Alberta’s predictably hostile, defensive reaction to the International Energy Agency’s (IEA) landmark Net Zero by 2050 roadmap shows it no longer matters what the Kenney government or its fossil fuel industry allies think about the drive to decarbonize the global economy and hold average global warming to 1.5 degrees C.

The IEA’s call for no future investment in new fossil fuel infrastructure was reinforced scarcely a week later, when three of the world’s biggest oil companies faced deeply humbling challenges from the courts and their own shareholders.

The combined impact is crystal clear: If Alberta’s own policy-makers don’t move to diversify the province’s economy and plan for a managed fossil fuel decline, financial and other institutions that make future fossil fuel development possible will make the decision for them.

Oil demand to fall 75 per cent

One pivotal paragraph in the IEA’s 224-page report heralds an unfamiliar, new world for Alberta, British Columbia, Saskatchewan, Newfoundland and Labrador, and any other jurisdiction that has centred its economy on oil, gas and coal. “Beyond projects already committed as of 2021, there are no new oil and gas fields approved for development in our pathway, and no new coal mines or mine extensions are required,” the IEA writes. “The unwavering policy focus on climate change in the net-zero pathway results in a sharp decline in fossil fuel demand, meaning that the focus for oil and gas producers switches entirely to output – and emissions reductions – from the operation of existing assets.”

Continuing to pour money into “junk investments” in oil and gas could throw countries off their carbon-reduction targets, IEA executive director Fatih Birol told Sky News.

And that’s just the beginning. The IEA scenario has all coal- and oil-fired power plants phased out by 2040 – just around the corner for an industry whose multi-billion-dollar infrastructure projects are built and financed to last decades. The only exceptions will be facilities that can take on the added cost of carbon-capture technologies that are as yet expensive and unreliable.

The report shows oil demand falling 75 per cent between 2020 and 2050, to 24 million barrels per day, with OPEC nations providing 52 per cent of a “much-reduced global oil supply” and production becoming “increasingly concentrated in a small number of low-cost producers.” Gas demand is expected to fall 55 per cent.

With Alberta well-recognized as an expensive producer, “this will have a significant impact on the price and therefore production levels of oil and gas,” said Pembina Institute Alberta director Chris Severson-Baker. And “purchasers of oil and gas products will increasingly direct their spending to oil and gas produced with the lowest upstream emissions.”

A “cataclysmic day” for oil and gas companies

The fossil fuel industry and its political allies could have been forgiven for imagining the worst was behind them once the IEA had issued its report. That was before a flurry of court and shareholder decisions on May 26 that The Guardian declared a “cataclysmic day” for oil and gas companies.

In the space of 24 hours, a court in The Hague ordered Royal Dutch Shell – whose greenhouse-gas emissions would make it the world’s fourth-biggest carbon polluter if it were a country – to boost its 2030 emissions-reduction target from 20 per cent to 45 per cent. Hedge fund Engine No. 1 won two seats on the ExxonMobil board with a challenge to the company’s shoddy response to the climate crisis. And shareholders representing 61 per cent of Chevron stock instructed the company to address the downstream Scope 3 emissions that result when customers use its product as directed.

“Game-changer is an overused metaphor, but surely this is one,” said U.S. Environmental Defense Fund president Fred Krupp.

“This will be seen in retrospect as the day when everything changed for Big Oil,” Andrew Logan, senior director, oil and gas at shareholder advocacy non-profit Ceres, told the Financial Times. “How the industry chooses to respond to this clear signal will determine which companies thrive through the coming transition and which wither.”

“It wasn’t just a bad day for Big Oil. It was a great day for life on Earth,” added U.S. climate journalist Emily Atkin. “It offered proof that fossil fuel CEOs aren’t the sole deciders of who gets to live and thrive on future planet Earth.”

Speaking with The New York Times, University of Alberta energy and environmental economist Andrew Leach said the legal and shareholder action raised a provocative question for the Alberta industry: “What does my business model look like in a net-zero world? That’s where things get really complex.”

