Ontario and Alberta face growing division as economic interests diverge over fossil fuels

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Those charged with investing your money for the long term face a heartbreaking internal conflict that is reshaping Canada and the world.While new federal incentives for low-carbon investment in a COVID-19 recovery play a role, connoisseurs say the private sector is already embroiled in its own painful energy investment transition.

Part of the agony of the split in this country is that it ignites the long-term political divide between regions that depend on the oil and gas sector for their livelihoods and those that do not.

Sophisticated new analysis shows that the interests of the fossil fuel economy so important to countries like Alberta no longer coincide with the well-being of the country’s financial and industrial centers, primarily – but not only – in Ontario .

A Changing Mood in Ontario

As French energy giant Total adds its name to the list of companies that expect oil demand to peak in a decade as electricity consumption doubles, finance specialist Ryan Riordan sees a change in mood within Ontario’s investment sector and within the Ontario government, which so recently fought an election against carbon pricing, low-carbon energy and the green transition.

“I think in particular that the provincial government is at an inflection point,” said Riordan, associate professor of finance at Queen’s University in Kingston, Ont., And author of a new research-based report for the Institute for Sustainable Finance, said in a telephone interview last week.

In the spring of 2019, Ontario’s Progressive Conservative government demanded gas stations display anti-carbon tax stamps in response to a levy imposed by the federal Liberals – a decision that was overturned by a court in September. (Patrick Morrell / CBC)

Riordan’s research shows that it is increasingly clear that the success of Ontario’s financial and industrial sectors depends on a rapid step towards a low-carbon transition.

What others have called “the fossil fuel entanglement” means that the province and even the respected pension and banking sectors of Canada may have acted against their own interests by investing in a fossil fuel sector. which could suffer heavy losses.

Riordan said the institute’s research has shown that, carefully targeted, a relatively modest $ 13 billion per year for 10 years from Ottawa is enough to accelerate a nationwide explosion of low-emission investments in private sector carbon that is already underway.

“It’s just hard to ignore what’s been going on in the world over the last three or four years, and I think that has had an impact on the people of Ontario as well,” he said. he declares.

While forest fires, storms and melting ice may be the apparent cause, Riordan – a longtime financier who started his career at HSBC’s European trading desk before embarking on top financial modeling. level – observes that market trends have become more and more evident.

Le signal Exxon Mobil

“Most importantly, Exxon Mobil left the Dow Jones index,” he said, noting that the company which had been on the exclusive list of America’s major industrial giants for nearly 100 years was launched on last month after the market capitalization fell $ 340 billion. US five years ago at $ 160 billion.

“I think this is just the tip of the iceberg, and it’s just not what is on the wish list of most institutional investors,” said Riordan, contrasting the decline of the oil giant. with the growing market capitalization of technology companies that are not dependent on carbon.

Darren Woods, CEO of Exxon Mobil, on the New York Stock Exchange in 2017. A month ago, the company was pulled from the Dow Jones Industrial Average after a sharp drop in its value. (Brendan McDermid / Reuters)

On Friday after our interview, the Financial Times reported that clean energy group NextEra had become more valuable than Exxon.

Now new developments – including expectations Ford to build electric cars in Oakville – force Ontario to realize that its future economic benefit is more closely tied to the transition to a low-carbon economy based on an entirely different source of energy.

“We have 80% zero-emission electricity right now in Canada,” said Merran Smith, executive director of Clean Energy Canada, a research group at Simon Fraser University in Burnaby, British Columbia.

Canadian nickel miners are already producing low carbon nickel, a crucial step for electrical manufacturers committed to the greening of the production chain.

Smith points to the Borden mine near Chapleau, Ontario, on the way to becoming the first fully electric underground mine in Canada. Many Ontario manufacturers can boast the same thing.

The Borden gold mine near Chapleau, Ontario has taken delivery of this battery-powered electric drill as it prepares to become Canada’s first fully electric underground mine. (Newmont)

But some analysts fear that another keystone of Ontario’s economy, the long-term investment sector – the smart money that runs insurance and pension funds 20 or 30 years later – is still struggling to be made. the transition.

As the former Governor of the Bank of Canada and the Bank of England, Mark Carney, has repeatedly warned, the decarbonization of the global economy means that at some point in the next few decades the value of fossil fuel assets will fall towards zero.

“These assets will lose value”

Adam Scott, director of Shift, a group that monitors how Canadian pension funds invest their money, fears that institutional investors, including the Canada Pension Plan, have not done enough to protect their assets from a precipitous decline.

In its annual report on sustainable investment, published last week, the CPP boasts that “investments in global renewable energy companies have more than doubled to $ 6.6 billion.”

But Scott points out that much of that money is being invested in fossil fuel companies like Enbridge in the hope that they will complete the energy transition, even if these energy companies simply do not have a credible path to accomplish the change.

“There is a mindset that ‘we cannot abandon this industry; we have to protect it somehow, ” said Scott, who observes that for a long time when the oil and gas sector was the engine of the Canadian economy, many investment leaders as well. spent time in the energy business.

Scott said that the RPC and other financial giants are working to find new investments to replace their huge portfolios of oil and gas companies and are have many successes, but they are struggling to find enough of the huge investments they need outside of the traditional energy sector they know so well.

“We are already witnessing a rapid reassessment of [fossil energy] assets due to COVID, but that’s just a taste of what’s to come from the climate, “Scott said.” It’s inevitable that these assets will decline in value.

While inevitably, Alberta’s oil and gas economy will continue to suffer from the door rush, he said, the success of the Ontario-focused financial sector will depend on exiting those positions before that they do not lose their value.

Follow Don Pittis on Twitter: @don_pittis



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