The good news is that most of Canada’s big oil companies have pledged to achieve net-zero emissions by 2050. The bad news is that those pledges fall apart as soon as you look past their initial rhetoric.

On May 4, investors will have an opportunity to ask at least one of the major actors – Enbridge – to adopt a credible net-zero plan in place of the weak one now in place by voting in favour of a shareholder proposal that Investors for Paris Compliance filed.

What constitutes a credible net-zero plan in the energy sector, and how are Canada’s companies falling short? There are several global initiatives, some led by major investors, that dig into the details of such plans to provide guidance, including the Science Based Targets Initiative (SBTi), the Institutional Investors Group on Climate Change (IIGCC) and the Climate Action 100+ (CA 100+).

There’s some variation across these initiatives, but they have in common some fundamental elements that Canadian oil and gas companies are resisting.

This starts with 2030 emission reduction targets. Climate science tells us that these need to be in the ballpark of halving emissions, and on an absolute basis. But Canadian oil and gas companies have set weak “intensity” targets – reductions per unit of production – that let absolute emissions grow if production grows.

Related to this is another element: what gets measured and included in these targets. Emissions can be categorized into three scopes. Scope 1 are direct emissions from operations, Scope 2 are indirect emissions from suppliers, and Scope 3 are the downstream emissions resulting from your products. Credible plans measure all three and include them in reduction targets, but again Canadian oil and gas companies generally refuse to take responsibility for their Scope 3 emissions, which is the lion’s share.

As always, the most important element is probably “follow the money.” A company can measure its Scope 3 emissions and have robust targets, but if it isn’t aligning its capital expenditures to reach those targets, then they aren’t worth the paper they are written on. Again, look at the planned expenditures of Canada’s major oil and gas companies and you’ll instead find most of the capital headed for new spending on fossil fuel projects, putting the lie to their climate promises.

Enbridge is considered one of the more progressive Canadian energy companies but suffers from all of these deficiencies (see chart with CA 100+ assessment from the past two years). It has intensity-based emission reduction targets because it continues to expand its fossil fuel business, meaning that it cannot meet absolute reduction targets so long as it keeps investing in new fossil fuel infrastructure.

Furthermore, Enbridge targets reductions only for its Scope 1 and Scope 2 emissions, leaving out Scope 3 emissions. It does some work to reduce Scope 3 emissions (utility demand-side management or renewable electricity to power its pipelines) but fails to include the other side of the ledger for these emissions. For example, the recent completion of the controversial Line 3 oil sands pipeline expansion resulted in an equivalent Scope 3 emissions impact of 50 new coal-fired power plants.

Finally, looking at Enbridge’s planned capital expenditures, over 80% of its spending is going toward new fossil fuel infrastructure that will lock the company – and the rest of us – into ever greater emissions over several decades.

In some ways, Enbridge is a victim of being a midstream company in an industry where the producers are calling the shots, so we need to deal with the silver bullet that the industry is putting forward to validate its claims to net-zero: carbon capture and storage (CCS).

Again, the claims being made about CCS stretch credibility. It’s an incredibly expensive endeavour that has never been successfully scaled in the way the Canadian oil industry is assuming is possible. The engineering challenges alone are enough to make this a high-risk play, even if the industry is successful in getting the rest of us to fork out tens of billions in subsidies and gets a long-term oil price that makes it economical – again, both doubtful.

But even if all these challenges are solved and CCS is wildly successful, the problem is that it doesn’t deal with Scope 3 emissions – about three-quarters of fossil fuel’s climate impact – that result when the product is burned. Perhaps there are end uses that preclude burning, but that demand for their products isn’t enough to meet the sector’s growth plans.

Add this up and we see why the science behind a true transition to net-zero means starting to take the steps to reduce fossil fuel production. Canadian oil and gas companies must become Canadian energy companies with low- or zero-carbon business lines if they are to successfully adapt to a net-zero world. On May 4, Enbridge shareholders will have an opportunity to send that message to one of the companies we hope makes that transition.

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“If that doesn’t tell you a story about how the math has changed, nothing will,” says Andrew Grant, the head of Oil, Gas and Mining at Carbon Tracker, a London-based not-for-profit think tank that researches the impact of climate change on financial markets. “I think it’s become very clear that the world is different now.”

