Canada’s 2050 net zero climate target means high spending and risk, according to industry analysts

Bank lending to the oil and gas sector monitored for climate change risk

News analysis

Canada is seen as particularly vulnerable to the transition to reducing carbon dioxide emissions, as investment in oil and gas is being scrutinized more and more around the world. Nonetheless, the industry still plays an important role to play as investment is likely to begin shifting from new fossil fuel projects in support of research and innovation aimed at reducing emissions. Say you have.

“CAPP encourages all groups redefining their investment portfolio to consider investing in Canada’s energy as a sustainable choice,” said Tim McMillan, President and CEO. I am. Canadian Petroleum Producers Association (CAPP) E-mail to The Epoch Times.

Analysts say Canada must experience a turbulent transition with economic and social risks to meet its ambitious emission reduction targets, and investment in the energy sector cannot afford to be exhausted. Stated.

The energy sector is a natural goal of reducing greenhouse gas (GHG) emissions. 25% or more Of Canadian emissions.But the industry is also contributing 10 percent Of the Canadian economy.

The Free Government has promised net zero emissions by 2050 and will be Prime Minister at a climate summit on April 22. Justin Trudeau Canada has announced that it will aim for a higher goal of reducing emissions by 40-45% towards 2030. Instead of 30 percentBy that year, it was below the 2005 level.

On the “Industry’s Climate Change Initiative” page, CAPP said it will continue to work with the government to meet its emission reduction targets. We believe the industry has the opportunity to provide both scientific and technical expertise. However, addressing this challenge “will require a significant investment in large-scale technology and innovation,” the association said.

The potential impact on workers is significant. Approximately 600,000 Canadians are employed directly or indirectly in the oil and gas sector, and Canada’s transition to a low-carbon economy could replace between 312,000 and 450,000. [of those] According to TD Securities, it will be a worker for the next 30 years. “

“No need for new oil or gas fields”

Energy sector spending needs to be increased and re-prioritized to focus solely on R & D. International Energy Agency (IEA) A survey published on May 18 provided a roadmap to Net Zero by 2050.

According to the roadmap, the IEA expects global total annual energy investment to surge to US $ 5 trillion by 2030, none of which includes new fossil fuel supply projects.

“The Net Zero route does not require new oil or gas fields, and supply is increasingly concentrated on a small number of low-cost producers,” the IEA said in a news release.

The IEA predicts that OPEC’s share of the much smaller global oil supply will increase from about 37% in recent years to 52% in 2050. This is the highest point in the history of the oil market.

And it takes a lot of capital to reach net zero, said John Stackhouse, senior vice president of RBC. ARC Energy Ideas April 27 Podcast..

According to Stackhouse, RBC believes there are many excellent financing opportunities in the oil and gas sector as part of a bank’s sustainable financial program that incorporates environmental, social and governance (ESG) factors into its investment decisions. I am.

RBC’s view is that “these funds will be put into the production sector, including oil and gas, and investing in projects, capital and technology so that emissions can be significantly reduced,” he said. Stated.

More and more companies are required to address ESG issues as well as profit, with an accelerated approach to achieving aggressive emission reduction targets. But with that, Stackhouse said there were additional risks.

“I think it will carry more risks than many Canadians thought …. These risks, such as technology not being extended efficiently or not working as expected. How do you manage it? “He said.

“The risk culture in this country must change. Your bank also needs to change its risk culture,” said Peter Tertzakian, deputy director of the ARC Energy Institute, co-host of the podcast. I will.

Climate risk to the financial system

Banks, insurers, and governments are under pressure to reduce the amount of money the oil and gas industry gets.

The world’s major central banks are trying to better understand the risks to the financial system from the transition to a low-carbon economy. In Canada Bank of Canada The Financial Institutions Regulatory Authority (OSFI) conducted a pilot project last November to assess financial institution impacts using climate change scenario analysis, stress test resilience to economic impacts, and identify regulatory responses. Started in. And the director. Their final report is scheduled for the end of 2021.

Specifically, OSFI is investigating Climate-related risks In three broad areas: physical risk, transition risk, and liability risk. Physical risks arise from events such as wildfires and floods. Transitional risk results from tighter regulations on GHG-intensive industries. Liability risk is associated with potential climate-related legal action.

OSFI’s deputy supervisor said transition risk is particularly important for Canada given the amount of carbon-intensive commodities that drive the economy. Bengali At the CD Howe Institute panel on January 28th.

According to OSFI, for financial institutions, the risk of transition comes primarily from lending to GHG-intensive industries. For insurers, transition risk is primarily driven by the life insurer’s investment portfolio.

If climate-related risks are incorporated into the overall risk assessment process, work from regulators can result in higher capital adequacy requirements for financial institutions and lower oil and gas financing. .. Climate-related financial information disclosure may also occur shortly.

“More banks and insurers may start shifting their balance sheets from some of the sectors most exposed to climate change risks, such as manufacturing, electricity, construction, transportation and real estate,” he said. I will. Fitch Ratings.. The scenario stress test gives credit rating agencies “more thought about whether banks need to hold additional capital to cover potential unreserved losses arising from climate change risk.” Added.

Fitch expects the scenario to focus on the risks of banks and insurers due to the energy sector. As of the end of January 2021, Fitch said that direct financing exposure to the oil and gas sector was less than 2.5% of the total lending of the seven largest Canadian banks. This is not important, but lenders say that mortgages in energy-dependent states like Alberta account for about 3 percent of the total loan amount.

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