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Why Canada should get carbon credits for LNG exports

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6 minute read

From the MacDonald Laurier Institute

By Jerome Gessaroli

Generating carbon credits from LNG exports is potentially a cost-effective way to reduce GHGs globally while helping to meet our carbon reduction goals

It stands to reason that Canada should get carbon credits for replacing dirty coal-fired energy sources in Asia with our cleaner natural gas, preventing the release of many megatonnes of greenhouse gas emissions. But as the issue currently stands, we won’t.

However, there’s hope for reason.

recent paper I wrote for the Macdonald-Laurier Institute sheds light on the confusion surrounding this matter. Based on the 2015 Paris Agreement, specifically Article 6, and the subsequently developed guidelines for the sharing of carbon reduction credits, liquid natural gas exports should be eligible to generate such credits for Canada — just not in a way envisioned by provincial leaders.

Former B.C. premier Christy Clark and successive premiers have argued since 2013 that LNG exports alone should be counted toward carbon credits for Canada and its provinces. Researchers estimate that if Asian countries replace coal with natural gas in their power plants, emissions would fall by 34 to 62 per cent.

However, each time this argument resurfaces, it faces criticism from various quarters.

The confusion over sharing carbon credits arises from the disconnect between the idea’s simplicity and its complex implementation.

Carbon credit eligibility is based on the principle that only emission reduction projects that would not have proceeded without access to carbon credits meet a so-called “additionality” criterion. While there are other criteria, the additionality criterion is the heart of credits sharing regime.

A straightforward LNG export contract with an Asian utility that substitutes gas for coal would probably not be eligible to generate any carbon credits for the Canadian side. While the deal does lower GHG emissions, those reductions are not “additional” and the deal would go ahead with or without the availability of emissions credits.

However, there is another scenario that would likely qualify to receive carbon credits. In this scenario, in addition to selling LNG, the Canadian company helps the Asian utility convert its coal-fuelled plant to a natural gas plant. In this case, the utility’s motivation is to avoid prematurely shuttering its power plant and losing its investment due to stricter emission standards.

On the Canadian side, support may involve providing technical services, financing or other assistance. While more costly for Canada, those extra expenses could be more than offset by the value of carbon credits transferred by the Asian side. Canada would win by accruing revenue from the sale of LNG, providing additional Canadian-based services, and receiving valuable carbon credits to help meet our emissions targets. This deal is “additional” – its feasibility is contingent on its eligibility for carbon credits.

Critics warn that selling LNG abroad will “lock in” fossil fuel use and delay the transition to renewables. The reality is that the average age of Asian coal-fuelled power plants is only 13 years (with a lifespan of up to 40 years) and that over 1,000 new coal plants have been announced, permitted or are currently under construction.

These are the facts, whether we like them or not. This reminds me of the quote often attributed to John Maynard Keynes, “As the facts change, I change my mind. What do you do, sir?” What we can do is assist in switching some of these plants from burning coal to LNG, which will substantially reduce GHG emissions over the short and medium term; not to mention help energy workers keep their jobs.

Critics also assert that producing LNG in British Columbia creates emissions which could prevent the province from meeting its own emission reduction targets. Yet studies estimate that using just over half of LNG Canada’s annual Phase 1 production capacity to replace coal could reduce international GHG emissions by 14 to 34 Mt while increasing yearly emissions in B.C. by less than two megatonnes.

Creating the infrastructure to transfer carbon credits under the Paris Agreement is a complex and relatively new endeavour. Earning carbon credits is also a non-trivial task. It will require the federal government to initiate bilateral agreements and negotiate common policies and practices with any partnering country for calculating, verifying, allocating and transferring credits. Alberta and B.C. are already co-operating.

Generating carbon credits from LNG exports is potentially a cost-effective way to reduce GHGs globally while helping to meet our carbon reduction goals.

Jerome Gessaroli is a senior fellow at the Macdonald-Laurier Institute and leads The Sound Economic Policy Project at the British Columbia Institute of Technology

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Economy

Canada’s flippant rejection of our generous natural resource inheritance

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From the Macdonald Laurier Institute

By David Polansky

The fanaticism of environmental elitists has made people unwilling to discuss the serious human and economic costs of poorly considered environmental policies.

