Canadian Energy Podcast Series
The Energy Exchange |
Part 1: Energy transformation in Canada

Jason: Hi. I'm Jason Hatcher, managing principal of Navigator Limited.

Lorne: And I'm Lorne Rollheiser, a partner with Gowling WLG in Calgary. Welcome to the Energy Exchange. A four part series brought to you by Gowling and Navigator, where Jason and I explore the energy transition in Canada and what it means for our industries, our climate change goals and for our future.

Jason: So, Lorne, should we jump right in?

Lorne: I think so. There's a lot to cover, and as you and I have discussed before, there's always changes going on in the industry so it's which thread do we want to start pulling on first?

Jason: It's so true and we're going to have guests throughout this series but today we're going to really spend some time setting this up and when you look out there, Lorne, the future of energy really is something that needs to be discussed, I think. I think what we're trying to do is really have an honest discussion about it. Let's put away the ideology. Let's put away the politics and let's talk about what energy means for Canada and what the future looks like.

Lorne: Yeah, 100%25 agree on that. Energy has always been an important element of our lives, obviously from just a physical perspective, but a political perspective. But that's kind of shifted. It's not completely reversed itself but it's shifted and evolved over time. Whereas it used to be mainly politically important because of its economic significance, now there's a much greater social significance to it all, and that economic significant remains and is coupled with the social significance. So really critical of our day to day lives and more and more something that considered in respect of how we're going to evolve from where we are to where we're going in the future.

Jason: Politics have been such a big part of the discussion of energy transition in the country. We're going to unpack this notion of what transition is and what it means because it clearly means different things to different people. But we have a really interesting political atmosphere right now. A real quagmire, if you will. On one hand I think governments, both in Ottawa and Provincial governments around the country, recognize the economic importance of energy production in Canada. Whether that be renewable or whether that be fossil fuel based and, at the same time, working with the industry's critical in order for Canada to meet its 2050 climate change goals. The government's been really leading that charge Federally. We've seen Mr. Trudeau's talked about that and it's been a really important plank of his entire, really tenure, as Prime Minister. But at the same time now we've got the energy industry really pivoting and making it known that they have pivoted and pivoted quite a while ago. We see groups like the Pathways to Net Zero, which represents six of the largest producers of oil in this country, saying they're committed to supporting Canada's climate change goals They're committed to the idea that climate change is a fundamental problem that needs to be addressed by industry. When you juxtapose that with the political atmosphere where people are talking about phasing out fossil fuels, when you really see an interesting dynamic developing there.

Lorne: Yeah and I think what I do, and the people I work with, I think ideologies are important. Obviously that helps shape policy and where things go from a direction, sort of a longer term perspective, but the realism associated with what we do now and in the future I think is kind of where I focus on. I'm obviously not a person who's a policy maker. I seek to help economic actors who make their decisions based on reality and realism of the environment they find themselves in and I think a lot of people that I talk to, and I've worked with, this is somewhat of a trite thing to say I suppose, but they really want to know what the rules are and comply with those rules, follow those rules. If the game is set in respect of these are the parameters in which people are going to play, they can make their decisions based on those parameters, and it's that confidence and surety of what the parameters are and adjustments will always occur, but so long as those adjustments are foretold, understood, sort of visible, they can make their business decisions and I think this all kind of flows back to the fact that we're in a transitional period. Transition is change. I think it's easily defined as change and change creates a volatility and volatility for the investment community is often a great source of opportunity and I think that's, maybe with a glass half full, how I look at it where we currently sit and where I think we're headed in the energy future in Canada.

Jason: Let's unpack that transition. Let's just try to figure it out. Lorne and I are going to come at this from somewhat of different perspectives. Obviously Lorne, with his legal background and the great work that Gowling does in the sector, both on renewable and non-renewable, will be coming at it from that side and I'll be looking at it from a public affairs side and a public policy point of view, and as we bring guests in throughout this series we hope to really unpack some of these key pieces. Lorne, let's talk about the transition because transition is a loaded word. When we talk about energy transition we've heard the Government of Canada refer to transition in one sense. We've heard the Government of Alberta and the Government of Saskatchewan talk about it in another sense. When Canadians hear transition it really becomes a matter of perspective what they hear. Are we transitioning to net zero? Is the objective here to transition to a low carbon footprint so that we meet our Paris Treaty objectives for 2050? Or, is the objective to move away from fossil fuels and transition away completely? I think depending on who you're talking to, certainly if you talk to my clients in the industry, they're very excited about the innovation, about the technology that's going to be developed, about the opportunities for jobs and for the economy within Canada, that a transition to a net zero, or very low carbon production of fossil fuel energy, what that could mean for the future of their country. They're very excited about that innovation. There's a lot of investment going in it and we talked about cleantech, I think it's fair to say that a lot of people in Alberta would see that as a form of cleantech. Then we also hear from the other side which is we need to transition away from fossil fuels completely and leave them behind and that is the only way to meet the objectives. Lorne, how does that sort of sit with you and your clients and the work you've been doing in this space?

