Author: Dan Byers Michael Gullo
September 18, 2024
“Senators, Calgary is much closer to Washington than Liard. And you don’t need the U.S. Navy’s Fifth Fleet to patrol the Great Lakes.” Then-Alberta Premier Jason Kenney said in May 2022 Russia's invasion of Ukraine, just a few months ago, put energy security back into the spotlight.
Since the 2022 energy crisis, global markets have calmed down, but geopolitical tensions have intensified, wars in Europe and the Middle East are frequent, and economic nationalism and protectionism are on the rise. Uncertainty reigns, making the North American Energy Alliance championed by Prime Minister Kenney all the more important. However, a sector-by-sector cap-and-trade system designed to meet Canada's ambitious 2030 economy-wide greenhouse gas (GHG) targets is threatening this increasingly important partnership.
It goes without saying that U.S.-Canada energy trade is critical to both countries’ energy security and economic prosperity, yet Canada’s role in meeting U.S. needs with safe, reliable and affordable energy supplies is often overlooked by policymakers Or know very little.
Although the United States is the world's largest producer of oil and natural gas, it has increasingly relied on its northern neighbor to supply much-needed heavy crude to refineries and keep electricity flowing to homes and industries. In fact, the growth of Canadian imports is an important factor in driving the United States to reduce its dependence on OPEC countries, as the country currently accounts for more than 50% of U.S. oil imports. At the same time, nearly all natural gas entering the United States comes from Canada, which is also a major supplier of electricity and vital minerals such as uranium to the United States. Overall, two-way energy trade in oil, gas, electricity and uranium will total a record $156 billion by 2023.
This energy security partnership must not be taken for granted. Potentially serious disruptions loom, especially if Canada intends to impose caps on emissions from its upstream oil and gas industry, as expected. While Canada's emissions cap does not directly limit energy production, it would do so as a practical matter because of the significant cost and length of approving and deploying emissions-reducing technologies that power oil and gas operations, such as carbon capture and storage. Lead times (CCS), waste heat recovery systems and small modular reactors) leave industry no choice.
This could force Canadian producers to reduce operations as a compliance measure. It is estimated that the reduction may range from 626,000 barrels to 2,000,000 barrels per day, equivalent to 16% to 52% of US imports of Canadian crude oil. Likewise, natural gas producers would need to reduce production by about 2.2 billion cubic feet per day, or about 76% of U.S. imports.
In short, the de facto production caps the Canadian government is considering could severely restrict cross-border energy trade, damaging our shared economic and security interests. They shouldn't go ahead as proposed, but that doesn't mean industry is opposed to ambitious emissions action. Instead, energy companies on both sides of the border are investing billions of dollars to enable the transition to a clean energy future. Both the United States and Canada have made tremendous progress, from multi-billion dollar investments in CCS projects and alternative fuels such as renewable natural gas, to clean hydrogen production, and world-leading actions to reduce methane emissions across the entire oil and gas value chain. This commitment is unwavering, committed to strengthening North American energy security while meeting international demand for our (lower greenhouse gas emitting) exports.
Policymakers should seek to strengthen cross-border cooperation on energy security, infrastructure, climate change policy, harmonized standards, and the development and deployment of key clean energy technologies. Such coordination should recognize and protect the fundamental role each country plays in promoting North American prosperity, meeting global demand, and building resilient energy supply chains. From a broader perspective, consideration should also be given to the increasingly important and integrated role that both countries play in providing safe, reliable and clean energy supplies to overseas markets and NATO allies.
Together, Canada and the United States have dominated global oil and economic growth over the past decade, creating an energy-secure North America while driving billions of dollars in innovation and technology aimed at lowering emissions. Policy actions that limit production and export capabilities could reverse this progress, making us and our allies more vulnerable. Instead, we must leverage our deeply interconnected energy systems and rock-solid commercial relationships to support a North American energy security framework that will deliver benefits for decades to come. Our organization and collective members stand ready to be committed partners in this effort.
Dan Byers is vice president for policy at the U.S. Chamber of Commerce's Global Energy Institute.
Michael Gullo is Vice President of Policy at the Business Council of Canada.
This article was originally published by RealClearEnergy and provided via RealClearWire.
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