Russia's upending of fossil fuels markets shouldn't change energy transition for Canada

The world has changed fundamentally, and Canada can no longer expect to thrive if we’re still partying like it’s 1922 when it comes to fossil fuels

fossil fuels Canada

With Vladimir Putin’s war in Ukraine hijacking the climate-and-energy-transition agenda that countries thought they would be pursuing this year, it’s become fashionable to ask whether Canada can afford to make a break from fossil fuels. 

The simple answer is that we can’t afford not to. 

The months since the invasion have upended international markets for oil and gas, as the European Union scrambles to break its dependence on Russian supplies. Oil prices are riding high. Fossil fuel companies are touting their newfound relevance. European leaders are urging citizens to cut down their energy use and warning about possible rationing. And it’s not yet clear whether countries like Germany would freeze in the dark this winter if Russia cut off all supplies through its Nord Stream 1 pipeline. 

But the short-term crisis doesn’t change the inevitable, underlying logic of a rapid transition off fossil fuels. In fact, the countries most vulnerable to Putin’s economic aggression are doubling down on a more aggressive decarbonization agenda – not only or even primarily to avert climate disaster, but because they now see the shift off carbon as a cornerstone for their geopolitical security. 

The combination of Europe’s security interests and a cascading, global climate emergency rules out any realistic case for the East Coast liquefied natural gas (LNG) terminals that Canadian fossil fuel interests have been avidly promoting, and that German Chancellor Olaf Scholz will be encouraging with a visit to Canada next month. 

Getting motivated

It’s amazing how quickly a group of countries can move when they’re really motivated. 

The European Union spent decades negotiating decarbonization strategies that were aggressive by international standards but still mild and equivocal compared to what the science of climate change demands. A scant two weeks after the Russian invasion, EU countries pledged to reduce their dependence on Russian gas by 65% this year and phase out all Russian fossil fuels “well before 2030.” 

“We simply cannot rely on a supplier who explicitly threatens us,” said European Commission President Ursula von der Leyen. “We need to act now to mitigate the impact of rising energy prices, diversify our gas supply for next winter, and accelerate the clean energy transition. The quicker we switch to renewables and hydrogen, combined with more energy efficiency, the quicker we will be truly independent and master our energy system.” 

We’ve known for decades that multiple, smaller-scale renewables and efficiency projects can go into service a lot faster than a single fossil fuel megaproject. But those projects will still take more time to ramp up than Putin would need to turn off the taps on a big gas pipeline. So even in an era of killer heat waves and raging wildfires, it doesn’t entirely defy logic that Europe is scouring the globe for short-term gas contracts while working hard to phase out gas demand, once and for all. 

But that doesn’t mean Canada has any gas exports to offer in the short moment of time when Europe will need them. The continent’s reliance on Russian gas is expected to end by 2025 with no new gas import infrastructure required and is already showing signs of much slower demand growth up to that date, according to recent analysis by the Ember climate consultancy. The continuing hype notwithstanding, European gas demand will be in decline by the time Canada can supply it.  

That raises serious questions about why any investor would back an East Coast LNG project without subsidies the federal government has already ruled out, though a loan guarantee may still be in the cards from the German government. 

Seizing the next opportunity

With industry and media narratives riveted on the mythical hope of new fossil fuel exports, Canada risks missing out on its best opportunity, a way of helping out its allies in need while building the industries of the 21st century. Sorting out the options begins with asking what we can and can’t afford. 

For the last century, the world’s economic powerhouses included the countries that went all-in on manufacturing internal combustion vehicles and extracting oil and gas. But the world has changed fundamentally, and Canada can no longer expect to thrive if we’re still partying like it’s 1922. 

Today, the big, emerging export opportunities include electric vehicles, renewable power, energy storage, smart buildings, and the knowledge and expertise to knit those technologies together into a coherent, rapid decarbonization plan. The economic winners will be the countries that can grab a piece of those markets by delivering practical, truly sustainable solutions to the global climate emergency. 

There is another option, and it isn’t pretty. If Canada continues casting its lot with an industry entering its sunset, we’ll end up buying our electric cars from Asia, our solar energy systems from China, and our smart buildings from Germany while still gradually losing the oil and gas export revenue that has been the mainstay of our international balance of payments. 

The solution is not to double down on a losing hand. And it’s not to throw taxpayers’ money at propping up technological unicorns like carbon dioxide removal and (so-called) small modular nuclear reactors that offer no certainty that they’ll be ready to scale in time to confront the climate emergency. 

The basic energy-efficiency, renewable-energy and, increasingly, energy-storage options are practical, affordable and ready for prime time, but other countries are on the leading edge of their development. The window will soon close for Canada to refocus its industrial strategy on the technologies and services humanity needs, in the energy sector and far beyond, to stabilize global climate systems. 

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