Jason Switzer: Greening North America's Energy Economy: A Canadian ENGO Perspective


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Jason Switzer, Director, Corporate Consulting, Pembina Institute, spoke at the CEC Joint Public Advisory Committee's forum on Greening North America's Energy Economy in Calgary on April 25, 2013. More at: http://cec.org/jpacenergy

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  • The Pembina Institute was born in 1982 out of community organizing in response to the worst sour gas blowout on record in Canada. It blew out of control for 68 days and killed three well-control specialists. [ffor comparison, Macondo in the Gulf killed 11 and flowed for 87 days]25+ year history working on Canadian energy and environment issues, as both a public interest advocate and as a values-based consultant, which includesMulti-stakeholder policy processesIntervention in public hearings of major energy projectsPolicy research and advocacyAnd because we think it is vital to bring solutions to the table, collaborative engagement and consulting with companies, governments, communitiesOur work is in climate change policy, responsible energy production as well as efficient consumption through mobility choices and efficiency.
  • Canada’s most recent communication to the UNFCCC contains the answer… Oilsands growth will make reaching this target very challenging. (Freight emissions to a lesser extent). I SHOULD NOTE THAT Canada has exited both the Kyoto Protocol to the UNFCCC and the UN Convention on Combating Desertification, the single most important agreement relating to the impacts of climate change on the world’s poorest and most vulnerable. In the interest of time I wont say anything more on oilsands but am happy to come back to this if it comes up in the Q&ASource: Environment Canada's chart showing the gap between our policies and our target.Canada's Emissions Trends
  • we are being told that much of the infrastructure is already in place that would lock us into a GREATER THAN 2D Scenario. This graphic from the Carbon Tracker Initiative shows how the Reserves included in stock market valuations of publicly-traded foissil fuel based energy companies would blow us well past the atmospheric limits associated with a high probability of only 2 degree warming. So the markets are valuing these companies independently from the reality that these resources cannot – must not – be combusted without CCS or other mitgation. Source: Unburnable Carbon – Are the world’s financial markets carrying a carbon bubble? Carbon Tracker Initiative, 2013
  • A quick word on Natural Gas, in light of the previous slide: The IEA shows in its projections that to stay in the low risk roulette game, we can ramp up natural gas now but need to curb it sharply in just a few years. Its necessary but not sufficient to get us on track for climate mitigation. (leaving aside the health benefits, for the moment), and there are other problems that pose a severe social license challenge to its development. happy to take questions on this as well. -----------Power generation from natural gas increases to 2030 in the 2DS and the 4DS. After 2030, generation differs markedly.In the 4DS, natural gas-fired generation increases strongly, mainly driven by economic growth non-OECD countries. Natural gas-fired power generation: Supplies base-load power Displaces generation from coal Meets rapid new growth in demand. In the 2DS: Between 2030 and 2050 global natural gas-fired generation decreases by 30% The majority of the power generation capacity needed to meet electricity demand will be very low carbon - including renewables (biomass, wind, hydro, solar, etc), coal plants equipped with CCS and nuclear power Natural gas power plants still best placed to provide peak-load and back-up capacity to balance the variability in electricity demand resulting from renewable energy sources Share of gas in electricity generation drops steadily in the OECD and in other non-OECD countries China and India rapidly build up the share of gas in their generation mix (currently quite low) by 2030 to 2035, before they gradually decrease it to 2050. Rigorous planning and construction processes essential to minimise (ideally, to avoid) stranded assets. Gas turbines and combined cycle power plants typically designed for a service life of more than 25 years.
  • $1 trillion dollars is the global scale of the EMERGING TECHNOLOGY sector that the global transition to cleaner energy is creating. As recently as 2009, Prime Minister Harper said “the only way we are going to stay competitive in the global energy market of the future, is if we are also a clean energy superpower.” {click}
  • The clean ENERGYsector is expected to reach $3 trillion by 2020. – which will make it the 3rd largest global industry sector – 10 times the size of the global areospace.
