TransCanada's Energy East, Other Pipelines + Greenwashing versus The Green Economy

Part I
The High Growth, High Job Creation Green Economy:
Québec, The Old Resource-Based Economy and Missed Opportunities

 Overview

The ardent defenders of a resource economy are by no stretch of the imagination limited to the climate skeptics that support TransCanada's Energy East, Keystone and the tripling of the capacity of Trans Mountains Kinder Morgan pipeline from the Alberta tar sands to the Port of Vancouver. There are also the much larger and perhaps more influential groups of traditional resource economy supporters, the greenwashers such as Trudeau, Couillard, the majority of in-the-box or mainstream journalists, most economists, Bay Street, Suncor and many many more.  These stakeholders would have us believe that with a little tinkering of the status quo -- to manipulate the masses -- we can address requirements to reduce greenhouse gases while supporting TransCanada Energy East and the other proposed pipeline projects for Canada.  

   

According to this line of thinking, the traditional resource-based economic paradigm is a permanent fixture of global economics. Consequently,  if  TransCanada's Energy East pipeline isn't built, another petroleum source would fill the "void." leaving the impacts on greenhouse gases at the level of the status quo.  In other words, new infrastructures to increase dependencies on petroleum are fine even though the International Energy Agency has said we must leave 80% of proven reserves in the ground if we are to avoid catastrophic climate change.

It is rather unfortunate that the green economics paradigm -- despite the facts on the ground in China, Europe and the US -- remains off the radar screen of nearly all economists.  

Even the very conservative International Monetary Fund, Goldman Sachs and UBS are way ahead the traditional economists on the decline of the resource economy paradigm, respectively exposing 1) the spellbinding levels of subsidization of the fossil fuel sectors; 2) the high financial risks for non-conventional fossil resources, such as the tar sands; 3) the rapidly growing quantity of stranded oil assets due to the combination of high debt loads and reserves that cannot be supported by market prices; and 4) the growing aggressiveness and frequency of government action on climate change around the globe . Together, these factors are fostering the emergence of a global green economy. (more on all this in the detailed analysis in the next sections)

Accordingly what follows is a detailed response to the greenwashers.  

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1) Jobs and Economic Development

The green sectors are among the fastest growing and highest job creation sectors of our times.  Unfortunately, Canada and Quebec are missing out on these opportunities while China, the European Union and, to a lesser extent, the US are way ahead of us.

There are 3.5M people currently working in the green sectors in the the European Union (EU), 1.2M in renewables; the clean energy sectors in Germany are right up there with the German auto sector in terms of job numbers, and there is a 7000 position labour shortage in the EU wind energy sector.  

And at last count there were 300,000 working in the Chinese solar energy sector and another 800,000 in its thermal solar sector.  The projections for China's wind sector are 500,000 jobs by 2020.

With respect to the US, there were 174,000 people working in the solar sector in November 2014.

As well, government investments in the green economy offer 6 to 8 times more jobs per unit of investment than the resource economy.

2)  Québec, Jobs, Economic Development,

The Green Economy and Electric Vehicles:

 No Reconciliation Necessary

Though Québec is participating in a carbon (cap and trade) market with California, current Couillard Quebec government actions are founded on a resource economy with negligible interest shown in developing Québec strengths in the high job creation green sectors. This is counterproductive not only for the environment but for Québec economic development as well.

To begin, Québec could accomplish a lot more for developing it's own wealth and reducing it's economic dependence on wealthier provinces by concurrently 1) rejecting the few hundred jobs associated with the TransCanada Energy East option 2) reducing its dependence on petroleum from outside Québec and thereby reducing Québec total greenhouse gas emissions and 3) focusing on the high job creation green sectors including the development of Québec's emerging electric vehicle sector.  Consider the following factors:

First, the transportation sector represents 42% of Québec's emissions.

Second, not only does Québec have a clean energy surplus, mainly hydro, and but also it's nascent electric vehicle (ev) sector includes 1) an ev battery manufacturer, Bolloré/Bathium : 2) an electric motor wheel company, TM4; 3) a Nova Bus (Volvo) electric bus under development ; 4) two manufacturers of electric vehicle charging stations, GRIDbot and ADDÉnergie; and 5) ev research centres such as the Centre National du Transport Avancé  and L'Ecole de technologie supérieure.

Should Québec and Canada not seize the opportunities, it is China and the US -- California in particular -- that will continue to be the leaders in, and reap optimal long term benefits from, the electrification of transport.

