Remarks to the Canadian Standing Senate Committe on Energy, the Environment & Natural Resources

Impacts of Electrification
Calgary, Dec 15, 2016

The Canadian Energy Research Institute is a 40-year old organization that provides objective research dealing with the economic and environmental impacts of energy issues.  Due to our neutral status, we do not make recommendations or suggest policy options.  We do our best to give government and industry factual evidence from which to base their decisions.

There is a lot of debate in Canada right now about the transition to a lower carbon economy.  One solution is to use electricity for all end uses in the residential, commercial, Industrial and transportation sectors. CERI undertook an analysis to determine the impacts of electrifying the residential, commercial and passenger transportation sectors.  Industry and freight transportation are more complicated sectors to assess, so those were left out of our analysis for now. 

We wanted to know how effective these sectors could be in helping Canada meet its 2030 and 2050 carbon dioxide reduction targets. Our research sought the answer to three questions:

1.    What major transitions in energy systems are required to electrify the end-use energy services of residential, commercial, and passenger transportations sectors?

2.    What level of emissions reductions can be achieved through electrification of these energy services?

3.    What would it cost?

We compared our electrification scenario to business as usual.  Under this scenario electric equipment replaces natural gas equipment in the residential and commercial sectors through the normal retirement and replacement cycle.  The one exception is that the predominant fuel being replaced in Atlantic Canada is heating oil not natural gas.

We also replaced gasoline and diesel passenger vehicles with electric cars.  The timeline for this replacement started farther out in our review period due to the still developing nature of electric car technologies.

At the same time, the increased electricity demand which was provided by the grid, evolves into one with a high level of renewable and other non-emitting generation options, averaging over 60% in each province or region.  The remainder of the electricity was produced with natural gas, or with natural gas combined with carbon capture and storage.

Our first observation from the analysis is that a significant move of energy services away from natural gas, gasoline, diesel and heating oil would suggest a significant drop in emissions.  And there was, only not enough.

If we consider our 2030 target which is 30% below 2005 levels, we see that Atlantic Canada is 7% below, Quebec 9%, Ontario 14%, Manitoba 11%, Saskatchewan 8%, Alberta 6 % and BC 9%.  In 2050, the results are similar, additional reductions in emissions but only a fraction of what is needed to achieve the 80% reduction target.

So this first observation is that electrification of these three sectors is not enough. The industrial and freight transportation sectors are significant in terms of greenhouse gas emissions and would need to be included to achieve Canada’s emissions reduction goals.

The second observation is that average costs in 2050 are between 16% and 77% higher than the business as usual case.  That roughly means that in addition to the usual increases we see in electricity rates of 1 to 2%, we would see an additional 2 to 3% increase each year for 30 years.  Not large in an of themselves annually, but many electricity customers across the country are already concerned about affordability.

The third observation is that the increase in electricity demand is about 2 to 3 times what we use now.  That would mean an expansion of the grid in each province of about 2 to 3 times.  Given that renewable technologies represented lower energy density options, that land-use footprint would likely be larger. 

We know from simply reading the news that citizens are concerned about energy infrastructure being built anywhere near their communities.  This build out of the electricity system would be cause for concern.  One solution to this however, is the extensive use of distributed and self generation.  While this option can help reduce the overall footprint of the expanded electricity grid, siting issues will remain a challenge.

One other thing to keep in mind is there are taxes on fuels.  Total taxes collected federally and provincially on gasoline amounts to $11 B annually.  This tax revenue would disappear if we moved to our electrification scenario, with follow on consequences to government budgets.

In summary, a move to electrification of the residential, commercial and passenger transportation sectors is only one part of the solution if the federal and provincial governments want to achieve their emissions reduction goals.

Remarks to the Canadian Senate Committee
on Transport and Communications
Hearings on the Transport of Crude Oil in Canada
Calgary, September 21, 2016

 CERI is a 40-year old Institute that provides objective research dealing with the economic and environmental impacts of energy issues.  Due to our neutral status, we do not make recommendations or suggest policy options.  We do our best to give government and industry factual evidence from which to base their decisions.

There is a lot of debate in Canada right now about the transport of crude oil on pipelines and rail.  As I see it, the argument breaks down into four questions:

1.      What is the physical risk to people living along the route in the case of an incident?

2.      What are the environmental impacts of such an incident?

3.      How does the addition of new transport capacity effect upstream emissions?

4.      Are these costs offset by the benefits of increasing the transport of crude oil to tidewater?

CERI has not done any research into the risk of an incident along the route nor the extent of the environmental impacts.  We see a couple of recent examples of pipeline leaks and train accidents such as the Kalamazoo river in Michigan.  This was the largest spill in the US with clean up cost approaching $800 m.  Another example is the fatal Lac-Mégantic crude oil spill on a rail line.  The loss of 47 people was tragic and no cost benefit assessment of that accident could convince family and friends that the loss of their loved one was worth it.

