IEA Commends Canadian Energy Policy

(Paris) — 15 November 2000

Executive Director Robert Priddle of the International Energy Agency released today the Agency’s report on the energy policies of Canada, Energy Policies of IEA Countries – Canada 2000 Review. The report was prepared by an international team of energy experts who visited Canada in late November-early December 1999.

“Successful regulatory reform of the gas market has contributed to rapid growth in Canadian exports of gas to the US," Mr. Priddle said. “Encouraged by potential trade and direct benefits to Canadian consumers, some provinces have also undertaken major regulatory reform of their electricity markets. Lessons learned in Ontario and Alberta could help other provinces develop successful regulatory reform policies for electricity. Co-operation between provinces and with the federal government could lead to further development of regional energy markets, expanding the interconnections between several provinces and the United States.

“Development of Canada’s huge resources of oil sands and heavy oil has supplemented the continuing development of conventional oil, adding to the security of oil supplies for all IEA Member countries.

“These are the big plus points of Canadian energy policy. But development of energy resources, combined with rapid economic and population growth, poses significant challenges for Canadian energy policy. Perhaps the greatest challenges are implementation of sufficient measures to meet Canada’s national target for reducing greenhouse gas emissions and securing further improvements in the efficiency of use of energy.”

Canada’s response …
“Energy is essential to Canada’s economic growth, prosperity and social progress,” said Ralph Goodale, Minister of Natural Resources Canada. “I am pleased that the IEA review supports the direction that we have taken in energy policy to foster the sustainable development and use of energy. I am confident that Canada’s energy sector will rise to the challenges and take advantage of the opportunities of the 21st century and will continue to play a role around the world in ensuring the availability of clean and efficient energy and related technologies in support of economic development and social progress. Our goal is to become and remain the world’s smartest steward, developer, user and exporter of energy resources.”

Co-operation between the federal and provincial governments is essential for successful energy policy development and implementation in Canada. The report makes recommendations in several areas where co-operative action appears necessary, notably to encourage the development of regional energy markets. The report recommends consolidating existing provincial reform policies and extending them to other provinces.

The report includes description and analysis of nuclear power, renewable energy sources and energy resources such as uranium, coal, oil and gas.

Greenhouse Gas Target
A key challenge facing Canada is to establish a workable national implementation strategy to achieve the Kyoto target for reducing greenhouse gas emissions within the commitment period at acceptable economic cost. Canada must also find a way to share out the cost of meeting the Kyoto target among federal, provincial, territorial and municipal governments. The energy sector has a major part to play in this strategy.

Canada is committed to reducing greenhouse gas emissions to 6% below the 1990 level of 601 Mt. Initiatives have been taken but projections reveal nonetheless that emissions will be 199 Mt, or 26%, higher than the target in 2010. Additional measures to reduce emissions will be necessary. The required reduction in the carbon intensity of the economy exceeds the reduction achieved in Canada following the oil crises of the 1970s. A combination of energy efficiency improvements and fuel switching will be required, as well as the use of the Kyoto flexibility mechanisms on a major scale.

The federal and provincial governments need to co-ordinate their activities. A major step forward will be agreement on a national implementation strategy, based on the work of the government/stakeholders working groups that form the “Tables Process”.

End-use Energy Efficiency
The creation of the Office of Energy Efficiency has been an important institutional change that has increased the transparency and accountability of Canada’s energy efficiency programme. There is now a good analytical base for understanding energy use and efficiency trends in Canada.

To date, the emphasis has been on voluntary measures by industry. However, at least in some industry sectors the expected rate of improvement under voluntary agreements does not appear to be much higher than what might be expected in normal circumstances. Structural change, new measures and stronger integration of policies will be necessary, always within the constraint that Canada must remain competitive with the US, its major trading partner.

Electricity
Provinces own most of the major electricity utilities and regulate their activities. The provinces are accordingly taking the lead role in regulatory reform. The pace of restructuring varies widely according to the specific circumstances in the province, for example, the perceived potential for competition, the risk of creating stranded generating assets, and the existence and extent of interconnections with other provinces and the US. Achieving effective competition will require increasing the number of market players able to influence the electricity price in markets which have been dominated by one, or a few, companies.

The report looks at reform policies now being implemented in Ontario and Alberta. Reform in other provinces is not as far advanced.

The Canadian electricity system is being much influenced by the requirements laid down for entry into the US market. The federal government has a policy role because of its responsibilities for international trade. The development of interprovincial and international trade could bring new entrants to provincial markets, so ensuring that effective competition develops within provincial and regional markets. The federal government should work with provinces and industry to promote energy market reform on a regional basis and seek provincial agreement to the progressive development of such markets. Such an approach would help ensure that the benefits of competition are brought directly to Canadians, as well as indirectly through growth in trade with the US.

Gas
Canada has immense reserves of natural gas and is the third largest gas producer in the world. Canada and the United States are properly considered as a single market for gas. Since estimated reserves are increasing, an export-oriented policy cannot be challenged on grounds of security of supply.

Gas demand is expected to grow strongly as electricity generators in the United States and Canada are encouraged by electricity market reforms to turn to gas combined cycle generation technology. Canada relies on the market to ensure that pipeline capacity is planned and built in time to meet demand. Markets require good information to function effectively, and provision of government analyses of demand and supply growth, and the market outlook, are important to ensure the gas market continues to develop smoothly.

Reform of the gas market is at an advanced stage in Canada but further progress in reform at the retail level warrants attention. As with the electricity market, consumer protection measures would assist the smooth transition to liberalised retail gas markets.

Oil
The medium to longer-term outlook for Canada’s conventional oil industry is uncertain. Production may stabilise or fall from current levels, because of declining reserves of conventional oil. The oil sands segment of the industry provides scope for increases in production. The producers expect this source to be economic with oil prices at or above US$ 12 per barrel. Because of the scale of the operations, producers necessarily plan over an extended period and do not respond to short-term movements in the price of oil.

Carbon dioxide emissions from fossil fuel production, mainly natural gas and oil sands production, are expected to account for nearly 12% of total emissions in 2000. The huge forecast expansion in synthetic crude output will have local environmental impacts and contribute significantly to growth in Canada’s greenhouse gas emissions because of the high energy input from gas needed to produce synthetic crude.

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