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The International Energy Agency’s Net Zero by 2050 report is a landmark document showing a detailed path, with tangible milestones, to meet emissions targets by 2050. It calls for a redesign of the way the world is fed. At the very least, the report clearly shows how difficult the way forward will be if we are to achieve net zero.

In Canada, the response to the report has centered on its calls to cut new oil and gas fields and end investments in new fossil fuel projects.

Low-valued financial markets for oil and gas companies have long told the same story: Oil and gas is a mature industry, with very limited or no growth prospects. Many believe it is a declining industry. This recommendation from the IEA should not have come as a total surprise. Just look at the current low stock valuations of Suncor and Cenovus, despite their good stock market performance over the past six months.


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But there is room for hope for Canada’s energy industry.

The IEA’s trajectory towards net zero assumes an annual four-fold increase in solar and wind installations. How difficult is it? For solar power, that means installing the world’s largest solar park every day until 2030. It’s an understatement to say it’s ambitious.

A dramatic increase in renewables can also face bottlenecks in the availability and price of minerals. For example, the price of copper has more than doubled in the past year. Renewable energies alone will not allow us to reach net zero.

Alberta and Canada, however, can seek to build on our current strength, which would be the widespread adoption of carbon capture, use and storage (CCUS) technologies. What ultimately matters for climate change are our greenhouse gas emissions and our carbon footprint, not the methods of energy production per se.

A path that prioritizes CCUS could be called an apologist for the oil and gas industry. That is why we have to be careful how we use the captured carbon. Financial institutions are already facing increasing pressure to invest in oil and gas companies. The use of carbon capture for enhanced oil recovery would make access to finance much more difficult. There is a clear trade-off: enhanced oil recovery helps justify the profitability of CCUS, but at the same time, it will increase the cost of capital and endanger the availability of finance.

The next challenge is that the scale of current CCUS adoption is tiny compared to what is needed and the price of carbon capture is currently too high. However, increasing carbon taxes in Canada help justify an expansion of investments in CCUS. These investments are capital intensive and sustainable. Patient and informed capital is scarce in Canada, especially for larger scale investments. We will have to tap into foreign funding sources to fill this gap in Canada.


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In addition to CCUS technologies, we need to find new ways to create growth. We will need investments in hydrogen, geothermal energy and mining minerals that are necessary in a low carbon economy. We can build on existing Canadian strengths in the natural resource industries. The same skill sets are needed in the new path, which is a huge plus.

This business challenge is even greater than the technological one. New business models and new ways of making money will also be needed. Instead of relying on the sale of raw materials, we will need to put more emphasis on high value-added manufacturing (for example, the sale of carbon capture and storage technologies) or on the provision of services (sale of carbon). carbon credits to other markets).

New funding mechanisms will also be needed. Our next taxonomy of bridging finance must be attractive to foreign investors. Companies will need to be able to make verifiable GHG emissions disclosures with credible milestones on the path to net zero. Investors will have to trust this new system.

As the IEA report makes clear, there is a path to embrace a net zero future. The work is daunting, but the challenges presented here are not insurmountable.

The opportunity is now and Canada must play offense, not defense, as we move towards a low carbon future.

Yrjo Koskinen is BMO Professor of Sustainable and Transitional Finance at the Haskayne School of Business at the University of Calgary.


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