Energy transitions and the things we never talk about

The latest International Energy Agency (IEA) report on trends in Canadian energy production, consumption, and policy attracted plenty of attention. While the IEA's assessment of Canada's performance is mixed, we can take a measure of satisfaction that the new report awards Canada decent marks.But let’s be clear: for those who live and breathe energy-environment policy and regulatory happenings, there is nothing remarkable in the IEA’s summary of Canada’s energy system, nor in its recommendations. For the most part, the latter have already been embraced in some form or are on track to be implemented by the federal government. Many provinces, especially British Columbia, have adopted a subset of the IEA's proposals in their own approaches to the climate and energy policy nexus.Thankfully, the IEA acknowledges the complex and important reality of shared jurisdiction between Canada and the provinces in the domains of environmental and energy policy. In the end, the IEA’s report provides a convenient all-in-one-place reference document for anyone seeking a crash course on the energy landscape in this country — particularly at a time when the world is seeking to accelerate progress toward a low-carbon future.To be clear, the merits of Canada’s policies are not the focus of this blog. Instead, what strikes us as missing in the endless stream of government announcements and re-announcements is any substantive discussion of the costs, the scale of the energy transition advocated by many Canadian policymakers, the regulatory context, the numerous barriers to needed investments, and fundamental questions about who is going to pay. These are critical dimensions of any effort to refashion the energy system for a lower greenhouse gas future. How these issues are dealt with will affect Canadians in profound ways.The short answer to the question of costs and who will pay is: all of us, collectively, including as electricity consumers. The only feasible way to shift away from the fossil fuels that currently supply a large majority of the primary energy consumed in Canada is to significantly ramp up the amount of electricity generated from low- and no-carbon sources. And the same is true for the world as a whole. As The Economist magazine has pithily noted, “A society-wide switch from hydrocarbons to electrons is required if the world is to stand a chance of reaching its net-zero emissions targets.”[1]

Figure 1

One big unknown is whether Canadians are willing to pay — through much higher costs for energy, by investing in a vast expansion of the electricity system, and by accepting a plethora of additional government-mandated regulations across multiple products, industrial and human activities, and much else besides. It is not hard to imagine people in this country donning Yellow Vests, as angry French motorists did a few years ago amid escalating fuel prices, or taking to the streets as Spaniards and others in the European Union did in the fall 2021 to protest spiking electricity prices at the start of the heating season. In the past year, the world has also watched helplessly as rising natural gas, oil, and electricity prices in multiple countries feed the inflation dragon that has roared back to life. Energy transitions are destined to be messy and conflict-prone — all the more so when they are compressed into time spans that are extremely short by historical standards.In Canada, no official government document has laid out the energy transition math, still less the many complementary measures necessary to support it. And casual observation suggests that public officials prefer to avoid talking about costs and complexities when they turn their attention to energy matters. As for switching from hydrocarbons to lower GHG electrons to underpin and operate a new Canadian energy system, governments have done next-to-nothing to explore the spatial and land use implications, nor have they acknowledged that improved and more expeditious project approval and permitting systems will be essential to support the build-out of provincial electric systems. These knotty issues tend to be ignored or waved away by politicians, including federal ones, as if they are inconsequential. Rest assured: they are not.In the realm of electricity, the federal government has limited jurisdiction. Ottawa can co-regulate the development of certain projects (more on that in a moment), but it does not have legal oversight of utilities or rate-making authorities — the bodies tasked with determining what consumers pay. Provincial utilities are the main entities delivering energy services to end-use consumers — households and businesses — in Canada. The structure, management, and direction of utilities commissions fall squarely within the jurisdiction of the provinces. Moreover, most provinces (Alberta is an exception) have state-owned, vertically integrated electric utilities. This picture gives rise to unanswered questions about how the Trudeau government intends to implement its proposed clean electricity standard, for example, given its lack of direct legal authority to do so. Right now, federal officials are using the same arguments they employed — successfully — to achieve a pan-Canadian carbon price. The Constitution and past court rulings confirm that Ottawa has very broad taxation powers. But owing to the primacy of the provinces in all aspects of the electricity business, Premiers, provincial ministers, and provincial regulators may be unwilling to accept top-down, Ottawa-knows-best policies and decisions on electricity issues.In terms of the amount of electricity needed to enable an unprecedented Canadian energy transition, in a 2021 op-ed[2]we estimated that the seemingly simple goal of raising Canada’s quantum of clean electricity from 82% to 92% of the power produced in the country would require about 10,000 MW of new generation. This figure does not accommodate any future growth in demand; it is only about replacing half of the roughly 20% of thermal generation in Canada’s current electric fleet. It turns out that, on a capacity basis, the country would need the equivalent of 9 additional Site Cs, a project that is familiar to most British Columbians.This comparison is not to suggest that we move straight away to build more Site C-like facilities across Canada. The gap could be filled, at least in part, with large numbers of new independent power projects (IPPs), based on a mix of hydro, wind, solar, geothermal sources, and perhaps nuclear. Many more such projects would stimulate regional economic development and create new economic activity, investment, and employment in non-urban areas of the province and of Canada.What might that look like, in terms of the number of additional projects? Well, projects come in all sizes, from very small to very large. If we use British Columbia as an example (since the data is available[3]), the average capacity of existing clean IPP power resources in this province is about 44 MW. If the average project is built, Canada would need upwards of 227 new generation facilities across the county, with output efficiencies equal to hydroelectric, in order to reach the goal of supplying 92% of the country’s electricity from clean resources (ten percentage points more than today).Importantly, the above figure is simply a “replacement” number: the extra clean power required to reduce the role of thermal generation in Canada’s electricity sector. It does not capture the added pressure on transmission infrastructure from the development of many more generation facilities. Nor does it account for rising electricity demand due to a growing population, fueled by the federal government's policy of bringing in several million new immigrants in the next decade. Every newcomer creates additional demands for housing, transportation services, and energy, among many other goods and services. Finally, the estimate provided in the previous paragraph also ignores the electricity demand growth that will flow from a government commitment to reduce reliance on fossil fuels overall by increasing the role of electricity in all sectors of the Canadian economy.