While  BYD of China is already manufacturing electric buses,-- this includes a manufacturing plant for BYD electric buses in California -- China's central government has adopted aggressive policies to the effect that beginning 2016, 30% of all government vehicle purchases will be electric.

Several Chinese regional governments have similar objectives, with 30% of vehicle purchases be to hybrid and electrical by 2016. 

Also getting into the act to migrate their respective vehicles markets to zero to low emission vehicles, are China's municipal governments. For example, the city of Shenzhen recently announced a cap on new vehicle sales to cut air pollution coupled with a requirement that 20% of registrations must be electric vehicles.

To complement all of the above-described Chinese initiatives, 1) China's central government is considering a $16B program to set up charging station infrastructures across the country and 2) China removed the 10% purchase tax for electric and hybrid vehicles.  

In the US, California is leading the way on electric vehicles with a comprehensive plan and a legislation agenda that includes 1) financial assistance for low income residents; 2) support for customer side clean energy micro-grids complete with energy storage and electric vehicle charging stations;  and 3) requirements for recent and new housing and parking lots to have the electrical infrastructure in place for setting up electric vehicle charging stations.

Unfortunately, the Couillard government, like Harper and Trudeau, lives in the past tense, supporting TransCanada's Energy East pipeline proposal while 1) having cancelled the $500M by 2020 PQ program for the electrification of transport, 2) having committed $450M for an unneeded cement plant that will be fueled by petcoke - a high carbon content fuel derived from the residues of tar sands refineries --  and 3) being prepared to divert millions for Le Plan Nord.

Ironically, during Couillard's recent trip to China, announcements were made on 1) Québec's Enerkem project in Shanghai for a waste-to-energy facility and 2) the manufacturing in China of Québec's TM4 electric motor wheel under a license from TM4. 

  

But surprisingly, 1) Québec has done nothing to build its domestic industrial base for these companies and 2) Couillard's focus on China's investment in Quebec pertained to natural resources and the aforementioned vague Plan Nord, as per the old economy.

Further on the nebulous Plan Nord, Cabinet Minister Pierre Arcand (Ministre de l'Énergie et des Ressources naturelles) has boasted that the Plan Nord will provide the opportunity to bring clean natural gas to the new mining centres --- rather than build on the expertise of 1) firms like TUGLIQ and Île-Infinie regarding local clean energy micro-grids capable of energy storage and 2) Québec's electric vehicle stakeholders.  

More recently, in December 2014 and commenting on a just released report on shale gas by the Bureau d'audiences publiques sur l'environnement, Couillard let it be known that his government would not be taking action along the lines of the State of New York to impose a permanent moratorium on shale gas development. 

In the interim, the Government of Québec has a one year strategic environmental evaluation study underway on all fossil fuels in Québec.  This review moving forward at steroid speeds is believed to be a ploy for the government to prepare the terrain for the social acceptability of, and removal of the barriers to, its fossil fuel ambitions.  

All of the above-described Couillard government "manipulative hints" re-enforce concerns that the provincial government will be looking to a way to lift the moratorium on shale gas.

Similarly, the Couillard government appears to be using the strategic environmental evaluation study as a tactic to keep its options open for developing a shale oil sector on the Island of Anticosti, a sector for which the previous PQ government injected $115M in two equity agreements, 1) one with Pétrolia, Corridor Resources, and Maurel & Prom, with Quebec holding 35% ownership, and 2) the other with Junex.

Yet the growing evidence coming from the US is such that only the easy to extract sweet spots of new shale gas and oil wells are profitable for exploitation.  The result is that the US shale gas and oil industry is headed towards boom and bust economics.

In addition, with the high level of methane leaks from shale gas wells combined with high risks of soil,water and air pollution , one can only conclude that the Couillard government has created its own world of fantasies.

Finally, regarding the cap and trade scheme adopted by Québec, it is only an effective mechanism if accompanied by a large pallet of complementary measures. This is not the case in Quebec where there is absolutely no plan to achieve the 2020 objectives.

  

Part II
The Demise of the Fossil Fuel Era and
The Rise of Green Economics

In the first part of this article published in The Common Sense Canadian on January 23, 2015, the contrast was presented to the effect that Canadian and Quebec leaders are largely ignoring the potential of high job creation high growth green sectors, while leaving China, Europe and the US to exercise clean tech/green economy world leadership -- at Canada's own peril. 

In this second part, the folly of the Canadian resource-based economy as the key to economic development and supported by policies and organizations to this effect is looked into in more depth.  This section concludes with contrasts with other nations on the green economy and the significance of Obama's upcoming veto on Keystone XL as a symbol of the acceleration of the transformation to a new era.

