The New Climate Bargain
BY RBC ECONOMICS RESEARCH
CLIMATE CHANGE, MEET ENERGY SECURITY
Russia’s invasion of Ukraine is a cataclysmic moment for global energy markets. As governments and consumers grapple with energy shortages and high gas and power bills, climate change policies are being thrust into competition with energy security.
The old energy order is giving way to a new, disorderly one as Europe and Asia seek alternate supplies to replace Russian exports. Moscow’s ploy to exploit Europe’s energy vulnerability will not be forgotten in a hurry, and has accelerated two contradictory responses: rapid decarbonization and a scramble to raise fossil fuel production at least in the short term.
The dichotomy underscores a hard truth: short of major additional action, oil and gas will likely remain critical and contentious energy sources for longer than some think.
“The old energy order is giving way to a new, disorderly one …”
This poses some critical questions for the West:
- How does higher output square with their ambitious emissions reduction plans?
- If governments fail to balance climate action and energy security, will high energy costs and emissions erode public trust?
Canada can still reach its 2050 Net Zero targets, but it may not be a linear journey. The Canadian government has called for more oil and gas production to help ease the global crisis in the short run, while maintaining a firm commitment to competitive and decarbonized oil and gas in the long run.
Our research shows both goals are within reach—but at significant cost. Canada can still reach its 2050 Net Zero targets, but it may not be a linear journey. There isn’t a moment to lose. Policy action over the next 24 months must chart Canada’s climate-and-energy path to Net Zero by 2050.
- Canada’s oil and gas sector can support near-term energy security while advancing climate action, but will need regulatory certainty and support at all levels of government.
- Oil sands and conventional producers could raise production by up to 500,000 barrels per day from 2021 levels.
- This could add 9 million tonnes of greenhouse gases per year, costing at least $1.5 billion annually to abate—but bringing potential net benefits of $10.5 billion annually. Critically, if Canadian barrels displace those of other producers, there would be no additional global emissions.
- Meeting climate targets despite new production will demand significant investment in methane reductions, as well as electrification and carbon capture across industries.
- Cutting emissions 40% from current levels in the oil sands by 2030 will likely require $45 billion to $65 billion in capital spending between 2024 and 2030, peaking at about $9 billion per year mid-decade.
- Full upstream decarbonization with carbon capture, utilization and storage (CCUS), a critical emissions-reduction technology, will require oil prices averaging roughly US$50 WTI through 2050.
- A deliberate approach to deploying decarbonization technology in the oil sands is needed to avoid over-investing in costly solutions. CCUS should be viewed as just one tool at Canada’s disposal.