Renewables, carbon pricing will impact the competitive landscape
The Biden administration’s focus on the climate change agenda will help put Canada’s energy sector on an equal footing, says George Antonopoulos, the new national and global energy sector lead for Dentons Canada.
“The renewed interest on the climate portfolio does a couple of things — it rebalances the competitive landscape between Canada and the U.S. for investment in energy,” Antonopoulos says. With Canada already using carbon taxes as a climate change mitigation strategy, having the U.S. potentially come on board with a similar program makes Canadian investment more competitive.
He notes that earlier this month, the American Petroleum Institute has “finally issued a draft proposal in which they are starting to become more accepting of something like a carbon tax.”
The other trend that could help the Canadian energy sector is the global push toward newer, cleaner energy sources — hydrogen, geothermal, lithium, wind and solar. Antonopoulos says that carbon taxes are also set to go higher in Canada to $50/tonne in 2022 from the current $30/tonne and up to $170/tonne by 2030.
“That in and of itself drives investment in renewable energy,” he says, something that Canada should be poised to take advantage of.
Antonopoulos, based in Calgary, adds that Alberta, which has suffered through boom and bust for years and now is in a period of economic slowdown, is in an excellent position to take advantage of the new focus on renewables even as it continues to produce traditional fossil-fuel-based energy.
“We are blessed with natural resources beneath the ground, but we also have things like wind and solar, which we could take advantage of,” he says. As well, the potential for hydrogen-based energy if it can become a “scalable” source.
Current hydrogen energy is primarily “grey” hydrogen, meaning that hydrogen energy is created, but CO2 is also emitted. But Antonopoulos says that two other sources of hydrogen energy — “green” hydrogen, produced through electrolysis, where no CO2 is emitted — and “blue” hydrogen, a process in which CO2 is captured.
Blue hydrogen would make more sense in Alberta, he says, converting large industrial complexes to run off hydrogen and capturing the carbon emissions, so they don’t make their way into the environment.
The development of more carbon-friendly technologies could also become part of the business strategy of traditional energy companies, Antonopoulos says. Not only could large oil and gas players get involved in developing such technologies themselves to offset their regular business, but they could also acquire, through M&A, or licence the innovations of smaller players specialized in these renewable sources.
“That would go a long way to diversifying the Alberta economy, to take advantage of the new technologies,” he says, as carbon taxes on traditional oil and gas make these renewables more scalable and more cost-effective.
“I think you’re going to see a combination of both,” he says “Alberta, and generally in Western Canada, has an entrepreneurial spirit.”
But as carbon prices go up, he says — “and that is still an if because we’re waiting to hear from the courts whether the carbon tax can be imposed on the province” — large industries are going to see the competitive advantage of having these kinds of investment and technologies in their portfolios.
Antonopoulos says he expects merger and acquisition activity to increase as we get further into 2021, with the potential end to the pandemic in sight, higher oil prices and pent-up demand for deals.
“You’re going to see consolidation in the traditional parts of the energy industry, and you’re going to see increased interest in renewables,” he says.
Government policy will also play a key role, Antonopoulos says, in keeping the energy sector in Canada viable until some of these environmentally friendly technologies become standard.
“The regulatory landscape for the approval of projects, can be easy or hard, or not,” he says. The second role government can play in developing the industry is through financial supports — whether direct grants or loans or more indirect means such as tax or royalty holidays.
Antonopoulos also says it is also essential that the energy sector keep working with governments and Indigenous communities to build the relationships needed to support important projects for the industry, such as pipelines to get oil to markets.
“Quite frankly, the energy industry has been at the forefront of trying to build these relationships,” he says. In many cases, Indigenous communities have seen the economic potential of investing in the energy sector.
“There will always be those who will be against energy development, depending on the type of energy you’re talking about, but I think for the most part in large parts of Alberta, and northeastern BC, you’ll find a lot of positive relationships with the energy sector.”