The contours of that new world were mapped out in BP’s 2020 Energy Outlook, which the company released in mid-September. Gone was its bullish scenario from the previous year’s forecast that suggested oil demand could rise to 130 million barrels per day by 2040. Instead, it thought the best that oil producers should hope for is that demand levels recover to approximately 100 million barrels per day and flatline there for the next decade or so. But in both its “rapid” and “net-zero” scenarios, where climate policy is adopted around the world to varying degrees of ambition, demand falls off much more rapidly.

BP’s net-zero scenario made headlines around the world for suggesting that demand for oil has already peaked, and the company is acting like it believes that will happen. In addition to announcing that it will reduce its oil and gas production by 40%, it also pledged to cut its refining output by 30% within 10 years, all while shifting approximately one third of its new investments to low-carbon energy.

BP isn’t the only European oil and gas company that has recently announced a shift toward a lower-carbon business model. In April, Royal Dutch Shell committed to reaching net-zero emissions by 2050, with CEO Ben van Beurden noting that “global society, overall, may have until around 2060 to reach net-zero emissions. But Shell recognizes that it stands within a section of society that needs to move faster. And so that is what we intend to do.” France’s Total SE has also pledged to eliminate greenhouse gas emissions associated with its operations by 2050, while Italy’s Eni went even further by committing to hitting that target by 2040. But BP’s pledge to reduce its actual production, rather than simply eliminate the greenhouse gas emissions associated with it, is a major step forward. “It’s been a bit of an arms race, or so it seems, over the last year or so,” Grant says. “And BP has really jumped into the lead in that race.”

“It’s been a bit of an arms race, or so it seems, over the last year or so, and BP has really jumped into the lead in that race.”

–Andrew Grant, head of Oil, Gas and Mining at Carbon Tracker

Here in Canada, though, the race has been slower to get underway. Take Enbridge, which has one of the biggest renewable energy portfolios in Canada. In a June piece in the Financial Post, CEO Al Monaco said his company would take a “gradual” approach to increasing its exposure to renewable energy, which currently makes up approximately 5% of its total assets. Large companies like Suncor, Cenovus, and Canadian Natural Resources have all signalled their intention to reach net-zero emissions by 2050, but they haven’t fleshed out how they’re actually going to do that. Instead, there’s been a lot of hand-waving toward technological innovation and the ability of the industry to rise to challenges, with a focus on things like improved extraction processes and the replacement of coke-fired boilers with higher-efficiency cogeneration units.

These are the sorts of improvements that have helped drive the per-barrel emissions associated with oil-sands production down by 21% between 2009 and 2017. But they haven’t prevented the industry’s overall emissions from rising, as soaring production has swamped these efficiency gains. For all the recent talk about low-carbon innovation, some industry watchers point out that Canadian oil companies haven’t really taken any meaningful risks yet. Suncor, for example, recently announced a $15-million investment in LanzaJet, a new venture that will make lower-carbon jet fuel and renewable diesel; the company also added $50 million to the $76.3 million it had already invested in Enerkem’s biofuels. But those figures are only a fraction of Suncor’s revised 2020 capital budget, which is expected to range between $3.6 and $4 billion.

“I think our pseudo-national oil companies are the least innovative national oil companies in the world,” says Sean Collins, founder of Terrapin Geothermics and an Energy Futures Lab fellow. “Even your Saudi Aramcos of the world are putting billions of dollars into direct renewables, and we’re nowhere to be seen.”

“I think our pseudo-national oil companies are the least innovative national oil companies in the world.”

–Sean Collins, Energy Futures Lab fellow

The idea of reducing production, rather than just the emissions associated with it, to meet net-zero goals remains largely taboo among industry leaders. When asked by the Financial Post back in February if his company would consider letting its production decline in the face of growing environmental concerns, Suncor CEO Mark Little said, “We don’t think that’s a solution.” By June, however, Little had written an op-ed in Corporate Knights stating that energy companies are “best positioned to invest in and lead energy transformation,” noting that “now is the time to take a big step forward.”

Canadian companies have yet to really take those steps – or undertake the same transformations that are proving profitable in Europe. In November 2017, for example, Italy’s ERG received €270 million for selling off its share of a joint venture that included 2,600 service stations and a minority stake in an oil refinery. That completed its transition from a company that owned refineries, pipelines and gas stations to one that invested primarily in wind, solar and hydroelectric projects – and since then, its shares are up nearly 50%. Earlier that year, Denmark’s Ørsted (formerly the Danish Oil and Gas Company) completed a similar transformation by selling its oil and gas business to petrochemical company Ineos for €$1.05 billion. Its shares have more than doubled since then. And the value of an investment in Finland’s Neste, which began as that country’s state oil company but has built a growing fleet of renewable diesel plants in recent years, has tripled over the same period. By comparison, the S&P Commodity Producers Oil & Gas Exploration & Production Index has been cut in half.

