What China’s plans to decarbonize its economy mean for Canada’s energy exports

Canada has neglected to follow China’s climate policy, jeopardizing the future of the country’s fossil fuel exports.

One of the surprises of COP26 was the joint US-China declaration on strengthening climate action in the 2020s. Although the declaration lacks details, it offers a positive sign of progress towards reducing global emissions. greenhouse gases, in part because China and the United States are the two largest emitters of greenhouse gases in the world.

The statement also marks “a rare moment of cooperation between two superpowers locked in a geopolitical rivalry” on trade tariffs and intellectual properties, among others, according to Bloomberg News.

For academics who have followed China’s climate policy closely, this news reaffirms China’s resolve to rapidly decarbonize its economy. This resolution, however, has been largely overlooked by Canadian policymakers and investors in the oil and gas sector, in part because the Canadian mainstream media has underestimated the evolution of China’s climate governance.

Unfortunately, such neglect carries significant economic risks for Canada: China’s increased decarbonization efforts will cast shadows on the future of Canadian fossil fuel exports.

The evolution of China’s climate governance

The joint declaration reaffirms the two countries’ commitment to intensify their policies to reduce carbon emissions in order to achieve the Paris Agreement target of limiting the rise in global temperature to “well below 2 ° C” ”And keep the 1.5 ° C target“ close at hand ”.

To this end, the main areas of climate cooperation described in the declaration focus on accelerating the energy transition of the two countries during this decade. In terms of decarbonizing power generation, for example, the United States aims to achieve 100% carbon-free electricity by 2035. For its part, China promises to gradually reduce the consumption of coal and make everything possible to speed up the process. The two countries also identified reducing methane emissions as a critical area for future collaborative efforts.

China’s commitments in the joint statement are consistent with its evolving climate policy, which has undergone significant changes in recent years. As recent Environmental policy The article points out that climate governance in China is characterized by the dynamic between climate change and the Chinese government’s quest for “performance legitimacy,” whereby the Chinese government maintains its legitimacy by achieving concrete goals such as growth. economic and social stability.

The Chinese public is increasingly aware of the dire consequences that extreme weather events can have, such as the July 2021 floods that killed more than 300 people in central Henan Province. The importance of government policies that avoid and reduce greenhouse gas emissions has increased dramatically in the public eye.

In response, the Chinese government’s quest for legitimacy – once based solely on its economic development – now takes environmental issues more into account. It also explains why China placed more emphasis on transitioning renewable energy and other sustainability measures in its 14th Five-Year Plan, as well as the country’s ambitious goal of becoming carbon neutral by 2060.

China’s accelerated eco-transformation

The Chinese government has communicated its sustainability efforts at the national level through “ecological civilization” – a policy framework aimed at establishing a green economy that matches China’s development trajectory. But a general lack of international awareness about the centrality of this concept in guiding China’s environmental discourse persists.

My recent analysis of international media coverage of ecological civilization suggests that many reports have equated the concept with deceptive propaganda. Not only does this reject China’s recent environmental achievements in areas such as renewable energy development, afforestation (planting new trees or seeds in previously unforested areas) and ecological agriculture, it can also lead to significant miscalculations on the part of foreign oil and gas producers about the future directions of China’s environmental and energy policies.

Of course, China still faces many obstacles to decarbonize its economy. For example, its low-carbon development program has led to recent power shortages, which has left many worried that the government will have to slow down its efforts to shut down coal-fired power plants in order to stabilize its electricity supply. electricity.

China’s national carbon emissions trading program also poses many challenges. As highlighted in a comprehensive review of the program, factors such as market volatility and inaccurate facility-level emissions data demonstrate the complexity inherent in establishing the world’s largest carbon market in a short period of time.

Growing risks of investing in fossil fuels

Canada is currently developing two energy megaprojects with China as a key customer: the Trans Mountain (TMX) pipeline expansion project to transport crude and refined oil from Alberta to British Columbia, and the LNG Canada facility. (and its related Coastal GasLink pipeline) to export natural gas to Asian markets.

Both projects initially promised long-term economic prosperity in return for public support. But their economic benefits must now be reassessed in light of how the COVID-19 pandemic has accelerated the transition of many countries to low-cost renewables, including China.

In October 2020, the Canadian Center for Policy Alternatives released an updated assessment of the need for TMX, based on the latest data. The reassessment found that the increase in bitumen production required by TMX defeats Canada’s emission reduction target, and that Canadian heavy oil exported to Asia “will likely sell at a loss.” from $ 4 to $ 6 per barrel ”.

As for British Columbia’s LNG exports, a July 2020 report from the Conference Board of Canada says that a thriving Canadian LNG industry will generate more than $ 500 billion in investment between 2020 and 2064. However, A closer look at the report’s methodology reveals two flawed assumptions underlying its predictions.

For starters, the report’s data on the demand for natural gas in Asia-Pacific markets ends in 2018, ahead of the macroeconomic shock caused by the COVID-19 pandemic. The International Energy Agency estimates that “the COVID-19 crisis will cause an annual loss of demand of 75 billion cubic meters by 2025”. This poses a significant challenge to future Canadian LNG export plans.

Second, the economic projections in the report are based on developing an LNG export capacity of 56 million tonnes of gas per year. For reference, phase 1 of LNG Canada, with a commissioning date scheduled for 2023, will only be able to export 14 million tonnes per year.

In other words, for British Columbia to realize the proposed economic benefits, it must not only secure enough investment to quadruple its LNG production over the next several decades, but it must also find ways to sell its LNG. competitively priced in rapidly decarbonizing economies such as China. Such economic calculations are unlikely to work.

At COP26, Justin Trudeau announced that Canada would cap emissions from the oil and gas sector. Yet there is a more fundamental question that deserves broader public discussion: Do we want to devote more of Canada’s already limited carbon budget to the fossil fuel sector, which is in decline and poses increasing economic risks?

Sibo Chen receives research funding from Ryerson University and the Social Sciences and Humanities Research Council of Canada.


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