Lorne: I try to catch myself as being some sort of runaway optimist because I don't necessarily consider myself that, but I start talking occasionally I think that's maybe who I am in that. I do think that an all of the above approach is what fits within the realms of realism as far as what plans are being made now and into the future. So if you look at 2030 goals, I would call those very short term goals versus 2050 goals, specifically Canada, generally, has a great resource base. Obviously that is not something that every jurisdiction is blessed with and we have that to be able to build off of. But it can be an 'and' and I think it's going to be an 'and'. I think people want it to be an 'and' and we will benefit from the 'and' renewables. I don't think anybody would advocate not advancing parts of the energy spectrum, which are renewable, in that the energy business has evolved over time and it will continue to evolve. I think the thing that I am somewhat mindful of is for years, and I think for years to go, energy use is going to expand. It's going to increase and I've never really been in an environment where people talk about using less energy. I've always been in an environment where people talk about using more energy, though maybe in different kinds, different energy intensities, different formats, but as far as energy use writ large I just see it only going in one direction on the graph. So it's an interesting, again kind of the way I look at it is, where kind of doing two things at the same time. The pie is getting bigger, (ie: the energy request of society is getting larger), but we're also trying to change the size of the slices at the same time as we're getting the pie to be bigger and that has, as I've said previously, I think you and I agree on this, that volatility and that opportunity, which is producing out oil and gas for instance. A lot of significant infrastructure investments have been made. Those are captured infrastructure investments. They are going to produce and produce out for the life of those assets. I don't know what future investment's going to look like in those kinds of projects 10 years from now, but there are new investments, other investments. Maybe the way to summarize it is, is the energy treadmill, which is a thing we've always been running on. If you're a traditional oil and gas producer, you've produced the barrels that you have, but you're also always trying to ensure that you're restocking. You're finding and being prepared to develop those replacement barrels and those replacement resources. Now those resources are renewable or non-renewable. I don't think anybody's opposed to that.

Jason: I think we need to be thinking as a country, what is the opportunity. It's not a one way street. I think there are many ways for Canada to meet the opportunity and the challenges that lie ahead in solving climate change but also maintaining our quality of life and the economic opportunity. For me the fundamental question is, do we want, we know the demand for oil remains steady. In fact it's gone up recently, and there's some predictions that it may go down by 2030, but the reality is, growth is continuing, demand is continuing for oil and the products that derive themselves from oils. Plastics, the phones that we use. Everything that we use in our daily life so much of it is derived by fossil fuels and it's something I think that is important for all of us to understand as a starting point. We have to look at what our starting point is. The starting point is a real dependence. I think that's something all sides of this discussion can agree on and I'm a guy like you. I'm a bit of an optimist and I'd rather start from a position from where we agree. So we know there's this reliance. So part of the question I think we need to ask ourselves as Canadians is, is there an opportunity for Canada because high environmental ... has an industry that says, we're going to produce this stuff, net zero. We're not going to damage the environment in the way people think. We're going to remove that carbon in the production and they're looking at ways, in fact, to remove existing carbon that's already in the atmosphere, how to pull that back out. So this is an industry that is really at the forefront. Do we want a country like Canada producing oil with this very high environmental standards, that has proper governance, that does believe in equality and equal opportunity and for all people? Is that where we want to see a preferred barrel of oil come from, or, do we want to abandon that space and let perhaps other regions that are not as focused, maybe don't care about the environment or care about human rights, and have them lead the production of oil that is still going to be required and demanded by the world? At the same time, Canada still can be investing and developing non-renewable resources to compliment that energy mix, because it has to be an energy mix. If you've got a lot of one, then we need to look at we develop. But it seems to me that that would really kickstart. That kind of investment in innovation in this country could really kickstart a whole new era for Canada, in terms of research and development and the opportunities that flow from that, economically, but also environmental.