That sort of pivot would be harder to make for Canada’s oil and gas companies, which have many decades worth of reserves on their books (and nobody to sell them to). But they may not have to pivot as aggressively as their European peers. Instead, they could tap into those reserves and put them to uses other than combustion, from the creation of high-strength carbon fibre (which can displace steel) to the production of lower-carbon blue hydrogen. “That feels like a much different proposition than getting into solar or wind,” says Jamie Bonham, the director of corporate engagement at NEI Investments. “It feels like something that’s more in their wheelhouse.”

But if Canada’s oil and gas companies aren’t keeping up with the European supermajors, they’re at least ahead of their peers south of the border. The climate pledges of large integrated companies like ExxonMobil and Chevron are conspicuously modest, while the ones made by shale producers are effectively non-existent. Canadian oil companies have largely accepted the nature of the challenge and the need for tools like carbon pricing to help meet it. “The existence of this trajectory is something that’s no longer a debate,” Bonham says. “That puts the industry in a better place than its U.S. peers.”

Husky Energy, for example, recently announced that its executives will now be paid in part based on how effective the company is at achieving its target of reducing greenhouse gas emissions by 25% by 2025. “The conversation is beginning to occur in Canada,” says Janet Annesley, Husky’s senior vice-president of corporate affairs and human resources. Meanwhile, the relatively concentrated nature of Canada’s industry, both in terms of the number of companies and the geographic footprint of the assets they control, gives it an edge when it comes to deploying new technology. “When you have the world’s second-largest oil resource in one place, and projects that have a 30- to 50-year lifespan, you have the ability to focus on finding those solutions – versus some of the shale plays that are much shorter in life-span and are more dispersed and make the cost of applying those solutions so much greater,” Annesley says. “They can’t even really capture their methane down there because they don’t have the pipeline network.”

The big question now is whether those Canadian companies will take advantage of these relative strengths or squander them if and when oil prices recover. “The Canadian companies will say the words,” says Collins. “But do they believe it in their souls – that it’s the future? Because if you don’t, then as soon as prices rise again it’s back to your comfort zone.” Even if they continue moving in the right direction, Bonham worries that it’s not fast enough. “I feel like they’re on the right path, and they’re attacking some of the right issues. But it’s not entirely clear to me that the urgency of the moment is being fully embraced.”

Max Fawcett is a freelance writer and the former editor of Alberta Oil magazine.

Big Oil’s clean investments are still small fry

With oil companies committing to net-zero targets, Corporate Knights decided to follow the money to see exactly how much has been allocated to low-carbon investments so far. We tallied spending in R&D, capital expenditures, acquisitions and other investments (including joint ventures and share purchases in other companies). Here’s how it breaks down:

What % of their investments were clean in 2019?

BP: 0.77%
Chevron Corp.: 0.0%
Exxon Mobil Corp.: 0.0%
Royal Dutch Shell: 0.07%

Total SE: 0.0%

METHODOLOGY: Investments were determined to be clean if they corresponded with the Corporate Knights Clean Revenue Taxonomy. General commitments and future-oriented pledges were not included. If investments were spread over multiple years (e.g. a wind farm being built over three years) and the annual investment was not disclosed, the total investment was divided by the years the project would take to complete, determining an approximate annual expenditure. If no financial data was available, the investment value was marked as $0. All companies were contacted to verify the numbers.

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After spending six years as vice-president for sustainability at pipeline giant Enbridge Inc., Coady took up the reins at the Pembina Institute environmental think tank at the end of March.

Environmental advocates have long regarded Enbridge as a public enemy because of its proposed Northern Gateway pipeline, the current expansion of its mainline oil pipeline in the U.S., and its fight over refurbishing a pipeline in Michigan where it had a major spill into the Kalamazoo River a decade ago.

For its part, Calgary-based Pembina has been in the crosshairs of oil industry defenders, including Alberta Premier Jason Kenney, who allege Pembina has used funding from American foundations to undermine the province’s leading industry. (Last July, Kenney launched a $2.5 million official inquiry into “foreign funded defamation” of the oil industry.)

Coady is well positioned to navigate in the acrimonious arena, having spent her career working to find common ground between corporate interests and environmental organizations.

