Now Is the Right Time to Talk About Fossil Fuel Phase-Out

Tavis from Canada, The Yes Men (CC BY 2.0)

From a purely economic standpoint, it might seem counterintuitive to talk about a fossil fuel phase-out in 2023. After all, oil prices have roared back from their COVID-era trough, when Western Canada Select (WCS) briefly went negative. If you like graphs, a chart available at the Alberta Economic Dashboard shows a dramatic surge.

It took just two years for WCS to soar from a low of $3.50 USD per barrel to $101.17 USD. Even at the October 2022 price of $66.38 USD, the price of oil enables record company profits and royalty revenues for the Alberta government.

With coffers full, the Alberta Government is paying down debt and offering inflation relief. In the November 2022 fiscal update by Finance Minister Travis Toews, the government predicted a surplus of $12.3 billion for fiscal year 2022-23. The government earmarked $13.3 billion for retiring debt and an additional $2.4 billion for inflation relief for Alberta families. What remains of the gas tax has also been suspended until at least June 2023.


Fossil fuels are damaging our home, our country and the entire world.
It’s time to talk about phase-out. It’s time to build a new province — an Alberta beyond fossil fuels.
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High Oil Prices and High Production

High prices have naturally encouraged high rates of production. Writing in August 2022, Paula Duhatschek at the CBC reported record daily crude oil production of 3.6 million barrels per day in the first half of the year — a jump from 2.3 million barrels per day a decade ago.

With production at such high levels, the near-term outlook is relatively positive. A November 4, 2022 announcement from the Canadian Association of Petroleum Producers (CAPP), citing analysis by Peters & Co, predicts $50 billion in royalty payments to Canadian governments in 2022 alone. The CAPP announcement also speaks of billions of dollars returned to Canadians in the form of share buybacks and dividend payments — although, with non-Canadians comprising about 75 per cent of all petroleum industry shareholders, most of these funds are leaving Alberta and Canada.

A Rosy Future for Oil and Gas?

Based on today’s rosy conditions, some Albertans believe the oil and gas industry will remain sound for decades. But there are reasons to be wary. A 2021 report from the International Institute for Sustainable Development PDF icon cites several. The rise of electric vehicles and growing international action on climate change augur lower long-term demand for crude oil. The capital-intensive nature of the oil sands, coupled with declining demand, make it unlikely that we will see more of the large greenfield projects that drove industry expansion in the first decade and a half of this century. As high-cost producers, Canadian oil firms may also find it difficult to access capital.

The demand scenario is especially problematic. Even with demand spiking due to Russia’s invasion of Ukraine, it’s not clear that Canadian producers can realize an advantage. In its recent World Energy Outlook 2022, the International Energy Agency foresees that, under its Stated Policies Scenario (STEPS), low-cost renewables will almost entirely meet demand growth between now and 2030. Under the IEA’s more bearish Announced Policies Scenario (APS), climate ambition drives all fossil fuels into decline by 2030. An interesting note from the report states that sharply rising prices for electricity generation are primarily due to increased costs for natural gas, with renewables and carbon pricing playing only a minor role. Far from being the cause of electric rate hikes, energy transition is better described as the solution.

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Finally, we come to jobs, investment and royalties. Here, too, the outlook for the oil patch is not robust. The IISD report models two pricing scenarios for oil and gas between now and 2050 — a low price scenario where prices hover at around $55 USD per barrel, and two volatility scenarios, where prices vary in line with historic shocks from the last 37 years.

Under the low-price scenario, the oil and gas sector sheds 6,300 full-time equivalent (FTE) jobs per year out to 2050. During this same period, GDP falls by an average of $4.4 billion CAD per year, investment declines by just over $2 billion CAD per year, and royalties by just under $2 billion CAD per year. Provincial tax revenue falls by $1 billion CAD per year, while federal tax revenue falls by $1.4 billion per year.

Under the two volatility scenarios, the outlook is even grimmer. Average job loss in the sector ranges from roughly 22,000 to 24,000 FTE jobs per year. GDP declines by an average of $21.8 to $24.3 billion CAD per year. Investment loss ranges from $9.6 to $11.2 billion CAD per year. Royalties fall by 41 to 43 per cent per year.

The high oil prices and government revenues of 2022 make it tempting to pop champagne corks. But when we talk about fossil fuel economics, we should be more interested in what comes next than in what is happening now. Wayne Gretzky is often quoted as saying you should skate to where the puck is going, not where it has been. This thinking is especially apt when we consider the long-term planning required to shape our economy for the conditions of tomorrow. Yes, oil and gas are flying high in 2022. But there has never been a better time to talk about fossil fuel phase-out.

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