Lorne: Right. I think that really picks up on the 'and' theme that I like to speak about, I like to try to promote. I think some of your comments, in particular related to ESG and standards in production, I think are really meaningful to me and meaningful to a lot of Canadians who have seen energy, and I'll speak oil specifically, oil production and carbon intensity drops significantly over time, taking ESG standards to heart and really actioning those inside the companies that are major producers. I think it also sort of teases, at least in mind, a discussion that we'll maybe have a little more in depth on, ESG related issues in one of our upcoming episodes when we talk about climate litigation and, specifically, the Dutch case in respect of an order for Shell to reduce its carbon emissions. I think that's important. It's important obviously for the decision itself. It's also important in respect to what kind of waves that's going to make beyond just that decision from the Netherlands. So I think you've really kind of picked on, as I said, lots of things to talk about in the energy space. But I think you've put your finger on one that's really got a lot of movement in it, and a lot of opportunity in respect of where it's headed, but also Canada hasn't sat still in that area. It has already been making advancement in that area and I think that advancement's being propelled from policy makers and the influence that they have on investors and corporations. Now, Jason, I have an audio clip from Global News featuring an interview with Dale Beugin from the Canadian Institute for Climate Choices. Let's listen and see what he has to say about this very topic and the future of our energy industry.

Dale Beugin: So we need to be planning for that future as well and keep planning for new sources of growth in the face of risks to old sources of growth. That's not partisanship. That's not ideology. That is sensible planning.

Lorne: It's almost like somebody found that clip, specifically, and tried to just underline some of the things we've been discussing. I'm very in tune with that message. I think that is very much in line with what a realist approach is. I think it's very much in line with the attitude and approach of people I talk to regularly. It speaks to where we currently are today and where we're headed in the future. Like I say, that comment makes a lot of sense to me and I think really rings true at this day and age.

Jason: When we look at things as an either/or you automatically have ... ... other sides. Now you've got friction as opposed to working together to looking at solutions. So when I hear that clip I think of some of the things we've already talked about. Looking at some of the old sources of growth, yes, we do need to look at new sources but at the same time, how do we take those old sources and repackage them, or reinvest in them, through innovation and the like to ensure that we are in fact meeting our energy needs, meeting our economic needs but at the same time fighting that very important fight for the future of our planet, climate change. I've talked about this with many in the industry, who often sort of I think get a little frustrated at how they're portrayed outside of Alberta or outside the industry, that they don't believe in climate change, they're not doing anything about it and they're kind of looking around going, we've been trying to figure this out now for decades and we're all in on this. I think seeing the industry take the initiative to stand up and publicly say, we believe in climate change and we can be a part of the solution here. I think it's a really big step and it's an opportunity for this country to start bridging the gap. That friction I just described having pitting one side or the other, it has to be either/or. We have a shared goal. To arrest climate change, to stop climate change and to maintain our quality of life. I think that's the goal we need to focus on in Canada. That's where we need to focus on in investments. That's where the discussion needs to happen because, if that is the goal, then we should be working together. Again as we said, ideology aside, are we trying to save the planet here or are we trying to end a certain industry? The reality is, is that industry cannot only contribute to solving climate change but can spark other industries, new innovation, looking at hydrogen and other forms of cleaner energy and that's an exciting thing for Canada. Given our geography, given the breadth of energy that we have in this country, from hydroelectric in the East to the oil sands in the West, the opportunities are really, really limitless and it's something that really benefits all regions of the country and it can be done in the name of solving climate change.

Lorne: Right. I think there's the opportunity, maybe more than the opportunity, I think probably the existence or at least the start of a bit of a virtuous circle that's being created. There's a demand for change. I think there's a recognition of the necessity for change. That's being reflected in policy adjustments and policy directives. That is helping support technology improvements, which are then implementing that change, and I think that wheel keeps turning in that gain from technology improvements supported by those policy directives, which are demanded by society to help propel forward to getting the transition rolling in a more predictable fashion. This is the part about change. Shifting gears can be done smoothly, and it can be done very roughly, and this is to me is the magic associated with trying to do this effectively is, gears are going to get shifted and we're trying to do it in as an efficient and seamless way as possible. I think you've kind of, to me at least, touched on this a little bit. The people that have the expertise, the knowledge, primarily work in the energy companies of today and those energy companies today are not at all ignorant to society writ large and all the issues you and I have touched on, and it's their capabilities that are most likely to be the ones at the forefront for things like carbon capture, underground storage, high utilization of hydrogen in development, of which Alberta is currently a high hydrogen producer in a relative sense to the rest of the world, bioenergy. You've already mentioned solar, wind. Canada's blessed with significant hydro resources. These are the people that, when I think about how are we going to get this gear shifted, who's going to be working the lever, are the people that have the knowledge capacity within industry to help change industry itself. I think that's something needs to be acknowledged. Your comment about, particularly kind of bringing it back to Alberta and how Albertans may or may not be or feel that they are viewed from outside, I think tough to speak for all Albertans, but I think certainly people see it going in the direction that I think you and I are discussing. It's not an either/or, it's an 'and' we're talking about.