Figure 2

Regarding the latter point, in a different article,[4]we explored the idea of a 100% electrification outcome for Canada — that is, moving to a world where electricity meets all the country’s needs for energy. The numbers for such a transition are staggering, both absolutely and in terms of the spatial effects. As we concluded, Canada would need at least five times more power than we generate today to electrify the entire economy, assuming this is technically and economically feasible. Thinking in terms of British Columbia’s Site C project (with 1,100 MW of capacity), a minimum of 540 new facilities with equivalent energy flow output (i.e., watt-hours) would be required to replace fossil fuel use across all segments of the economy; again, this does not account for any growth in energy demand from a rising population. And the number of projects increases further if we are talking about generation facilities of less than 1,100 MW with lower efficiencies than hydroelectric generation.[5]Can we do it? It would take an unprecedented, truly Herculean effort. The odds are strongly stacked against success. And there are two further impediments that must be addressed. One is spatial, the other regulatory.Concerning the spatial element, Canadians seem to like clean electricity — but most prefer that the locational impacts of clean energy projects are concentrated elsewhere. This is not surprising. But in a future that is either 100% cleaner or even 10% cleaner, there necessarily will be more projects in more places in virtually all parts of the country. Can we overcome the public’s inclination to oppose projects based on location? Then there is the issue of the raw and other industrial materials needed to dramatically expand electricity production and transmission and the related downstream and upstream consequences.[6]This, too, is an important topic that tends to be overlooked by virtue-signaling politicians.On regulation, the Business Council has analyzed the ever-escalating cumulative costs of government regulations in Canada, particularly as they affect the natural resource, transportation, and other infrastructure industries. It can easily take up to a decade to get a significant-sized project permitted in Canada, even if government policymakers are broadly supportive of it. Our environmental review processes, permitting systems, related time and process costs, and public and interest group opposition to all manner of industrial activities have combined to render Canada increasingly unattractive for private sector investment in large-scale projects in many economic sectors, including energy. Arguably, Canada is a jurisdiction where capital no longer seeks a home but rather avoids, in part because of our complicated, uncertain, and costly regulatory and policy processes for industrial and infrastructure projects.The Business Council welcomes more investment in clean energy and clean electricity. Accelerating such investment is the only way to come remotely close to achieving the GHG reduction goals enunciated by our governments. But if Canada and the provinces aspire to make progress on electrification “big time,” or even shift fully to non-greenhouse gas energy sources in the electricity sector, something will have to change. For one thing, fundamental changes must happen to all aspects of greenfield project development and permitting, starting with environmental assessment (EA). To say the least, existing EA, permitting and project review and oversight processes, particularly at the federal level, are not aligned with the goal of moving the country toward an “electron-based” energy system by 2050, let alone making major progress by 2030 (only eight years from now!). Moreover, at the same time, governments will also be under intense pressure to attend to the public interest in affordable and reliable energy.Our suspicion is that the Canadian politicians who have embraced “net zero” have little or no idea what actually will be required to deliver on this goal when it comes to the quantum of investment, the required amount of additional electricity generation (not just capacity but reliable watt- hours, the thing we actually use), the related infrastructure needs, and the implications of all of this for regulatory processes and public resistance to building just about anything. Bold political vision without a clear understanding of the context and a realistic plan of execution is hallucination. We see rather a lot of that in Canada today.[1] “Plugging the gap,” The Economist (December 11, 2021), p. 16.[2] https://bcbc.com/insights-and-opinions/opinion-meeting-canadas-aggressive-green-targets-a-tall-order.[3] https://www.bchydro.com/work-with-us/selling-clean-energy/meeting-energy-needs/how-power-is-acquired.html.[4] https://bcbc.com/insights-and-opinions/do-canadians-dream-of-electrification.[5] We use large hydro as an example to illustrate the order of magnitude of additional generation required. Alternative resources like wind and solar often take up substantially more land than traditional energy projects. By way of another example of land use, the California Crimson Solar Project is a 350 MW solar project, about 1/3 the size of Site C. It will occupy 809 hectares or 8.1 km2 of land. This is an area almost the size of Langley, B.C. or equivalent to 988 Canadian football fields. As a variable resource this project also includes a 350 MW energy storage facility.[6] https://bcbc.com/insights-and-opinions/unintended-consequences-of-green-and-clean.