  • Id like to draw your attention to two reports in this space that we recently completed. The first looksat the Clean Energysector in Canada, and much of it applies equally well for our cousins whom we would invite inside for dinner, the US and Mexico. Focusing on the experience of the entrepreneurs and investors in this space, Pembina’s research explores challenges and public policy options that would help create winning conditions for them. The second looks at the synergies between the Renewable Energy sector and the Oil and Gas sector. I’ll come back to that in a minute.
  • Definition:The term “clean energy” spans energy production, infrastructure and conservation, and involves technologies and services that promote, enhance or advance: diversity of supply sources and distribution/transmission, efficiency in use, and reduced negative environmental effects such as greenhouse gas emissions. For the purpose of our report, clean energy entrepreneurs are those individuals and organizations, within established or emerging companies, that design, develop and manufacture clean energy technologies and/or provide supporting services.Our research finds that these folks need help. Heres some thoughts for how to help them succeed.
  • To tackle the challenges that stop clean energy entrepreneurs from succeeding, our report found that: Fossil fuel energy continues to benefit from government subsidies and the externalization of costs associated with its greenhouse gas pollution.Our recommendation is to continue to remove inefficient fossil fuel subsidies as we committed to removing in at the 2009 G20 meeting in Pitsburg. We need to level the playing field at a minimum, at best – as Dr Molina suggested – to support the winners we want. Establishing a national price on carbon was the single most consistent theme running through our research. From diverse voices such as Dawn Farrell at TransAlta to Ross Hornby at General Electric to John Ruffolo at OMERS Ventures. To quote John coyne (Unilever) “The single most meaningful thing that could be done very quickly in this country that would make a material difference iin the performance of this country from an environmental point of view…..is a carbon tax”
  • US military is leading the charge in renewables and efficiency. The world’s largest single buyer of fossil fuels is worried about the exposure of its troops and supply lines, and the costs and vulnerability of its assets. To cut inefficient use of, and therefore dependence on, fossil fuels in the combat theater, the military has been doing things like adding solar panels to tents,backpacks andRadio towers. through solar arrays, wind farms, and waste-to-energy, they are unplugging from the grid and diesel generators. Technology prizes are powerful motivators. Many familiar with the X Prize. Golden Carrots have been used to accelerate into the mass market not-quite-ready for prime time technologies such as high-efficiency refrigerators.
  • The solutions put forward fall under 3 general themes.This first one – enhance access to capital to reward clean energy transitionFirst, developing a toolbox of financial instruments to meet meet the challenges of capital intensive clean energy technologies. Some of the examples are:Government backed debt - “Green Bonds” Flow through shares – a tax expenditure subsidy common in the extractives sectorSecond is to recapitalize SDTC. To quote Mike Brown of Chrysalix Energy Ventures” SDTC has more to do with the advancement of clean teck in Canada than any other single body’. We are recommending the Federal Government recapitalize SDTC at a rate of $100M/year for 5 years starting this budget year – 2013.
  • Aside from encouragingly-rapid growth in renewables, all the major changes needed are lagging”.
  • Our Competing in Clean Energy report finds that there are a lot of landmines that impede the success of clean energy entrepreneurs. First, you often need a push to force the adoption of new technologies. On this slide is a simplified view of the clean energy innovation cycle – (click)It shows the entire cycle of product development from idea through prototype and niche applications to widely commercialized product. (click)If you look at the blue boxes they identify 2 stages where capital is needed (click)If you look at the green box, it represents the movement down the production cost curve, as economies of scale and incremental improvements enable the technology to displace incumbents in major markets. Anyone remember the ‘car phone’? At the First stage of financing (first blue box) we are seeing decline early stage, venture capital investment this type of investment has decreased from $3.3 billion in 2000 to less than $1 billion in 2012. There are many reasons for this. Of course the market crash of 2008 is one reason but in addition, as identified by Andrew Heintzman (Investeco Capital Corp) is that our large institutional investors, the Pension Funds, have largely moved out of the early-stage investing game (except for Omers ventures). The second challenge for accessing capital is (particularly clean energy generation technology companies) is they fall into a gap between traditional asset classes. They have a venture capital risk profile but require infrastructure type capital (traditionally debt financing). In other words they need lots of high risk capital with the promise of lower but longer term rewards. Not fitting neatly into either box makes raising capital a daunting task.