We know there is a risk to pipeline and rail transport of crude, the question is; Should this mean not allowing such transport or putting in better safeguards to further minimize the risk?  If we take our queue from other industries such as airline service or prescription drugs, the clear direction is increased safety measure to reduce harm, but still allowing the activity to continue.

Taking the third question of upstream emissions, the debate has focused on the higher emissions from oil sands production.  Due to the higher energy use in producing oil from oil sands there is a correlation between increased production and increased emissions.  However, a study produced by CERI last year showed that with best in class technology that exists today emissions from oil sands can be reduced by 29%.  Interestingly that is equivalent to the differential between emissions from oil sands crude and crude from the Middle East or the US. 

This latter observation comes from work done by the Carnegie Endowment for International Peace who developed an oil-climate index.  This means with investment in innovation in oil sands production, oil sourced from Alberta would be similar in emissions impacts with oil from the US or the Middle East.

That being the case, emissions are still occurring and people are rightly concerned about climate change and its long term impact globally.  The federal and provincial and territorial governments are hard at work drafting a comprehensive climate strategy which will deal with the emissions concern.  If we have faith in that process and those potential policies, should those same concerns be considered in the crude transport question? Surely, the policies when completed will have taken into account public interest on greenhouse gas emissions and determined the optimum approach.  Addressing them during the review of crude transport seems duplicative and of little value. It might even result in a tribunal issuing decisions that are not consistent with government policy. 

So, we know there is some risk to the transport of crude in Canada, even tragic circumstances.  We know with appropriate technology innovation and government policy the emissions issue can be dealt with. What remains is whether the benefit of transporting crude in Canada, and in particular to tidewater outweighs the risk?

By way of example, in 2014 CERI produced a cost benefit analysis of the Energy East Pipeline project.  Our analysis showed that over the 28-year period of the research, the pipeline alone adds almost $34 Billion to the Canadian economy.  This works out to approximately $1.2 Billion per year.  It would create about 48,000 jobs during construction and 7900 during operations.  Interestingly the largest economic benefit is to Central Canada.  GDP impacts in Ontario and Quebec come to almost $20 billion.

One calculation we did not do at the time is the higher price western Canadian producers would receive for their crude oil.  As a captive supplier to the U.S. Western producers face a discounted price, averaging $15 compared to the West Texas Intermediate price point.  It is difficult to say what the actual impact would be bringing Canadian oil to tidewater, but in another study CERI completed this year on price impacts, we calculated a $1.7 Billion benefit to the Canadian economy each year, for a $1 increase in the average price of crude.  Let’s assume the discount could be reduced by $5.  That would mean an increase of $8.5 Billion to the Canadian economy each year.  This does not include the balance of trade benefits by purchasing oil domestically instead of imports.

To summarize, the risk of transport is real and can have tragic consequences.  Emissions can be managed through technology innovation and government policy.  Then, the clear decision in this example, for policy makers is whether the benefit to the economy of approximately $9.7 billion a year is worth taking on that risk?  Another question is; Should some of those risks be mitigated by allocating some of the economic benefit to those most at risk?  This approach is one that should be considered when assessing the costs and benefits of crude oil transport in Canada.

Thank you.

Time for a CEIO - Part 3

A number of stakeholders from government, industry and NGOs came together on February 29 2016 to discuss the possibility of developing a Canadian Energy Information Organization.  There were three main questions:

1.  Does Canada need a CEIO? - the general consensus was yes.  Workshop participants talked about the need to have a common set of data for governments and other stakeholders to use.  People noted there are numerous organizations that have a piece of the puzzle but nothing is coordinated.  That means aside from die hard analysts, it will be a struggle for most decision makers to get data they can rely on.  If we are going to develop our energy resources in an environmentally responsible way we need to understand the underlying situation.

2.  What services should a CEIO provide? - here the participants were split.  Some said that it should focus on data only.  Others indicated it should include data and analysis.  The argument for a CEIO to include analysis is based on the fact that data is not information and having a standard set of analysis to rely on is equally important as the data itself.  The EIA in the US is a good example of this approach.  I for one, favour this option.  it would make the organization more valuable to decision makers and allow for a common understanding of the situation (whatever that might be).