Jason: There's goodwill and there's good investment opportunities on both sides. The money is there to be invested. I think really one of the things that needs to happen, and what I'm hoping we'll achieve through, at least in the four part series that we're doing, is kind of de-politicizing this discussion. We need to get to solutions and opportunity and not mean that if you're left you think one way, or your right and you feel another way. Like many Canadians are in the middle and they're trying to figure it all out. I think that's the opportunity for Canadians right now is to de-politicize. Look, there's lots of opportunity to do so. I can say honestly I believe the industry needs to do a better job of telling the story. Telling the story of everything that they are doing. The massive investments they are making. I think most Canadians don't realize that oil producers in this country are not only investing in their own technologies to get to net zero, and putting aside differences to work together, but they're also investing in renewables. There's the opportunity. I think on the other side of the equation those that have been really leading the charge, spend a lot of time bringing the issue to the forefront, the issue of climate change, they have to be open to other ideas of how they can achieve that goal of arresting climate change that we talked earlier.

Lorne: Definitely, Jason, and mentioning de-politicization, we have an audio clip from the Government of Canada. Prime Minister Trudeau announced the Pan-Canadian framework for clean growth and climate change. Let's take a listen.

PM Trudeau: That's why, as a second point, this plan includes some strong measures aimed at accelerating a reduction in greenhouse gas emissions. Our goal is to have Canada powered by 90%25 clean energy by 2030.

Jason: So have Canada powered 90%25 by clean energy within the decade. That's a very audacious goal. What does clean energy mean to you, Lorne, and what do you think the Prime Minister means when he says it and what do you think Canadians are hearing when he says it? Because those might be different things.

Lorne: Yeah, that is highly ambitious. He may be talking to people in the energy space about the feasibility of that. I haven't had these conversations he's had or he's making it as an aspirational goal. When you say 90%25 clean energy by 2030, that's a strong ask, and I don't say simply a strong ask in the 90%25 number, I mean also in the context of a growing energy pile like I talked about earlier. When you're trying to change the size of the slices and the size of the pie at the same time. But I think you've got to keep all the elements in mind, in no particular order. We have a really good base in respect of hydroelectric. Hydrogen has significant capacity for growth. If you look at bioenergy, I think there's also some really good opportunity there. You've got to throw in things like geothermal. Solar's had some good development, as well as wind, and I don't know if he's referring to this or not but I have a hard time seeing how you can get to 90%25 clean energy without things like carbon capture and underground storage.

Jason: Which aren't going to be ready. They're not instant soup. I mean this is technology that's being developed. These are opportunities that are going to require government investment at a time when government's talking about ending fossil fuel sort of support. But, again, if we're going to hit those goals then governments and industry need to work together. For me, this is the kind of hyperbole that doesn't help. Right? Putting out a goal without a plan to get there and not bringing Canadians along. We need to understand in our society the implications of ... If we can't do it without oil and gas then let's get on with that discussion. Say, okay. How do we make sure that oil and gas is the cleanest form of energy that comes out of Canada, or cleaner than any other production in the world? If we're not able to have those honest discussions, because at the end of the day it's going to come back home. It's going to come to your office, my office, our homes. Right? Consumers also need to have a responsibility in this. We call this scope 3 emissions. Not the emissions that are produced when we're actually producing oil or producing other forms of energy, but we consume them ourselves. When we go to fill up our car, whatever the case may be. But consumers also have a role and I think governments have to be a little more honest about the impacts on consumers for cost stand point and from an economic development stand point.

