Pacific NorthWest LNG just the start of Canadian energy project approvals

Expect many more energy projects like Pacific NorthWest LNG in coming years as governments balance decarbonizing, economic development

On Tuesday, the Canadian government approved Malaysian-owned Petronas’ $36 billion Pacific NorthWest LNG project, environmentalists pitched a fit, industry boosters cheered, it was all very predictable. But what is the average Canadian to make of the nasty West Coast fight over building out a liquified natural gas industry in British Columbia?

“If this is what Trudeau meant when he said Canada is back on climate, then we and the planet are in big trouble,” said Greenpeace campaigner Mike Hudema in a statement that reflected the comments of most critics.

“Not only will this project push our Paris climate commitments further out of reach, it also goes against the expressed wishes of several First Nations along the route.  The Prime Minister needs to start putting the climate and communities first and speed the 100% renewable energy transition Canada needs to make.”

And there is the nub of the issue: the energy transition. It may surprise readers to know that Greenpeace does not have a monopoly on what constitutes an energy transition or how fast one should proceed.

Jim Carr, natural resources minister, says the Justin Trudeau Liberals have explicitly based both their energy and climate change strategies on the idea that the global economy has begun a long transition from fossil fuels to clean energy technologies. At least several provincial governments, including Rachel Notley’s NDP in Alberta, do the same.

Superficially, then, government and environmentalists seem to be in agreement. In reality, they are miles apart.

The sticking point is the pace of the transition.

Eco-activists like Hudema demand a rapid transition. They pressure governments to impose carbon taxes to raise the cost of fossil fuels and related technologies (think automobiles and natural gas for home heating), and regulations to limit emissions from industry (think Alberta’s 100 megatonne emissions cap for oil sands production).

 The higher the carbon price and the more onerous the regulations, so goes the eco-activist thinking, the faster the energy transition will take place.

Canadian governments have rejected the rapid transition strategy, despite what Albertans may think as they face a New Year carbon tax and a host of other emissions regulations.

The Trudeau Government’s approach can be found in the American, Canadian, and Mexican “Leaders’ Statement on a North American Climate, Clean Energy, and Environment Partnership” released on June 29 at the conclusion of the Three Amigos Summit in Ottawa. The statement is full of high flown carbon emission-reducing rhetoric, but the strategies and policies outlined in the document are moderate and incremental approaches to reducing emissions that recognize public policy cannot get too far out in front of new technologies, markets, and private investment.

Why? Because consumers have shown no appetite for the higher costs and risk that come with boosting the adoption of immature and costly clean energy technologies. For instance, even with the introduction of the Chevy Bolt and Tesla Model D, comparable gasoline-powered cars are half the cost, with no range anxiety issues, which is why electric vehicles still languish at the bottom of the S-curve, purchased by very early adopters willing to pay a big price premium for cool tech. Even in BC, with its eco-culture and temperate climate, only 1,700 EVs were registered in 2015, according to ICBC data.

 This has led to politicians talking big on climate policy but at the same time dampening public expectations. The master is President Barack Obama, who gives speeches about leaving fossil fuels in the ground, but dispatches Cabinet members like Interior Secretary Sally Jewel to tell the reporters at less prominent media events that fossil fuels will be used in the United States for many, many decades yet.

I call this strategy the Obama Two-Step.

Trudeau does much the same, as described during a July interview with Carr: “You can quote the Prime Minister from the global conference in Vancouver when he said that there’s no contradiction in building wind turbines and pipelines, we need both. The Prime Minister has said many times that it’s a major responsibility of the government of Canada to move our natural resources to market sustainably.”

That’s the compromise inherent to managing the energy transition in a country whose economy is dominated by the extraction and export of natural resources, including crude oil and natural gas.

LNG plants are approved.

One West Coast pipeline (Enbridge’s Northern Gateway) will almost certainly not be built, but another (Kinder Morgan’s Trans Mountain Expansion) almost certainly will.

Alberta oil sands output will grow, forecast to be around 1 million b/d by 2025, though not as rapidly as hoped just a few years ago.

 The average Canadian’s takeaway is that we are looking at decades of cautious decarbonizing of the national economy while also developing energy projects. This reality is behind the Trudeau Government accepting the inevitable and adopting the GHG emissions targets (to 17% below 2005 levels by 2020, and to 30% by 2030) of Stephen Harper’s Conservatives that they so vigorously criticized while in opposition.

In other words, a classic Canadian policy compromise. Assuming Petronas makes a final investment decision in favour of proceeding, the Pacific NorthWest LNG project will be the beneficiary of that policy compromise and the energy transition policy approach. Expect plenty more in the not too distant future.