Canada Deserves Credit under Paris Agreement for GHG Reductions from LNG Exports (GGP)

Policy making is complex business.

As problems or challenges that impact the public are identified it is the job of policy officials and decision makers to assess options and possible benefits and outcomes. When the challenge is to drive economic growth many factors come into play. What is the competitive advantage. How many jobs can be produced and will they be family-supporting jobs? How will communities be affected, what do Indigenous communities support, what are the views of stakeholders, what is the impact on the environment and how much economic benefit and government revenue will be generated? Juggling multiple bottom lines is par for the course.

In 2013 the B.C.Liberals determined that LNG development would be a key industry to drive economic growth in B.C. and deliver tremendous domestic benefits and so began a concerted effort to attract the investment to the province.

Canada is the sixth largest producer of natural gas in the world. British Columbia is Canada’s second largest natural gas producer, home to the Horn River and Montney natural gas basins. Canada is estimated to have 1.373 trillion cubic feet of natural gas resources, an amount equal to over 200 years of current annual demand.

And LNG is in demand in Asian markets as an alternative to coal. B.C. benefits from a 50 percent shorter shipping route to North Asia than the US Gulf Coast, and abundant natural gas supplies from a democratic jurisdiction with high regulatory standards makes for an attractive supplier. And what if the LNG produced in B.C. could be the cleanest in the world? For these reasons, and the domestic benefits including jobs, revenue and support from many First Nations communities meant that LNG was assessed as key to B.C.’s and Canada’s economic future.

At the time, changing market conditions and multiple regulatory and other delays didn’t lead to any Final Investment Decisions. In 2018 the then-NDP government and the B.C. Liberals had a rare moment of cooperation when legislation creating the incentives for the LNG Canada export terminal in Kitimat, B.C. was passed.

The NDP government came to many of the same conclusions on the economic growth potential for B.C. but with an important qualifier among the conditions. Its position is that any project must fit within B.C.’s climate plan’s emissions reduction targets.

Canada, as an exporting nation, is penalized under the framework of the Paris Agreement. As we outlined in the 2021 Public Policy Forum (PPF) report Climatetiveness: What it Takes to Thrive in a Net Zero Exporting World, in the process of two-way trade, emissions tend to be tallied for carbon accounting purposes entirely against the producing nation. We noted that this type of global arrangement can have profound effects for a country like Canada based on its industrial composition and export orientation. In Canada’s case, 45 percent of our carbon footprint leaves the country in the form of exports, according to work undertaken for the federal government’s Industry Strategy Council.

In B.C., with annual emissions of about 64.6 million tonnes of carbon dioxide equivalent (MtCO2e) (2020) further development beyond the first phase of the LNG Canada project doesn’t “fit” the now legislated emissions reduction targets, because as the LNG producer the emissions are credited to Canada and the purchaser of our LNG gets credit for all the emissions savings from using clean B.C. LNG.

I was part of a broad business group in 2020 that undertook work with provincial officials to look at the GHG advantage of B.C.’s export commodities. That third party verified work found that on average, B.C.’s major commodity exports have about half the GHG intensity of identical goods produced by the province’s competitors. In fact, B.C.’s global advantage accounts for a difference equal to a third of B.C.’s total emissions. Low emitting electricity was the biggest factor in the B.C. advantage. In B.C.’s natural resource products alone, Canada has the potential to take millions of additional metric tonnes of GHGs out of the world’s atmosphere, simply through goods that include export products from B.C. And that’s comparing like to like – our LNG to LNG produced elsewhere in the world. When assessed as product displacement, that is replacing coal with our LNG, the savings are more significant.

Canada and B.C. are well positioned to make progress on climate change and can have an outsized influence on global GHG targets. Even before Russia’s invasion of Ukraine, a shortage of LNG was forecast by the middle of this decade as demand surges and is predicted to double by 2040. The International Energy Agency’s latest outlook sees natural gas demand in the Asia-Pacific region growing by 27 percent between 2021 and 2050.

The demand side of the calculus is now crystal clear. IEA executive director Fatih Birol said during the virtual launch of the IEA’s Canada 2022 report, he’d prefer the supply comes from “good partners” like Canada. The Paris-based IEA is a world-recognized authority on energy supply, demand and policy. We are good partners because we produce lower emissions commodities than our competitors, have a strong regulatory regime, a stable democratic government and are committed to net zero.

So the supply argument is in place, demand is strong through to 2040 and beyond, and the domestic benefits are significant. First Nations that stand to benefit see LNG as a path to a better socio-economic future for their communities. So what is the barrier then? We are essentially in our own way.

In an adherence to domestic GHG reduction targets we, and the world, miss out on the broader good. Reduction of global GHGs. As what will have more impact, an inward focus on Canada’s Paris target or global reduction of GHGs? 

China’s annual emissions are over 11 billion tonnes (BtCO2e), B.C’s annual emissions are about two days of emissions in China. But yet we would forego the benefits to stick to a sub-national (official parlance for a province) target as the producer of the cleanest gas in the world.

So what’s the path ahead? It starts with pressure from Canadians who have pride in the clean products we produce and want to grow our economy and see the domestic benefits in terms of jobs and revenue here at home. And forging equity opportunities with First Nations. It means we continue at pace to incentivize technology development to get to net zero and set the standard for the world in our clean gas. It means we need to streamline regulatory processes between levels of government to get projects built. And it means we need to address the imbalance that global GHG accounting creates.

In Climatetiveness we recommended that federal trade officials and the government shift the focus from trade negotiations to trade promotion, with a particular focus on leveraging Canada’s low carbon advantage.

Bilateral agreements offer another way for Canada to work with like-minded countries, such as Japan, which is prioritizing low carbon products and is prepared to pay a premium. Piloting agreements like this are a way for parties to facilitate trade in allowances or credit. Canada should show leadership and take steps to define future agreements by testing how cooperation could work in practice, especially where there are material stakes for the Canadian economy and material benefits to global GHGs. Testing these types of agreements is not new. Over the past few years, there has been a proliferation of the Paris Agreement’s Article 6 piloting activities, which are experimenting at how cooperation between nations could work in practice, thus helping to provide insight into negotiations, while offering testers access to carbon credits.

As the world focuses on energy security, Canada needs to step up. Canadian LNG is the best bet for B.C. and Canada to achieve economic growth and the multiple bottom lines against which Canadians should be keeping score.

(Kim Henderson is a PPF Fellow and a Principal at Sproat Advising. She has extensive experience in senior public sector management in a career spanning 20 years. She served as Deputy Minister to the Premier, Cabinet Secretary and Head of the British Columbia Public Service. She was also previously B.C.’s Deputy Minister of Finance and Secretary to the Treasury Board.)

This article was originally published in a supplement, sponsored by Enbridge, to the January-February 2023 edition of Policy magazine.