Does it pay to green oil?

Is there a lower-carbon future for Big Oil? | An image of an oil rig

We asked Canada’s thought leaders to weigh in with ideas for how the government should spend stimulus money as part of a Green Recovery. To read the entire report series, head to Planning for Green Recovery.


Teck Resources’ decision to shelve its proposed Frontier oil sands mine prior to a federal permitting decision in February is seen by many as a clear signal to the country that a strategy is needed to ensure the oil and gas sector contributes to Canada’s climate change goals.

Canada needs “a framework in place that reconciles resource development and climate change, in order to produce the cleanest possible products,” wrote Teck’s CEO, Don Lindsay. Essentially, the federal government will have to decide whether to provide financial support for the industry’s effort to cut its carbon footprint or rely only tougher regulations and a rising carbon price to achieve the same end.

Prior to the current pandemic crisis, companies were investing more than $1 billion annually to develop technology that lowers their costs and reduces the greenhouse gas emissions per barrel of crude oil produced. That effort reduced the GHG emissions from each barrel of crude – but not enough to offset the increase in production that made the oil sands sector Canada’s fastest-growing source of GHGs.

With the recent crash in prices – which saw Canadian heavy oil drop to US$3.82 a barrel in March – the industry will be hard-pressed to invest in GHG-reducing technology, even when that spending would cut costs.

However, there may be a heightened role for government. The International Energy Agency in March called on governments around the world to ensure that promised stimulus spending supports climate action, calling the crisis a “historic opportunity . . . to reduce dirty investment and accelerate the transition.”

Al Reid, an executive vice-president at Cenovus Energy, said that producers will require substantially more government support if they are to accelerate the effort to reduce GHGs per barrel.

Cenovus said in January that it aims to reduce that GHG intensity by 30% by 2030, though total emissions would remain flat due to rising production. The company said it aspires to virtually eliminate carbon emissions from its operations by 2050, via solvent-based technology and CO2 capture.

Last September, Suncor said it would invest $1.4 billion in a cogeneration facility that will produce steam and electricity, a move it says would provide an attractive return and reduce emissions by 2.5 million tonnes per year. With the price crash, that project was shelved; federal support could help revive it.

A Corporate Knights analysis released last fall, the Capital Plan for Clean Prosperity, concluded that supporting innovation in the oil and gas sector would generate significant payback in GHG reductions per dollar invested. The plan, a collaboration with industry, government and academic experts, calls for a massive federal capital-spending program to drive the low-carbon transition in five sectors (buildings, transportation, electricity, heavy industry and oil and gas). It calculated that a $21 billion program over six years would make 30% of oil and gas operations 50% more energy/GHG efficient. It would result in a 30-megatonne reduction of oil and gas emissions at the end of that period, from 183 megatonnes in 2017 to 153. (Assuming that companies don’t respond by increasing production, so that total emissions either rise or flatline.)

However, the notion that the Canadian government should provide financial support for oil industry innovation is contentious, particularly when it has committed to ending fossil fuel subsidies.

In February, a report from Calgary’s Pembina Institute, “The Oilsands in a Climate Constrained Canada,” concluded that higher carbon prices and tougher regulations are necessary to provide incentives to deploy game-changing technology.

Tzeporah Berman, international program director for Stand.earth, says the industry is “not moving fast enough because they don’t want to spend the money . . . Either you design a high tax that supports the cleanest projects or you regulate and require CCS [carbon capture and storage].”

Industry supporters insist they can be part of Canada’s climate change solution. Three of the biggest producers – Cenovus, Canadian Natural Resources and MEG Energy – have said they aim to eventually produce crude with no net GHG emissions from their operations. Critics say Canada should not be subsidizing increased production when the world must wean itself off fossil fuels entirely. Global investors are increasingly demanding that those companies show they can prosper in a carbon-constrained world.

Adding to the challenge is the impact of the COVID-19 pandemic, which has gutted demand for oil. The debate is on over whether the federal government should spend billions bailing out Big Oil. One way forward: tying that funding to cutting the industry’s carbon footprint could help transition the sector toward a lower-carbon future.


Shawn McCarthy writes on sustainable finance and climate. He is also senior counsel for Sussex Strategy Group.

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