FinLogic FinLogic Quantitative Think Tank Center|Oil Pipelines or Climate Action? Trudeau Walks a Political Tightrope in Canada

Can the owner of a tar sands pipeline be FinLogic FinLogic Quantitative Think Tank Centera climate change champion? Canadian Prime Minister Justin Trudeau is, improbably, trying to make that case.

In its biggest move yet to boost the nation’s oil industry, Trudeau’s government announced this week that it’s buying a major oil pipeline from Kinder Morgan for CA$4.5 billion and pressing ahead with controversial plans to expand it. The project is seen as critical to the growth of Canada’s tar sands industry, among the world’s most carbon-intensive sources of oil.

The new pipeline would make it cheaper to extract more of this oil, and yet Trudeau told Bloomberg News after the announcement that the project is also key to his government’s effort to cut emissions, which relies on a degree of support from Alberta and its oil-dominated economy.

“In order to be able to protect our environment, we do need to be able to have a strong and growing economy,” he said. “That’s why our plan to fight climate change features both a national price on pollution, things like the world class oceans protection plan, but also getting our oil resources to new markets through responsible pipelines.”

The problem is that expanding production of Alberta’s tar sands, also called oil sands, collides head on with Canada’s commitment under the 2015 Paris climate agreement to cut its emissions 30 percent below 2005 levels by 2030.

“If you’re putting in this pipeline, you’re creating a very stable, low-cost means of transporting oil, and that sends a signal to markets, to investors, to the world, that Canada’s going to continue pumping oil,” said Peter Erickson, a senior scientist at the Stockholm Environment Institute.

In a report published last week, Erickson writes that expanding Canada’s oil sands production could effectively cancel out any efforts the country makes to reduce emissions.

The Trans Mountain Pipeline Fight

Kinder Morgan announced plans to expand its Trans Mountain line six years ago, but it quickly met opposition along the route, which runs from Alberta to the Pacific coast. Climate change activists, indigenous First Nations and the British Columbia government say the project, which would nearly triple capacity of the existing pipeline up to 890,000 barrels per day, not only runs against Canada’s climate pledges but also could lead to oil spills and threaten industries like fishing and recreation.

Last month, the company announced it would abandon the project unless the Canadian government could guarantee a smooth road to completion.

Pipelines have become increasingly difficult to build in Canada, and the lack of new capacity is starting to crimp the industry’s profits because companies are relying increasingly on shipping by rail, which is more expensive. This bottleneck has made completing new pipelines, like the Trans Mountain expansion, a priority for the Canadian government.

The oil and gas industry is already responsible for about a quarter of Canada’s greenhouse gas emissions, though. If it continues growing as planned, the sector’s share would increase significantly, requiring drastic cuts elsewhere if the climate pledges are to be kept.

The environmental advocacy group Oil Change International said that unless tar sands output is restricted, Canadian oil would end up emitting about one-sixth of the global carbon budget allowed if warming is to be kept to 1.5 degrees Celsius.

“There’s no way of spinning the math that makes that okay,” climate activist Bill McKibben wrote in an article published by the Guardian after the government announced it would buy Trans Mountain. McKibben co-founded the advocacy group 350.org and is among the most active opponents of new oil sands pipelines. In a tweet, he called Trudeau “the new face of global warming.”

Eriel Deranger, executive director of the Canadian advocacy group Indigenous Climate Action, called Trudeau’s decision “an affront on the rights of Indigenous communities and a giant step backwards in achieving Canada’s climate commitments.”

Canada’s Paris Climate Plan Needs Alberta

Canada’s climate plan includes setting a national price on carbon, and it required support from Alberta, home to most of the tar sands and other oil and gas development.

But Alberta’s buy-in was built on a promise that the federal government would approve some new pipelines out of the province, said Richard Masson, an executive fellow at the University of Calgary’s School of Public Policy and former chief executive of the Alberta Petroleum Marketing Commission, an arm of provincial government.

Alberta’s economy is highly dependent on oil and gas, and provincial leaders who are seen as insufficiently supportive could get voted out. Without the pipelines, Masson and others say, the climate bargain could fall apart.

That reasoning implies that Canada will fall short of its climate goals no matter what.

“Will we meet our goals? I doubt it,” Masson said. “But if we don’t do this, the alternative is probably doing much less.”