1) Fossil Fuels Era Drawing to a Close

In keeping with Einstein's definition of insanity, nearly all the economic experts will tell you we must keep doing the same thing over and over again and expect different results.

Yet the signs are that the fossil fuels era is approaching it's demise!

First,  long term energy and energy related investments already favour the green economy -- largely because the costs of clean techs are coming down.  

Second, in the Summer of 2014, long before the recent plunge in oil prices, it became apparent that non-conventional resources such as the tar sands, shale and offshore oil cannot be supported by market prices. As a result, Big Oil already has started to withdraw from major non-conventional investments around the globe, otherwise known as stranded assets.  This trend is becoming more and more evident .

The growing order of magnitude of fossil fuel stranded investments are very telling. Of the $2T invested in oil development in 2014, $930B may never reach the return on investment stage  -- the makings of an investment bubble?

Considering 1) the 20% return on equity for oil and gas in 2008 and the projection of 5% return for 2015 plus 2) increased volumes of stranded assets to come with oil at less than $70/barrel, it would appear that the most of the financial community has got it all wrong.  They are not as diversified as they claim to be, totally by-passing the high growth high job creation green sectors while maintaining the resource economy as integral components of the majority of investment products/strategies. 

Further on these considerations, Goldman Sachs has warned that the oil companies' capital expenditures for investments in non-conventional resources have "gone through the roof" and that their Reserve Replacement Ratio, the measure which investors use to rate oil companies, is not encouraging. (New Internationalist, November 2014)

Similarly, a UBS study concluded that the rapid decline in the costs of clean energy, clean transportation and green economy integration technologies -- such as energy storage technologies -- together, suggest that the writing is on the wall for the decline of the fossil fuel era and full-scale shift to a green economy by 2020. (New Internationalist, November 2014)

But, the economics of the decline of the fossil fuel sectors and rise of clean technologies only tell part of the story.  Specifically, governments around the globe are adopting policies to favour the green economy in recognizing that 80% of fossil fuels must remain in the ground to avoid catastrophic climate change. That means  of the 12,000 gigatonnes of fossilfuel reserves only 936 gigatonnes can be used. 

And another looming cloud for the fossil fuel sectors is, the fossil fuel sectors remain one of the most heavily subsidized sectors, if not the most subsidized sectors on this planet.  

According to the International Monetary Fund, in US 2011 dollars, Canada spends $26.4B/year in direct and indirect (including health, climate change costs, etc.) subsidies for its fossil fuel sectors. This means that the unraveling of short term thinking on fossil fuels will accelerate over time as the international community increasingly engages in addressing climate change. --- Put another way, the idea of shifting subsidies away from fossil fuels to the green economy will become increasingly attractive for policy makers.

  

Oddly enough, the representatives of the fossil sectors complain about subsidies for clean energy.  The response of the European Wind Energy Association is that the wind sector could compete without any subsidies if it weren't for the subsidies for the fossil fuel sectors.  

In the US, wind energy is now cost competitive with natural gas. Indeed, the change in the US energy paradigm is now well-entrenched with renewables representing 47% of new electrical generation capacity installed in 2014, natural gas at 50% and coal, nuclear and oil combined only accounting for a little over 2%.

Consequently, from an investment perspective, clean technologies are the safer bets, free of the fluctuating speculative prices and destined to be favoured by increasingly aggressive  government policies on a migration to a green economy and the declining costs of clean technologies.

  

Note, the NDP has committed to end fossil fuel subsidies, transfer the savings to clean technologies and introduce a cap and trade system.

2) National Energy Board Locking us In to Yesterday's Economics

As a result of the Harper administration's changes to legislation on environmental impact analyses, the NEB does not have the mandate to consider the biggest environmental/energy/economic issue among all issues associated with TransCanada's Energy East and other pipeline proposals -- that is, the emissions stemming from tar sands development and refining and the exports/consumption of the high carbon content tar sands derived fuels/products.

But, "The more fossil infrastructure you build now, the faster we’ll have to reduce emissions later."

Compounding the limitations of the NEB mandate, the NEB has an "attitude problem" This is very evident by virtue of the NEB's rejection of the bringing forward to the NEB oral cross-examination phase, the questions submitted by Marc Eliesen on Trans Mountain's Kinder Morgan pipeline expansion proposal.  

