Tag Archives: Canada

Canada’s Carbon Pricing Set For 2018 – 12/16/16

Prime Minister Justin Trudeau has announced that Canada would introduce nationwide carbon pricing in 2018 after meeting with the premiers of Canada’s 10 provinces and three territories.

“We have a pan-Canadian price on carbon pollution because we know it is the best way to ensure better clean jobs,” Mr. Trudeau said at a news conference. “This is a way for Canada to show leadership.”

Under the plan, all Canadian provinces must have an initial minimum carbon price of about $7.60 per metric ton. Over the next five years, the price would rise to about $38.

The government in Saskatchewan has refused to sign the agreement citing threats to Canada’s industrial competitiveness, especially given the new U.S. administration. During a visit, Vice President Biden tried to play down such concerns by emphasizing that U.S. carbon policies are largely state or business decisions and unlikely to change drastically.

The other holdout province, Manitoba, appeared to be withholding approval as leverage in a health care funding disagreement. Mr. Trudeau said earlier that the federal government would return money raised by any federally imposed carbon taxes to the provinces.

Excluding the two holdout provinces, the carbon pricing agreement covers 93% of Canada’s population. Mr. Trudeau said that 90% of Canada’s energy needs could be met by “clean” sources by 2030 while also expanding Canada’s energy sector, which is a significant part of its economy. Should the provinces not agree to the framework Trudeau has threatened to impose a minimum carbon price for the nation.

As part of Trudeau’s efforts to limit climate change, Canada will jointly develop a clean-fuel standard, build electrical transmission lines to support a coal phase-out and retrofit buildings. The previous infrastructure budget, as well as a promised Canada Infrastructure Bank, will be used to the fund efforts.

Carbon taxes have gained popularity in recent years as an efficient means of limiting emissions, but Canada’s policy would be an especially ambitious push to assuage environmental concerns.

OPEC Inaction Analysis – Supply – 5/16/16

Recently, oil markets seem to bend more to one-off disasters than OPEC maneuvering. The latest example comes in the form of wildfires that knocked about 1 million barrels of daily production offline near Alberta, Canada, which quickly overshadowed the ouster of longtime Saudi oil minister Ali al-Naimi. A similar indifference to OPEC policy shocks can be seen in the comparison of the last minute collapse of the Doha freeze deal to the Kuwaiti oil worker strikes and terrorist-related pipeline disruptions in Nigerian and Iraq.

Why has OPEC managed to do so little to drive oil prices back up?Sure, some members like Venezuela desperately called for meetings and production cuts, but its largest producers appear content to ride the low prices out. The devastation done to oil revenues has forced many countries to cut subsidies, increase taxes, and undergo significant political unrest giving them ample incentive to act, so what has made the group’s efforts so lackluster?

The de facto leader of OPEC, Saudi Arabia has been especially uncompromising when it comes to its wait-and-see policy. Yet, its strategy of faux-action and “maintaining market share” is backed up by sound logic if the goal of Saudi leadership is to maintain long-term control of their nation even if it means short-term suffering for citizens and allies.

Oil prices crashed because the oil supply outgrew oil demand. Explosive growth in production from the U.S. frackers was already leading to an oil glut in the top consumer nation even before demand from emerging markets tanked.

US total production

well age

As shown in the EIA graphs, a spike in crude oil and natural gas production from 2012 to 2015 coincides with the plummeting average age of U.S. oil wells. Advances in fracking technology were the cause. New drillers looking to take advantage of triple digit oil prices easily hurdled low barriers to entry. Capital costs and start up times for shale-oil wells were fractions of what was necessary for traditional wells leading to the proliferation of young wells. Even as prices fell, frackers were able to increase their efficiency leaving the technology ripe for a come back at prices as low as $50 a barrel.

A major driver of Saudi inaction on freeze deals and output cuts is its stated desire to drive higher-cost producers like shale drillers out of oil markets. Such a desire is understandable given that cuts to output that OPEC had historically used to keep prices high would essentially subsidize the very producers eating into their market share. The strategy has been successful given the number of bankruptcies coming from the U.S., but the damage comes far later than most analysts expected, and now stockpiles are bulging, hundreds of wells are pre-drilled, and fracking is more efficient than ever.

It’s little wonder Saudi policy makers are preparing for an oil-independent future when their competition grows so much faster than their customer base.

OPEC Unrest, Coal Struggles, and Solar Gains – 1/5/16

Even with unrest in the Middle East led by news of Saudi Arabia executing a prominent Shiite cleric oil prices continue to fall.

Unless the tensions lead to actions that significantly reduce supply by the two major OPEC producers, the friction just adds another obstacle in the way of a group effort to reverse the glut as the two compete for market share. Record highs in inventory and oversupply are being cited as the reason for the muted impact. Bearish expectations for Chinese demand are likely to be the main driving force behind prices until the oversupply wanes a bit. Recent falls in inventories have been attributed to tax avoiding maneuvers so one might question how much more room can be found if supply keeps outstripping demand.

A bigger question is how much influence OPEC will actually have in the future if US domestic production sustains its growth and surprising robustness. Still, an Arab spring situation in a major producer such as Saudi Arabia, which contributes over 10% of total production, would always have a devastating impact on prices. Saudi Arabia will face massive budgeting and financing problems as long as the oil glut continues which may force unpopular budget cuts that create political risks and unrest.

In the power sector, coals significant contribution to emissions has made it a prime target for environmental advocacy groups. Pressure to meet environmental standards combined with decreasing costs of shale gas drilling and clean energy technology have led many to believe that demand for coal will at best stay steady in the near term and at worst see major falls as companies commit to moving away from coal-fired generation. A switch in the majority share of electricity production from coal to natural gas in the next decade is a certainty while clean tech such as solar and wind will eventually see price declines large enough to encourage large scale implementation. Hydropower and nuclear power are not expected to grow as the best hydro sites are already being utilized and nuclear plants face both image and competition issues that make growth unlikely.

In solar energy news, GTM Research has put out a report predicting a  approximate fall of 41% in grid-scale storage balance of systems costs over the next five years. Though the savings will be distributed across the projects’ entire value chain, the largest declines will come from declines in storage inverter costs and  decreased soft costs as the industry builds momentum and influence. The solar industry’s build up of lobbying power and Republican support were key in seeing the Investment Tax Credit extension built into the lifting of the US oil export ban. If it can maintain supporters in both parties and in both houses of Congress during this time of political unrest, the solar industry may see the significant declines in soft costs needed for solar to compete with traditional electricity producers. In Canada, the situation is starkly different. The lack of a ITC equivalent and overall lackluster lobbying for Federal support by Canadian firms has left much of the industry out in the cold. Perhaps the introduction of new PM Justin Trudeau will cause some movement in the North.