Club in February, the crowd broke into applause after he slammed Harper over the "broken" relationship with the United States: "[The] prime minister has demonstrated that he just doesn't play well with others."

As miffed voters went to the polls, tar-sands producers had already clawed back billions in future projects and axed jobs by the tens of thousands.

Post election blues

Today, about 800,000 barrels a day of oil sands projects have been delayed or canceled, making Alberta the most traumatized oil plays in the world.

Husky Energy, one of Canada’s most diversified oil companies, reported second-quarter earnings that were down 81 percent after it cut spending on new projects twice and laid off staff.

ExxonMobil subsidiary Imperial Oil said net income fell 90 percent. The company’s chief executive officer, Rick Kruger, said Imperial was "relentlessly pursuing cost efficiencies, critically evaluating our investment decisions and increasing productivity in all areas."

Regardless of the drastic production cuts, the industry Harper left behind is still pumping CO2 into the atmosphere.

Big climate footprints

In spite of Trudeau's heart-warming speech in Paris, Canada hasn't made much progress reducing its greenhouse-gas emissions yet, even he though credited provincial leaders for having taken on a leadership role during the dark days of the Harper era.

Ontario stopped burning coal to produce electricity, Saskatchewan built one of the world's first commercial carbon sequestration projects, and Quebec, British Columbia, and Alberta have introduced carbon taxes of varying effectiveness.

But a January paper in the journal Nature had bad news. Comparing fossil-fuel reserves across the globe, it concluded that 99 percent of Canada's tar sands must stay in the ground to keep global temperature rise under catastrophic levels. For Trudeau that means ideally phasing out production in the next five years — or at least dropping to "negligible levels after 2020."

That's a big problem for Trudeau, who pitched himself as a liberal who can rebuild international trust in Canada's environmental ethics and bring the tar sands to market.

The Big Mo

And the problem is going to get worse. While many tar-sands projects have been postponed or canceled, projects already under construction will add at least another 500,000 barrels a day to an already oversupplied North American market by 2017.

Cenovus Energy, a Calgary-based producer that uses steam technology to melt bitumen and pump it to the surface, may have postponed two new projects, but it’s moving ahead with expansions started before the downturn that will add 100,000 barrels of capacity by next year.

“We do not want short-term pricing to dictate our investment in long-life, high-return oil sands projects,” Cenovus Chief Executive Officer Brian Ferguson told analysts in July, when WTI was trading at near $50.

Oil companies plan for price variations during the lives of long-term projects. Cenovus “stress tested” its expansion down to a price of $50 a barrel, a level that will allow it to continue paying a reduced dividend and fund some further growth, Ferguson said in July.

Will Trudeau be able to finesse his campaign promises to meet climate goals?