Lorne: Right. I think the more helpful word that he's used in that clip that we played is "accelerating our reduction". I don't think anybody is talking about having static or deceleration of reduction in greenhouse gas emissions, but it's accelerating, and that is actually something that's achievable. It's currently being worked on. It's an easier path or an understandable path as to how that happens. The idea of 90%25 clean energy by 2030, both of those numbers are a real challenge, and again as I think you've kind of pointed out, to say those numbers is one thing. To say those numbers without the, and this is the path we're taking, is another thing. I'm going to ask a question, Jason, to get your thoughts on, I don't know if you have a conversation in the last 2 years without making mention of the pandemic, and to me I'm interested in maybe sliding this in here and now which is, the pandemic has caused all sorts of problems, in all sorts of ways, and one of those ways is wreaking havoc on budgets. This to me, in my mind, sort of plays in both ways which is Canada is a strong resource rich nation, has an opportunity to assist itself in its budgetary constraints with its resource development, which can sort of help with some of the costs and issues associated with the pandemic, as we hopefully move out of it sooner rather than later, but then there's also there hasn't been a material drop in emissions associated with some of the restrictions that took place over the pandemic, and in fact, I think there's evidence that shows an acceleration and a pent-up demand that's coming. So I kind of wonder, from a policy perspective, I wonder if you've got views on sort of the availability of incentivization that the government's going to be able to offer because you're kind of in a tough spot in that there's a lot of tough decisions that governments need to make, but on the one hand, you want to incentivize further acceleration of a reduction in greenhouse gases and development of renewables as replacement for produced fossil fuels, but providing these incentivizations is not cost free and pandemics have caused significant harm to the balance sheets of governments all over the world. It's not the restrictions and the availability to do that.

Jason: It's reality.

Lorne: Yeah, the reality of it.

Jason: It's the reality and I think you've hit the nail on the head. That's where I was going in my previous comments. I think if we are going to really take the steps that you're talking about then we need to be able to have honest dialogue. There have been impacts of the pandemic. Two impacts the governments are going to have me looking at, you've nailed on, is the budget. There are major budget implications to what has happened. We're going to be dealing with those economic repercussions. Future governments will be dealing with them probably for a generation. We know that. It's been talked about. So what role both renewable and non-renewable energy production plays in this country? We are a country that has a lot of resources and that's going to be one of the keys for us getting out. The other piece we've seen during the pandemic is people are getting angry and I think the last weeks and months have really demonstrated that. It's almost like Twitter has come to life. Right? Twitter used to be that angry place where people would go to vent. Now we're seeing it on our streets. We're seeing it in Western democracies all over the place. That's an opportunity for governments to step up and start bridging this gap and having a dialogue. Not about pandemics, restrictions and all that stuff. We need to move past that, that piece of the discussion, and get to solutions. You and I have talked in the lead up to this series about a carrot and a stick approach. I think, certainly, there has been a lot of stick when it comes to environmentalism and how we're going to achieve our climate change goals that are shared, I think by frankly the majority of Canadians. But now it's time for some carrot. It's time for the less pointing of fingers. To be honest and have that honest dialogue and for politicians and for industries, both developing new industries and existing industries that we've talked about here, to work together to figure out how we can solve these problems. Because, honestly, the future of our planet and our quality of life are two of the most fundamentally important things, for all of us in society, but for governments specifically and if we can have that dialogue, the kind of dialogue that you and I are hoping to have over this series over the next 3 or 4 episodes here, hopefully we can make the progress that's needed and I'm excited for our discussion. I think this has been a great start today, Lorne. There's so much, like you said at the start here, that we can unpack. So many strings to pull and looking forward to our discussions going forward and listeners, hope you enjoy some of those strings that we're going to pull as we try to pull back the veil of energy production and transition, and ultimately climate change in this country. It's time for some honest dialogue. Time for some straight shooting. Maybe we'll solve all the problems right here, Lorne.

Lorne: Well at least we'll make a start on it and I think we've done some work in at least getting the ball rolling in that regard. There's so many facets of this. It's impossible to set aside any one element of the energy business and any one element of people's day to day life. That is why this is important. That's why it's interesting to me and I think that's why it's interesting to so many people in the industry. Whether people are directly or indirectly employed by the industry, everyone is touched by this. This is a fundamental pillar of our society. It is an issue that cannot go ignored and it's, as we've repeatedly said and is the title of this, it is in transition. That transition is important. We're all going to be impacted. As you and I, with our backgrounds and our skill sets that we bring to the table, we're not economists, we're not from the investing community, we are sort of policy and legal analyzers, I think we've got some things I hope we can contribute to the discussion that will help people and guide them along in respect of where we're headed, and I think today's been a good start in that regard.

Jason: We're talking. We're headed in the right direction. It's better than take it all or go home. I'm looking forward to the rest of this discussion where I'm just going to be bringing in some guests, folks, in future episodes to really dive down in these key issues we've explored today. We're looking forward to that discussion. Lorne, we'll chat soon.

Lorne: And that's a wrap on the premier episode of Energy Exchange, a four part series brought to you by Gowling and Navigator. I want to extend a special thank you to my co-host, Jason Hatcher, and his team at Navigator, including Catherine Moar, Kayla Doody and Zoe Keirstead and to Gowling's Anne Derby and Ian Mondrow for their support in the production of this episode. Stay tuned next week for episode 2 and thanks for listening.