Westridge Marine Terminal, the terminus of the Canadian government-owned Trans Mountain pipeline expansion project is seen in Burnaby, from Cates park in North Vancouver, on May 1.Jennifer Gauthier/Reuters
Oil and climate have been tightly bound throughout the federal Liberals’ time in office.
In late 2016, a year into their tenure, the Liberals approved the Trans Mountain oil pipeline expansion. Ottawa and the provinces soon after agreed to a climate pact, leading the way for a carbon tax and a bevy of climate policies.
The strategy, then and now, was that the fount of wealth from the new pipeline could help underwrite public spending – speeding the arrival of a greener future and a swift decline in Canada’s climate-heating emissions.
Last week, oil and climate intersected yet again. The first of May marked the start of commercial operations of the new Trans Mountain oil pipeline. The next day, Canada’s latest official emissions data landed. They showed emissions in 2022 ticked up slightly from 2021, as the pandemic receded – but the data also showed emissions at their lowest level since the late 1990s and down 9 per cent from a peak in 2007.
Oil industry emissions in 2022 also ticked up slightly, as increases in British Columbia and Ontario outweighed a small decline in Alberta – but oil emissions were down 6 per cent from their peak in 2014. That’s because of government regulations on methane, although declines have been partly offset by increased output from the oil sands.
Oil production – Canada’s largest export – reached another record level in 2023, at almost five million barrels a day, up nearly 30 per cent since the Liberals took office. Forecasts suggest oil output could make its biggest-ever jump this year, as many as 500,000 barrels a day, propelled by new capacity on Trans Mountain.
Of the various proposed pipelines, Trans Mountain always made the most sense. It runs alongside one built in the 1950s and it opens the potential for daily exports to Asia or the Western United States. This is a significant win for Canada, as it eases the country’s dependence on buyers in the U.S. Midwest and Gulf Coast.
That limited market reality costs Canada a lot, every day. When the price of oil is in the news, the stories typically cite West Texas Intermediate. The domestic benchmark is Western Canadian Select. It’s less valuable because it’s more difficult to refine into products such as gasoline. But how much less valuable – the differential – fluctuates, sometimes wildly.
In the mid-2010s, the price differential averaged about US$17 a barrel, similar to recent years. That adds up fast, when you multiple it by several million barrels a day. At extremes, such as in 2018, the differential has spiked to US$50 a barrel. This year, as Trans Mountain’s opening neared, the differential has narrowed back toward US$12 a barrel, with West Texas at about US$78 on Monday and Western Canadian Select around US$66. If the outlet to new buyers of Canadian oil can permanently reduce the differential – as many predict and hope – the pipeline will produce value every day. The Bank of Canada in April forecast the pipeline could buoy economic growth in the second quarter by 0.25 per cent. That pushes the economy to a higher level that should be sustained for years.
There are unresolved questions of whether Ottawa will lose money on Trans Mountain as it looks to sell the company, after spending $4.5-billion to buy it in 2018 and $34-billion to build the new line. There are also long-term questions, looking towards mid-century, whether the money invested in oil at this critical climate juncture should have been invested directly in clean energy.
For the immediate years ahead, as money flows from the pipeline, the promises of 2016 have to be remembered. Oil profits are a sort of dirty engine to fuel a rapid transition to a greener economy. Companies in the oil sands aim to cut their emissions by a quarter by 2030, with a big bet on carbon capture. That technology remains uncertain. There is $15-billion-plus of public money, between Ottawa and Alberta, on offer to industry to make it happen.
That funding will be in part underpinned by increased oil revenues. And carbon capture is only one initiative. There’s $32-billion of public money planned for clean electricity. All-in, the cost to Canadians for an array of climate tax credits adds up close to $100-billion, with the goal of sparking much more from the private sector.
There always was an uneasy mix between the promise of more oil and lower emissions. Canada finally has the new pipeline. Now the focus must fully shift to slashing greenhouse emissions as fast as possible.