  • Double all the wells that have been drilled since early 1900s.., while stillhave existing legacy. Cumulative effects, proximity to people. While global investments in fossil fuel power generation more than doubled between 2004 and 2011, investmentsin renewables more than quadrupled over the same period
  • Gas has some significant challenges – impacts on water, habitat fragmentation, induced seismicity, and that it is potentially competing as much with Renewables as Coal for access to the grid.I’ve talked about challenges but let me turn to opportunities that the clean energy transition is creating.
  • Gas has some significant challenges – impacts on water, habitat fragmentation, induced seismicity, and that it is potentially competing as much with Renewables as Coal for access to the grid.I’ve talked about challenges but let me turn to opportunities that the clean energy transition is creating.
  • Mega projects generally arrive late, over-budget, and fail to perform up to expectations. Cost overruns and benefit shortfalls of 50 percent are common; cost overruns above 100 percent are not uncommon. For example, in one study of major projects in 20 countries, nine out of ten projects had cost overruns.4 Similarly, a study of 44 urban rail projects—in North America, Europe, and developing nations, including London’s Tube and the metros in Washington, D.C., and Mexico City—found that the average construction cost overrun in constant prices was 45 percent; for a quarter of the projects, cost overruns were at least 60 percent.An appropriate slogan seems to be “over budget, over time, over and over again.” Rand Corporation examined 44 chemical process plants (Pioneer Pro- cess Plants), owned by firms such as 3M, du Pont, and Texaco. Actual construc- tion costs were over twice as large as the initial estimates.23 Furthermore, evena year after start-up, about half of the plants (21) produced at less than 75% of their design capacity, with a quarter of the plants producing at less than 50% of their design capacity. Many of the plants in this latter category had their perfor- mance expectations permanently lowered. As illustrated in Figure 1, the typical initial estimate is less than half the final cost. Furthermore, at every subsequent stage of the process, managers underestimate the cost of completing the con- struction of Pioneer Process Plants.
  • From Middle Power to “Energy SuperpowerIn July 2006 Stephen Harper told an audience in London that Canada had emerged as a global energy powerhouseCanada, he said, was the world’s fifth-largest energy producer, ranking third in gas production and seventh in oil production. Canada was the world’s largest supplier of hydroelectric power and uranium. “But that’s just the beginning.” roughly 400 of the world’s thousand or so publicly traded energy companies are now headquartered in Calgary.About half of all mining capital in the world is raised on the Toronto and Vancouver Stock Exchanges.
  • Jason Switzer: Greening North America's Energy Economy: A Canadian ENGO Perspective

    1. 1. GreeningNorth America’sEnergy EconomyA Canadian ENGO Perspective forthe NAFTA JPACJason SwitzerDirector, Corporate Engagement & Consulting25 April 2013
    2. 2. 2Leading Canada’s transition to aclean energy futureThe Pembina Institute is a nationalnon-profit think tank that advancesclean energy solutions throughresearch, education, consulting andadvocacy.
    3. 3. 3X Mexico-12% (of 30%)X US/Canada-17%X
    4. 4. Current Oilsands Development Trajectory isInconsistent with Canada’s Climate CommitmentEnvironment Canada GHG Forecast 20123.2 Mb/d1.6 Mb/d
    5. 5. Real Danger of Wasted Capital andStranded Assets5Unburnable Carbon – Are the world’s financial markets carrying acarbon bubble? Carbon Tracker Initiative, 2013‘using just the reserveslisted on the world’sstock markets in thenext 40 years wouldbe enough to take usbeyond 2C of globalwarming.’