Strategic energy resources have long been associated with some of the world’s most odious regimes. Above the surfaces that cover rich mineral and fossil fuel deposits one finds religious fanatics, brutal tyrants, and corrupt kleptocracies. And yet with one resource rich nation in particular we find not Wahhabism or gangsterism but Mounties and maple syrup.

Canada is the world’s second-largest country and its lands and territorial waters hold some of the world’s most substantial oil and gas reserves. Looking at its energy policies, one might think it was Belgium. Canada’s resource wealth would seem to be a case of the good guys winning for once. Why then does Canada flee in shame from its geological (and geopolitical) situation?

The answer is that Canada’s elites have long ceased to think in terms of its national interests or fiscal priorities but have adopted a naïve environmental dogmatism. Since it ratified the Paris Agreement in 2015, Canada has embraced an ambitious, top-down, international agenda to achieve “net-zero” emissions and limit global climate change.

But the fact is that, despite its size, In absolute terms, its output has risen marginally over the past half century, even as its population has nearly doubled. And embracing this climate agenda is hardly a perfunctory matter: it will continue to result in declining incomes for the average Canadian as well as a weakened trade balance for Canada as a whole. Canada’s economy is being sacrificed on the altar of elite preferences divorced from the realities of how Canadians actually heat our homes or put food on our tables.

An honest assessment of Canada’s flippant rejection of its generous natural resource inheritance looks more like serial masochism than virtue.

In the wake of Russia’s invasion of Ukraine and the global sanctions it triggered, The irony is that with so much of Russia’s supply coming offline, Canada could have had a remarkable opportunity to fill the vacuum with its own production capacity.

Despite being the world’s sixth-largest producer of natural gas, Canada lacks even a single export terminal for LNG. When critics of Canadian LNG production pointed to the unfeasibility of meeting overseas demand, despite the entreaties of the Germans and other Europeans, they were only technically correct. Canada couldn’t easily meet overseas demand because our regulatory regime has held up the construction of as many as 18 proposed LNG projects over the past decade, largely due to climate concerns.

Ironically, Germany—the continent’s greatest industrial power—needed to reactivate discontinued coal plants to meet its energy demands (hardly an ideal outcome from an environmental standpoint).

Much of the shortfall caused by sanctions on Russia was also made up by LNG contributions from Norway—whose leaders have maintained that reducing LNG output would only cede the market to authoritarian regimes with weaker regulatory controls around their energy industries from both environmental and human rights standpoints. Thankfully, Norway’s government moved forward with LNG production and export despite past pressure from environmentalist in the European Union that attempted to curtail its fossil fuel extraction.

Canada could have followed Norway’s level-headed approach and in that could have helped replace Russian oil in the aftermath of the Ukraine invasion. The curtailing of Canada’s energy infrastructure is not imposed by a physical limitation in the world, nor was it commanded from the heavens; it was ordered by the Canadian Net-Zero Emissions Accountability Act of 2021, supplemented by ambitious plans promulgated by Ottawa to reshape the institutions and practices of the entire country in pursuit of this quixotic goal. Not just the oil-and-gas sector, but housing, construction, agriculture, etc. must bend before Net Zero.

One can already hear activist outrage that, “to oppose this agenda is to choose temporary profits over the preservation of human life and the planet that supports it.” This rhetoric has proven effective in advancing environmental policies but it is also a false dichotomy, as it treats the dilemma as one of “good vs. greed” rather than one of complex competing goods.

A society that has signed on to this sort of imposed austerity is one with less money for infrastructure, entrepreneurship, healthcare, and defense. A lack of investment in these sectors also brings serious and immediate human costs. And further, the real issue is not the value of environmental stewardship or of taking steps to moderate consumption—both of which are worthy goals in and of themselves—but of blindly adhering to preselected targets at all costs. These apparently unassailable commitments have deprived Canada of the kind of flexible management of strategic interests that prudent political leadership requires.

Indeed, the unrealism of these climate ideals has produced systemic dissembling across the country’s major institutions, given the pressure to comply regardless of the efficacy of their practices. In other words, the fanaticism of environmental elitists has made people unwilling to debate the issues at hand or to even discuss the serious human and economic costs of poorly considered environmental policies.

The Environmental, Social, and Governance (ESG) model has had the effect of placing certain questions effectively beyond the reach of politics. But questions of policy—as environmental and energy questions surely are—are by their nature political; they have inevitable tradeoffs that should be a matter of debate with an eye to our collective interests.