Early in her career, she was vice-president of environmental affairs at a B.C. forestry company (later bought by Weyerhaeuser). In 1993, she played a central role in ending the so-called war in the woods when environmentalists clashed with forestry companies over clear-cutting in Clayoquot Sound on Vancouver Island. A stroller run-in between Coady and another new mother – her “arch nemesis,” then-Greenpeace activist Karen Mahon – led to breakthrough talks between the two sides. As Clayoquot blockade organizer Tzeporah Berman wrote in her autobiographical account of that era, “I think [Coady] was the first person I met from a logging company who really talked to us, and about the issues instead of trying to spin them.”

That experience led Coady to accept a position with WWF-Canada as the wildlife organization’s western vice-president. She went on to lead sustainability efforts with the 2010 Vancouver Olympics before joining Enbridge. She also co-chaired the federal Liberal government’s Generation Energy council that, in 2018, provided a roadmap for Canada to pursue the decarbonization of the economy.

The B.C. native will need all her diplomatic skills to bridge the current divide, which has escalated from an environmental issue to a fight that is deeply cultural, political and economic, in which both sides perceive existential threats.

Pembina’s board chair, David Runnalls, acknowledged in an interview that some of the institute’s young, idealistic staff members were apprehensive about the appointment of a former pipeline executive.

He said Pembina has always been focused on finding common ground and solutions to environmental problems rather than simply opposing industrial development. It has, however, taken stands on the need for robust environmental protection with strong regulations that are strictly enforced.

“Pembina has never been particularly popular with the Alberta government,” he said. “And some of the other NGOs don’t like us because they consider us vendus and too close to industry.”

Former Pembina executive director Ed Whittingham applauded Coady’s appointment. “She is one of those people who can flit seamlessly between the private sector and the NGO sector,” he said. He knows well that such dexterity can become uncomfortable given the politically fraught battle between oil industry supporters and environmental activists in Alberta.

After leaving Pembina, Whittingham was appointed by the former NDP government as a board member for the Alberta Energy Regulator. He became a whipping boy in the 2019 provincial election when Kenney accused him – and Pembina generally – of taking foreign funding to engage in “economic sabotage” against the industry.

Whittingham called the attack “an unprecedented smear campaign,” noting that contributions from U.S. foundations represented a small fraction of Pembina’s revenues. Runnalls said the organization has, over the years, received more revenue working with Calgary’s oil companies than it ever did from American foundations.

Coady believes the polarization may still yield opportunity to work on solutions to the industry’s environmental challenges.

In an interview from her Vancouver home, the new Pembina executive director said she has already been in contact with Alberta government officials, including Energy Minister Sonya Savage. The two worked together at Enbridge before Savage joined the Canadian Energy Pipeline Association as vice-president for government relations. “I’ve reached out to people in the Alberta government, including Minister Savage, and have had a very warm reception,” Coady said. “So, so far, so good.”

“Oil and gas is part of the problem on emissions, and there is a real opportunity for Canadian oil and gas companies to be part of the solution.”
—Linda Coady

 

Coady maintained that the fossil fuel industry will continue to produce energy for the world for a period of time, and therefore companies must work to reduce emissions. She sees a role for Pembina in assisting in that process.
“Oil and gas is part of the problem on emissions, and there is a real opportunity for Canadian oil and gas companies to be part of the solution,” she said.

She pointed to federal support to clean up abandoned oil wells and assist industry in reducing methane emissions as examples of efforts in which government, industry and NGOs can cooperate.

Coady endorses Canada’s goal of “net zero” greenhouse gas emissions by 2050, a target that requires deep decarbonization but also expanding technological and natural means to remove carbon dioxide from waste streams and the atmosphere.

The oil industry can contribute to that effort by driving down its emissions for each barrel of crude produced and by developing technologies like carbon capture and storage and the use of hydrogen as an alternative fuel, she said.
Critics argue, however, that those approaches fail to take into account the GHG emissions associated with the use of the oil and gas produced. The industry essentially needs to be wound down over the coming decades, said Berman, now international program director for Stand.Earth.

Coady “may be looking for a technological fix or just emissions-intensity reductions coming from industry, and that won’t be enough to protect Canada’s economy or ensure a stable climate,” Berman said.

While the fate of Canada’s oil and gas sector remains the most fraught area of debate, Pembina is active in other sectors where governments and industry are pursuing the low-carbon transition.

In B.C., for example, the institute is working with the provincial government and the City of Vancouver to develop standards for commercial wood buildings. In Ontario, it’s engaged in efforts to promote low-carbon transportation options and environmentally friendly urban planning.