    6. 6. Natural Gas as Share of Grid Power Mixnear-term GHG benefits, but lock-in risk, uncertain lifecycle benefitsIEA: Natural gas-fired power generation must decrease after2030 to meet the CO2 emissions projected in the 2DS.Note: Natural gas-fired generation includes generation in power plants equipped with CCS units.Biogas is not included.4 Degree Warming 2 Degree Warming40%30%20%
    7. 7. 7
    8. 8. 8
    9. 9. 9
    10. 10. 10Clean Energy Intrapreneurs& Entrepreneurs:individuals and organizations thatdesign, develop and manufacture energytechnologies and/or provide supportingservices that meaningfully reduce energy’senvironmental footprint
    11. 11. 11Push Send the right price signals• Eliminate preferential taxtreatment for fossil fuelproduction• Establish national carbon price
    12. 12. 12Pull Stimulate Demand• Deploy Public Purchasing Power• Support Technology Prizes &Golden Carrots
    13. 13. 13Enhance Access to Capital• Public and Private Clean EnergyVenture Funds (e.g.SDTC, Cenovus Opportunity Fund)• Government-backed ‘Green’ Bonds• ‘Flow Thru Shares’Enable
    14. 14. 14http://www.pembina.org/blog/692 1/5 of North AmericanRE investment 2 of top 10 RE technologypatent holdings Leading ingeothermal, biofuels Opportunities Co-produced hot fluids Solar & Biomass for EOR Post-SAGD Heat RecoveryExploit Niche Synergies with Oil & GasAccelerate
    15. 15. Clean Energy Transition:“too many red lights”© OECD/IEA 2012Cleaner coal powerNuclear powerRenewable powerCCS in powerCCS in industryIndustryBuildingsFuel economyElectric vehiclesBiofuels for transport
    16. 16. Muchas GraciasThank youMerci Beaucoupjasons@pembina.org www.pembina.org
    18. 18. 18 Best reserves developed first Reserve performance declinesover time In-situ GHG emissions intensitygenerally higher than mining In situ production will overtakemining by 2015 By 2020, 3.2 M bbls/d ~ 9M bbls/d announcedFor production of 1 barrel of bitumenGHG profile for oilsands more likely toworsen than to improve
    19. 19. 19Natural Gas faces serious social licensechallenges
    20. 20. Natural Gas as Share of Grid Power Mixnear-term GHG benefits, but lock-in risk, uncertain lifecycle benefitsIEA: Natural gas-fired power generation must decrease after2030 to meet the CO2 emissions projected in the 2DS.Note: Natural gas-fired generation includes generation in power plants equipped with CCS units.Biogas is not included.
    21. 21. Natural Gas as Share of Grid Power Mixnear-term GHG benefits, but lock-in risk, uncertain lifecycle benefitsIEA: Natural gas-fired power generation must decrease after2030 to meet the CO2 emissions projected in the 2DS.Note: Natural gas-fired generation includes generation in power plants equipped with CCS units.Biogas is not included.“Golden Age of Gas” (IEA, 2012):A bright future for unconventional gas is farfrom assured: numerous hurdles need to beovercome, not least the social andenvironmental concerns [which] threaten tocurb, if not halt, the development ofunconventional resources
    22. 22. 22budget, over time, over andover again"Delusion and Deception in Large Infrastructure Projects: Two Models for Explaining andPreventing Executive Disaster." Co-authors: Massimo Garbuio and Dan Lovallo.California Management Review, vol. 51, no. 2, Winter 2009, pp. 170-193.
    23. 23. 23From Middle Power toGlobal Powerhouse?5th LargestEnergy Producer3rd7th1st1st50%
    24. 24. Planned development increasingly likelyto exceed science-based limitsAir:Increasing number of air quality exceedencesApproved development predicted to soon exceed acid deposition limitsClimate:Failing to achieve AB climate change reductionsNo plan in place to meet Canadian commitmentsNo plan to reconcile projected oilsands emissions growth with targetsTailings (future production):Flexibility with tailings Directive (7 out of 9 mines not in compliance –negotiations with companies)•Biodiversity:•No emergency protection for caribou•Draft recovery plan relies on predator control vs. habitat protection24
    25. 25. Our view on Oilsands1. Pace and scale of oil sands expansion willlikely trump incremental improvements2. Science based and enforceable regulationsand monitoring to cap impacts areneeded, promised, slow to be implemented3. Voluntary efforts to date have not beencommensurate with challenge4. Environmental liabilities continue to growwithout a clear solution in place5. Oilsands revenue needs to be used toposition Canada for clean energy transition25
    26. 26. pembina.orgpembina.org/subscriptionPembina eNews, Media releases, Publication alertstwitter.com/pembina facebook.com/pembina.institute