Instead, we have an intolerant environmental elitism that obstructs the open and honest public deliberation that is the hallmark of democratic politics. A more truthful and practical approach wouldn’t necessarily promote any one policy, but it would allow for public discussion that recognizes the genuine toll that environmental policy takes on Canada’s domestic well-being and our standing in the world.

David Polansky is a Toronto-based writer and political theorist. Read him at strangefrequencies.co or find him on X @polanskydj.

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Economy

Indigenous Loan Program Could Pave the Way for More Natural Resource Economy Ownership

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From EnergyNow.ca

By Resource Works

“We want to be part of the oil and gas industry”

Ottawa has promised a loan program for Indigenous communities to buy equity stakes in natural resource projects, but many questions are still unanswered.

Ottawa is currently under scrutiny as it prepares to incorporate an Indigenous loan-guarantee program into its 2024-2025 budget, aimed at assisting Indigenous communities in acquiring equity stakes in natural resource projects. This commitment was made in Finance Minister Chrystia Freeland’s fall economic statement on November 21.

The government will advance development of an Indigenous Loan Guarantee Program to help facilitate Indigenous equity ownership in major projects in the natural resource sector. Next steps will be announced in Budget 2024.

The federal budget is typically presented to Parliament in either February or March, with the 2023-2024 budget having been announced on March 28 last year. While Ottawa has engaged in consultations with Indigenous leaders and organizations, there remains a notable lack of specific details, including a critical issue – whether the program will permit investment in oil and gas projects.

The First Nations Major Projects Coalition, boasting over 145 members, strongly advocates for Indigenous peoples to have the autonomy to determine their investment choices without constraints imposed by Ottawa. Although the government did assert its commitment to ensuring Indigenous communities benefit from major projects within their territories on their own terms, First Nations groups worry that the loan-guarantee program might mirror the green restrictions of the current Indigenous loan program provided by the Canada Infrastructure Bank.

This existing program allows equity stakes only in infrastructure projects aligned with the bank’s investments, such as clean power, green infrastructure, broadband technology, and transportation. For some time, the First Nations Major Projects Coalition (FNMPC) and the Indigenous Resource Network have been at the forefront of campaigns urging federal loan guarantees to facilitate Indigenous participation in natural resource projects.

Sharleen Gale, Chair of FNMPC, argues that fossil fuel investments must be a component of any federal loan-guarantee program, as equity in the oil and gas industry can empower First Nations to thrive in alignment with their values.

“We want to be part of the oil and gas industry,” says Gale.

In 2022, the Indigenous Resource Network (IRN) initiated the “Ownership Changes Everything” campaign, advocating for Indigenous ownership in resource projects. This campaign calls upon Ottawa to implement a loan program modeled after similar initiatives in Alberta, Saskatchewan, and Ontario. Robert Merasty, highlights the challenges faced by Indigenous communities due to the Indian Act, which prohibits First Nations from using their land and assets as collateral. Consequently, they lack the necessary at-risk capital to secure favorable interest rates.

“The problems our communities are facing is that there are few mechanisms to access the necessary capital for investing in projects and having equity,” says Merasty.

In 2023, FNMPC penned an open letter to Finance Minister Chrystia Freeland, emphasizing the significance of advancing major resource projects for a successful energy transition and economic growth benefiting all Canadians. They also pointed out that the Indian Act remains a significant hurdle, preventing First Nations from leveraging their assets and land for borrowing.

FNMPC estimates that over the next decade, 470 major projects impacting Indigenous lands will require more than $525 billion in capital investment, with approximately $50 billion needed for Indigenous equity financing. An illustrative case from Alberta involved energy giant Enbridge, which partnered with 23 First Nation and Métis communities to sell an 11.57% interest in seven pipelines in northern Alberta. This partnership was made possible through a loan guarantee from the Alberta Indigenous Opportunities Corp., which provides financing to Indigenous communities seeking commercial collaborations, alongside various other financial supports.

Greg Ebel, CEO of Enbridge, has joined the campaign for a national program.

“Investment in the entire energy sector and many others could be accelerated by the immediate implementation of a federal Indigenous loan-guarantee program to ensure Canada’s Indigenous Peoples have a seat at the table while also having equity that helps them secure a more prosperous future,” says Ebel.

As we await further developments, the question remains: Will a federal loan-guarantee program come to fruition, one that encompasses loan guarantees for investments in natural gas and oil? We are hopeful for a positive outcome.

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