3.  Who should fund the organization? - the consensus was that it should be funded by federal and provincial governments.  This surprised me a little because I would have thought such an organization was equally valuable to all stakeholders and that if it was, shouldn't those stakeholders have a hand in financially supporting the organization.  It would also provide  a relationship with multiple stakeholders which could help ensure the governance processes are neutral and transparent - an extremely important element of trust.

The conversation of a CEIO has been going on for a long time in Canada.  Surely we can find a way, with all the funds that are being spent on analyzing energy supply and demand in this country, to coordinate some of our activities between numerous stakeholders.  If an organization could be established with a budget of approximately $10 million, would that be a wise investment for the federation? I think so, how about you?

The Need for a Canadian Energy Information Organization - Part 2

Hope springs eternal.  This in relation to yet another attempt to get stakeholders together to see if there is support and funding to establish a Canadian energy information organization. 

The idea of establishing such an institution is not new.  Dr. Robert Skinner of the School of Public Policy at the University of Calgary, brought forward such an initiative to federal, provincial and territorial governments over 10 years ago.  However, in the mix of other pressing priorities it did not receive the necessary attention and was unsuccessful.

Further efforts have been made by Dr. Michal Moore at the same School (see links below) to articulate the need and structure of such an organization. 

The need is there.  More informed representatives among all stakeholder communities will facilitate better decision making, and maybe faster decision making as well.  A key element is trust.  We need to find a way for the major stakeholder groups to trust the information.  This comes from patience and understanding and a lot of dialogue.

If we are to understand the issues we first need to understand each other.  I am convinced that the different stakeholder communities are working from a sincere desire to do what’s right.  That opens the door to building those relationships. If we have the trust between the stakeholder groups it makes it easier to agree on the facts.

In some cases, it is difficult to get to a fine level of detail regarding all the economic and environmental impacts of a particular energy issue.  But if we have that trust built up, people will normally give others the benefit of the doubt.  That means instead of going to the nth degree to absolutely prove a point based on exhaustive research, we can agree that sufficient high level facts are enough.

So if we are to succeed with a Canadian energy information organization, facts and trust go hand in hand.

http://www.cgai.ca/an_energy_strategy_for_canada

http://www.policyschool.ucalgary.ca/?q=content/proposal-create-pan-canadian-energy-information-organization-ceio

Changing Scope of Energy Infrastructure Projects

With the increased concern regarding greenhouse gas emissions, the review process for pipeline projects will now consider their upstream emissions impacts.  This is a departure from a more traditional approach of focusing only on the project and its direct impacts.  Economists have for years looked at direct, indirect and induced impacts associated with many different projects in different sectors.  It seems therefore, that the review of greenhouse gas emissions of a pipeline follow this same perspective.  However, it is not clear if we are capturing all the impacts associated with infrastructure reviews.

It can be more difficult to conduct these reviews, but do we need a conversation around which upstream or for that matter downstream impacts should or should not be included.  What, for example, are the downstream impacts of the Energy East project.  Oil from this project would substitute for overseas oil.  Should we consider the difference in greenhouse gas emissions of western Canadian oil to a specific point such as Saint John with those of oil sourced from Nigeria?  

We could go even further to evaluate the change in the average price received by upstream producers compared with the price discount of selling oil into the U.S. market.  Should this economic and government revenue impact be included in a pipeline assessment?

One option to address this situation is to sit stakeholders around a table and have that discussion.  We should ensure we are agreed on the scope of the analysis and we include all economic, environmental and social benefits or costs within that scope.  Discussions of this type have occurred with respect to the benefits and cost of energy efficiency programs, in particular as they can avoid other energy investments, or if a program should be granted the benefit of free riders.  

How much of a specific impact should be allocated to a specific project?  A number of questions arise with this change in perspective, and it is important to understand the perspective used to assess a project.  To do otherwise is to make decisions on these projects without all the facts.

 

Do We Need a Canadian Energy Information Organization?

Stakeholders, governments and industry groups struggle with understanding energy supply and demand systems in Canada.  We most likely look to the IEA or the EIA to determine how the market is evolving in this country.  Why would we need such an agency here?  Do we have issues with inter-provincial coordination of infrastructure projects? Do we deploy province specific energy efficiency programs without learning from other Canadian jurisdictions?  Is there a need to have a detailed understanding of Canada's supply and demand picture in international trade negotiations?  The answer to all these questions is yes.  Yet, to date, we have not seen a concerted effort on the part of energy stakeholders and decision makers from across the country to get serious on a shared understanding of our supply and demand issues. A common understanding of the facts would focus our energy debates on values.  While still difficult, debates in terms of the economy/environment trade off would have a greater chance of achieving consensus than if we were still arguing the facts.  So I ask you, do we need a Canadian Energy Information Organization?