Marc Eliesen is a former CEO of BC Hydro and Chair of Manitoba Hydro and served as a Deputy Minister in seven different federal and provincial governments.  Since the NEB did not see it as necessary for Trans Mountain to address most of Marc Eliesen's written questions, Marc Eliesen withdrew as an intervenor/participant in theNEB Kinder Morgan review circus.  

  

One can expect more of the same for the NEB hearings on Energy East.

In synergy with the aforementioned restricted mandate of the NEB, the Harper administration gutted The Fisheries Act regarding the protection of the marine habitat, at the request of Canada's pipeline industry

These are the rules laid down by the Harper administration.  

These rules also have the NEB reporting directly to the Prime Minister's office.

In other words, Canada is painting itself into a corner.  

Both Trudeau and Harper view Canada as a resource export economy and both revert to science denial to advance the cause of increasing Canada's dependence on resource exports.

3) Emerging New Economic/Energy/Environmental Paradigm

As alluded to my Jan 23, 2015 Common Sense Canadian article, yesterday's economists, Harper and Trudeau and most of mainstream media, much like the climate change deniers, would like us all to believe in a fairly tale that presents the economic and the environmental considerations as opposing forces for which there is a need for reconciliation.  

This economy versus the environment spin is comparable to the debate of 100 years ago on the need for a reconciliation of woman's rights and with that of economic development. 

However, the world's largest energy consumer, China, is already changing the global economic/energy/environmental paradigm in a rather schizophrenic war on coal -- 1) China is the world's largest investor in green technologies, with $89.5B in clean energy technology projects in 2014 in  2) China's coal imports will be down by 15% by the end of 2014 compared to 2013. 3) China's pilot cap and trade systems in Beijing and Shenzhen have reduced emissions by 4.5% and 11% respectively. 4) China is thinking of introducing a national cap and trade system in 2016.

In Europe, nearly all of the EU members are on track for their 2020 targets for a 20% reduction in GHGs, 20% energy from renewables and a 20% improvement in energy efficiency.  Not resting on their laurels, in October 2014, the European Heads of State agreed to a 40% GHG reduction target for 2030. 

  

Then there is the incredible case of Germany.  Germany outdid it's own Kyoto Protocol objective for a 21% reduction of GHGs by 2012, having achieved a 25.5% reduction instead.  But Germany is not an exception to the rule. For the same Kyoto Period ending in 2012, the UK, Sweden and France reduced their emissions respectively by 23.4%, 18% and 10.5%

At this point, Ban Ki-moon's 2007 remarks on green economics seem highly appropriate.  "We have witnessed three economic transformations in the past century. First came the Industrial Revolution, then the technology revolution, then our modern era of globalization. We stand at the threshold of another great change: the age of green economics." 

How long is it going to take for today's economists to catch up?

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4) Epilogue and the Global Significance of the Obama Veto on Keystone XL

In closing, with Obama on the verge of applying his veto to Keystone, it may be helpful to read the article referred to below which specifically deals with the matter of Keystone XL but could easily be re-cast as the case against TransCanada's Energy East,Trans Mountain's Kinder Morgan and Enbridge's Line Number 9.

In a nutshell, the article for which the link is embedded in this paragraph speaks of the increased path dependencies generated by new pipelines and concludes that an Obama rejection of Keystone XL, would be a clear signal to the US, Canada and the entire world that the time has come for putting the emphasis on developing clean energy and clean transportation alternatives - and the weaning off from dependencies on fossil fuels.

This is precisely the point President Obama made in his January 20, 2015 State of the Union speech when he indicated that 1) a rejection of Keystone XL would send a signal to the world that we must get serious about migrating to a green economy and 2) an approval of Keystone XL would constitute a setback on the agenda to take action on climate change.

One can say "Ditto" for TransCanada's Energy East the other major Canadian pipeline projects.

What is happening is that China, Europe, the US and other nations -- not Canada -- are becoming increasingly aligned for a future that functions on a green economy paradigm, the path for higher job creation,  stronger economic development, avoidance of catastrophic climate change and the embracing of environmental stewardship --  the path for tomorrow's economy.

With the aforementioned science and economic considerations in mind Mark Carney, the current Governor of the Bank of England and the former Governor of the Bank of Canada, recently wrote to British Members of Parliament advising them that the Bank's officials are reviewing whether or not the majority of fossil reserves are burnable.

Will Dubitsky

Alternative energy is no longer alternative – oil is the outlier by Adam Bruce Recharge News, Feb 2, 2015

Coupled with a price on carbon, the historic attraction of oil as an investment looks decidedly risky.