A “stunning evolution”

But even before the news, the IEA’s new roadmap marked a stunning evolution for an international agency formed in 1974 to protect the interests of oil-consuming countries. Fossil fuel companies could routinely count on IEA analysis to justify their often fevered claims that oil and gas demand will continue growing through 2040 or beyond.

Until now, the IEA’s fossil-fuel-friendly analysis has had a severe, damaging impact on international climate action. In the five years since the Paris Agreement was signed, 60 of the world’s biggest banks invested US$3.8 trillion in new fossil fuel projects – largely because the IEA told them they could.

While the Paris-based agency styled its annual World Energy Outlook (WEO) as the “gold standard of energy analysis,” IEA watchers said the agency’s work was giving cover and legitimacy to new fossil fuel infrastructure. IEA analysts steadfastly maintained the WEO was a projection, not a prediction. And they cast the Sustainable Development Scenario (SDS), a secondary energy projection recently added to the annual outlook, as being compliant with the goals of the Paris Agreement.

But “if you look at oil and gas company annual reports, you’ll see constant references to IEA scenarios, including references to the SDS, claiming that even in the IEA’s climate scenario, we need to keep investing in new oil and gas fields,” Oil Change International analyst Kelly Trout said in an interview. Now “there will be a shift. If companies are serious about 1.5 degrees, they’d better adjust their plans to the IEA’s new scenario that actually aligns with that.”

The new “gold standard”

Just as important as the IEA’s top-line conclusion – and just as challenging for Alberta’s vision of a fossil fuel future – was a tectonic change in the agency’s modelling approach.

“This is a backcast, not a forecast, and that’s a major shift,” Corporate Knights research director Ralph Torrie said in an interview. Typically, forecasters start with historical fossil fuel consumption and investment trends, project them into the future and decide how far they dare bend the curve. This time, the IEA’s analysts situated themselves in 2050, cast their minds back to today and asked themselves what could realistically be done to get from here to there.

“Asking what has to happen to stay within 1.5 degrees C is a real game-changer,” Torrie said. “That question makes a world of difference in where you end up, because now you have no choice but to push really hard on anything that will help you get to 1.5.”

Which means that, after steadily relying on the IEA’s analysis to justify a carbon-intensive industrial strategy that subjects their province to dizzying economic booms and busts, Alberta politicians suddenly had to react to an agency intent on tackling a crisis even more dangerous to humanity than the COVID-19 pandemic.

They didn’t take it well.

Fair-weather friends

The IEA’s net-zero roadmap is “unreasonable,” “unfeasible,” and “driven by activists,” Alberta Energy Minister Sonya Savage, a former pipeline executive, said in a statement.

The notion that the IEA, with a solid complement of former fossil fuel industry staffers on its roster, is “driven by activists” would no doubt come as news to Alok Sharma. He’s the minister in British Prime Minister Boris Johnson’s Conservative government who’s set to chair this year’s United Nations climate change conference, COP26. The Net Zero by 2050 roadmap was commissioned by the COP presidency.

And just last year, Savage was happy enough to amplify the IEA’s findings, citing the WEO as “proof” that the world’s energy markets will continue to demand oil “decades” into the future.

It remains to be seen how quickly the IEA’s new analysis and the reactions to the court and shareholder action will filter through the global finance and investment community. But the message is crystal clear.

“Finance institutions can no longer justify lending, underwriting, insuring or investing in coal, gas or oil expansion projects, or the infrastructure that facilitates that expansion,” Adam Scott, director of Toronto-based Shift Action for Pension Wealth and Planet Health, said in an interview. “This isn’t an optional pathway. It’s a roadmap showing the direction we must take in order to prevent the worst impacts of the climate crisis from becoming reality.”

As that realization dawns, Savage, Kenney and their colleagues will, of course, still be free to stand their ground. But no one will believe them. And sooner or later, oilpatch voters will begin to notice the rest of the world prospering from the shift to a decarbonized future and ask why their province is being left behind.

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Mitchell Beer
Mitchell Beer is publisher of The Energy Mix, a thrice-weekly e-digest on climate change, energy and carbon-free solutions; and president of Ottawa-based Smarter Shift Inc.

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