Coady said she is also looking for Pembina to take a prominent role in the push for more sustainable financing practices.

With leadership from Mark Carney, former governor of the Bank of England, the United Nations is encouraging financial market regulators to require companies to report to investors on their carbon risks and opportunities, including how well they would fare if the world succeeds in making the transition to a low-carbon economy. Such practices would drive investment capital away from activities with high climate-related risks and toward those activities that can benefit from opportunities created by the transition.

Coady noted the federal government is gearing up for a major stimulus program that will finance low-carbon projects and technologies. But she said that must be matched with incentives for the private sector to complement that government spending.

“I see an opportunity for groups like Pembina to try to connect those dots between the public investment and the private investment and to help make the case for return on investment in projects that can further drive decarbonization.”

She said Pembina’s “got an important role to play in the transition of energy systems to a lower-carbon economy.”
“So when they asked me about joining the organization, I pretty well leapt at the opportunity.”

Shawn McCarthy writes on sustainable finance and climate finance. He is also senior counsel for Sussex Strategy Group.

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The Calgary-based company has sold renewable and natural gas assets over the past year in line with a debt reduction plan. For a company that supports reducing greenhouse gas emissions, the sales could be seen as a step backward.

But Roxanna Benoit, vice-president of public and government affairs, denied Enbridge is moving away from a commitment to fewer emissions in an interview with Corporate Knights.

“We are moving forward with renewable energy because it is an important part of the energy mix and we need all forms of energy in that mix,” Benoit said.

Enbridge’s takeover of Spectra Energy, a major U.S. natural gas distributor, for C$37 billion in 2017 and the fact the company retained ownership and development control in its recent sale of renewable facilities are reasons to believe in Enbridge’s low carbon bona fides, Benoit said.

In the renewables deal announced in May, which saw the Canadian Pension Plan Investment Board take a 49 percent stake in 14 North American wind and solar assets and a 49 percent stake in two German offshore wind facilities owned by Enbridge, the two sides also set up a 50-50 joint venture to buy new wind projects in Germany, Benoit said.

Those deals, as well as a sale of natural gas assets in northwestern Canada to Brookfield Infrastructure announced July 4, are in line with a three year strategy launched in 2017 that has the company focused on oil pipelines, natural gas pipelines and natural gas utilities, she said.

Finding one tool to measure Enbridge’s transition in or out of emission-heavy energy isn’t easy.

But comparing the Brookfield sale to the Spectra mega-deal, which put Enbridge at the centre of shale gas distribution in the U.S. northeast, can be interpreted as a sign the company is taking natural gas seriously, said Lucas Schoeppner, oil and gas analyst with corporate governance research firm Sustainalytics.

“As far as reducing carbon risk or effecting an energy transition, (the Brookfield sale) is probably a step backward,” Schoeppner said. “But in the big picture, that it is still dwarfed to some degree by the big push into shale gas in the U.S. northeast.”

But natural gas isn’t always a panacea in a push toward cleaner fuels, said Andrew Grant, senior analyst in oil and gas for the Carbon Tracker Initiative.

High cost gas could still be a bad investment in a world trying to lower emissions because there are more project options than needed, Grant wrote in an email to Corporate Knights.

The assets in the Brookfield deal are natural gas gathering and processing facilities, so determining how well they fit in a low carbon future would depend on the economics of the feed gas, he wrote.

“(Enbridge) has been under pressure to reduce debt and has said it is focusing on its core pipeline business – I would be inclined to take that at face value,” Grant added.

Enbridge itself doesn’t have one single measure or metric to determine how greenhouse gas emissions should weigh on big decisions decisions like those during the past year, Enbridge spokesperson Glen Whelan wrote in an email.

The best way to describe it would be as a “meta metric” of many different measures put together, which would provide managers with a picture of how Enbridge is doing on goals like energy efficiency, renewables and electrification, cleaner fuels, and cleaner oil and gas production, Whelan wrote.

“For example, the Spectra acquisition reduced the carbon intensity of the overall energy mix we deliver,” he wrote.

The projections for global energy use that Enbridge shares online describe a world that relies on oil for 75 percent of its energy in 2030, despite big strides by renewables and natural gas. Oil, by that metric, remain a big part of the picture.

Enbridge has several key milestones for measuring emissions on the way. A climate change report is due this summer and a summary of the company’s sustainability goals is expected to be out sometime this year.

The company is also putting the finishing touches on an investment review process that will examine the impact of carbon pricing policies, Whelan wrote in his email.

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