Canadian oil players see ‘tremendous opportunity’ in new climate targets

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CALGARY — As Canada and the United States set new, more aggressive climate targets Thursday, oilsands producer Cenovus Energy Inc. said it was working to set new emissions goals this year.

Cenovus is among the Canadian companies expected to be impacted by the new U.S. climate targets, as it has stakes in refineries in Ohio and Texas, and also recently acquired more U.S. refineries as part of its blockbuster $9-billion deal to buy Husky Energy Inc.

“We will be completing an analysis to set new near-term ESG (environment, social and governance) targets, including for emissions, this year that align with our revised long-term business plan for the combined company,” Cenovus spokesperson Reg Curren said in an email, adding that both Cenovus and Husky had made net-zero emissions pledges in recent years.

At a global climate summit marking Earth Day, U.S. President Joe Biden announced emissions targets Thursday that are more stringent than the targets previously put forward by former president Barack Obama, which were then set aside by his successor Donald Trump.

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The U.S. is now pledging to cut its emissions by 50 per cent to 52 per cent below 2005 levels by 2030 — a move that is expected to reverberate across the Canadian oil and gas companies with significant assets in the U.S.

In lockstep with the U.S., Canada also set a more aggressive emissions reduction target Thursday, pledging to reduce emissions by 40 per cent to 45 per cent below 2005 levels by 2030 as part of an updated Paris Agreement commitment. Ottawa’s previous target was a 36 per cent reduction below 2005 emissions.

“Canada is a committed partner in the global fight against climate change, and together we will build a cleaner and more prosperous future for all,” Prime Minister Justin Trudeau said in a release Thursday, announcing the country’s new emissions targets.

But the absence of specific plans or regulations for achieving emissions reduction goals irked some executives in the energy sector, even while they said the targets could be met.

“These are obviously extremely aggressive targets being laid out by leaders in Canada and the U.S. and I think there’s an absence of process or plan behind the targets,” Precision Drilling Corp. president and CEO Kevin Neveu said on an earnings call. Precision operates a fleet of rigs in Canada and the United States.

“I think that from a drilling perspective, getting to zero or near zero, or certainly the targets that they’ve talked about which are 40 and 50 per cent reductions, are achievable,” Neveu said, adding the company has already switched some of its rigs fuelled by diesel to power from renewable energy-powered electricity grids.

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TC Energy Corp., which owns a network of oil and gas pipelines in Canada and the U.S., said in an emailed statement it “sees tremendous opportunity in energy transition.”

“Billions of dollars of new investments will be required in the world’s shift to lower GHG emission energy. As part of our contribution, TC Energy is investing in several renewable energy and GHG reduction projects,” the company said. TC Energy recently sought bids to power its existing pipelines in the U.S. with renewable energy.

Indeed, a shift in U.S. federal policy has highlighted the potential business case for carbon in Canada, said Robert Fitzmartyn, an analyst at Stifel First Energy.

I think there’s an absence of process or plan behind the targets

Precision Drilling Corp. president and CEO Kevin Neveu

“We expect E&Ps (exploration and production companies)… to advance carbon sequestration initiatives, to continue to explore ways to monetize what is effectively the creation of a new business. We would expect credible proposals on hydrogen-based initiatives as well, as E&Ps chase availability of capital to aid in reducing overall costs ahead,” Fitzmartyn wrote in a note earlier this week.

The American Petroleum Institute, which finally agreed to back a carbon tax in the U.S. this year, said climate regulations need to be “workable for all industries, support access to capital for all sectors and avoid a one-size-fits-all, prescriptive approach that would only stifle the innovative work underway in the private sector to manage climate-related risks and opportunities.”

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Some observers though, expect to see new carbon border taxes in both Canada and the U.S. to address the risk of carbon leakage.

It is critical for both Canada and the U.S. to establish border carbon adjustments, said Tristan Goodman, president of the Explorers and Producers Association of Canada, which represents small- and mid-sized oil and gas producers.

“It seems really inappropriate if those two countries are showing leadership, but we’re continuing the import of goods and products that are not having the same stringency on carbon applied,” Goodman said, adding that he was encouraged to see Ottawa include plans for a carbon border adjustment tax in the federal budget this week.

“Our members have already pivoted and moved their companies to meet the new regulations,” he said, adding, “We need to see what directions governments are going to take to implement these targets.”

Environmental groups, however, want to see Canada set even more lofty targets, in line with its G7 peers.

“While we would have liked to see Canada match the U.S. on climate ambition — and we hope the target settles at 45 per cent rather than 40 per cent — targets are only part of the picture,” said Merran Smith, executive director at Clean Energy Canada. “New targets provide direction and motivation, but the long and hard work of meaningful climate action comes in the years that follow.”

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