Vladimir Afanasiev

Between now and 2035, $40trn will be invested in the energy sector, according to the International Energy Agency. 

As the price of oil falls below $50 a barrel, wiping billions of dollars off global inventories, will these investments continue to support fossil-fuel industries, or will they seek out value and growth in the renewables and clean-technology sectors?

There are 12,000 gigatonnes of hydrocarbons locked up in the earth’s crust. The cheap stuff, such as the oil from the Ghawar field in Saudi Arabia, has been found, and most of these fields have passed the peak of their output, although they will go on producing, at reducing levels, for many years. Selling this oil cheaply is not in the interests of the Gulf states, which need the income to fund elaborate social programmes designed to keep their restless populations occupied, and to dampen the appeal of religious extremism.

Outside the Gulf, further oil extraction is from inherently more expensive areas: tar sands in Alberta, Canada; US shale deposits; seabed extraction from increasingly deeper waters.

The fall in oil prices has brought a jolt of reality to energy investors. If production costs are higher than $70 per barrel, then their investment is wasted.

Oil exploration and production is what it always has been: speculative, with very volatile outcomes. The UK’s Financial Times reported that of the $2trn invested last year across the sector, $930bn may never see a return. It is no wonder that international regulators have commissioned reviews of the implications of this investment bubble in fossil fuels.

About $70trn is available for energy investment, mainly accrued in pension funds and insurance companies. Are oil and gas still a safe harbour for these funds? Returns on equity have fallen from more than 20% in 2008 to a forecast 5% this year, with further contraction ahead. A low oil price wipes huge value off future inventories, while a high price drives exploration into environmentally and politically challenging areas. Coupled with a price on carbon, the historic attraction of oil as an investment fit for widows and orphans looks decidedly risky.

The owners of, and investors in, companies with large fossil-fuel inventories face another barrier to delivering value. Scientists calculate that a 2°C rise in global temperatures by 2050 would be consistent with a concentration of 450 parts per million of CO2 in the atmosphere. This would mean that of the 12,000 gigatonnes of fossil-fuel reserves, only 936 gigatonnes can be used. A report published in the journal Nature say this commitment by the world’s governments renders substantial expenditure on fossil-fuel exploration unnecessary, “because any new discoveries could not lead to increased aggregate production”.

So whether at $40 a barrel or $120, the essential proposition is this: the reserves must remain in the ground. That alone should persuade sensible investors that fossil fuels present an unattractive long-term bet.

Investors must also add to their due diligence this question: “What price will be put on carbon in every country in future?” For there will be a price on carbon. It may even be sufficient on its own to incentivise changes in investment strategies that keep the global temperature rise to 2°C.

So if fossil fuels are too risky, how are the pension funds going to deploy their money, and where will they find value?

Renewable energy is providing a compelling case for replacing oil and gas as the long-term shelter for the world’s retirement funds. Wind and solar are already low-risk investments, and battery storage and smart-grid technologies are moving swiftly from medium- to low-risk categories.

Wind technology is now immensely reliable, with modern turbines available for 98% of their operational lifetime. The price of generation has fallen by 30% in the past seven years.

The fundamentals of wind energy make it extremely attractive for pension-fund investors. Almost all the cost of wind is accounted for in the capital cost. The fuel is free. It is always local. It will always be there. It makes electricity without pollution and without water.

Less obvious, perhaps, are the inherent engineering properties of wind turbines. No high temperatures or pressures are needed to make the electricity. The only failure mechanism is fatigue. Parts are simple to manufacture and simple to replace. Essentially, a wind turbine can last indefinitely.

The same fundamentals apply to solar, which enjoys the added benefit of scale, allowing for rooftop deployment as well as utility-scale plant. Decentralised solar is seriously undermining utilities’ business model in many parts of the world, putting them into the high-risk bracket along with oil and gas companies.

A wind or solar farm with a power off-take agreement is the lowest-risk investment a pension fund could make. It doesn’t matter how oil, coal and natural-gas prices fluctuate; the price of renewable power remains constant, delivering consistent cash flows over the lifetime of an investment — a perfect vehicle to deliver the returns sought by the world’s pensioners.

Today, alternative energy is no longer alternative, but mainstream. It is oil that is the outlier, and our investments must recognise that fact.

Adam Bruce is global head of corporate affairs at Mainstream Renewable Power and co-chairman of the UK’s Offshore Wind Programme Board

This piece was published as part of the Thought Leaders series. Recharge’s Thought Leaders Club brings together leading thinkers and participants from the renewable-energy sector to examine the key challenges facing our industry