Fossil fuel investments still necessary during clean energy transition: ex-BoC governor Carney

Former Bank of Canada governor Mark Carney insists achieving net-zero emissions does not necessarily mean a complete halt on investments in the oil and gas sector during the transition.

Carney — who now works as the head of transition investing for Brookfield Asset Management, and as a United Nations special envoy on climate action and finance — says investments in oil and gas are still necessary to facilitate the clean energy transition.

He told CTV’s Question Period host Vassy Kapelos, in an exclusive interview airing Sunday, it’s a positive step that globally there are now more dollars being invested in clean energy than in fossil fuels.

Carney said the target ratio should be to spend about four or five times more on clean energy investments compared to fossil fuels, but that “it’s four to one, it’s not four to zero.”

“There still does need to be some investment in fossil fuels,” he said. “If you look at our economy, look at the oil sands, and at other aspects of our fossil fuel economy, we need to make that competitive.”

“Competitive is not just about cost, is it relatively low cost, and it’s not just about risk, it’s the lowest risk in the world, that’s clear,” he added. “But we also need to make it low carbon, and that’s going to take very large investment.”

Some experts are predicting 2023 could be one of the hottest years on record, while a new report from the United Nations concludes there is little chance of keeping the planet from warming by more than 1.5 C, the ceiling set in the 2015 Paris Agreement.

Meanwhile many countries are plotting their moves away from fossil fuels and toward so-called green economies. Canada has committed to achieving net zero — the point at which the amount of greenhouse gas emitted is equal to the amount that is removed from the atmosphere — by 2050.

In a wide-ranging interview, Carney and Kapelos also discussed his assertion that the world is at an “inflection point,” the feasibility of using carbon capture on a larger scale, the increased demand for electric vehicles, and the opportunity for Canada to lead the charge in the clean economy transition.

“There’s still going to be demand for oil and gas over the course of the next few decades, so how do we make sure we maintain our share, but our share in a way that doesn’t produce additional emissions? We have a solution for that, we have the expertise for that, we need to put tens of billions of dollars from industry first, but also supported by governments in order to make that transition,” Carney said. “We can do it, and in my view, we should do it.”

During his interview, the former central banker also shared his thoughts on the current state of the Canadian economy, saying he believes it’s likely that interest rates are going to remain high, and potentially increase, rather than going to go down in the near future.

This transcript of Carney’s interview with Vassy Kapelos for Sunday’s episode of CTV’s Question Period has been edited for length and clarity.

Vassy Kapelos: You wrote this week that you think the world is at an inflection point. Why do you think that?

Mark Carney: “Yeah, I think the world is at an inflection point, and Canada is there as well. Really this net zero transition, this move towards a more sustainable economy that everyone’s been talking about, is actually happening. If you look at the amount of investment in clean energy — wind, solar, hydrogen, even nuclear — that’s tripled over the course of the last five years, and it’s set to increase another four times between now and the end of the decade.

The number of electric vehicles—it was about four per cent of vehicles sold three years ago in the world—it’s going to be 20 per cent of the vehicles sold this year. It’s on course to be one in two vehicles in the major economies like the United States, and like Europe. In fact, even higher in Europe. All of these changes that have been talked about are happening. It’s changing our economy for the better, and it’s a huge opportunity for Canada.”

Kapelos: What do you see as the opportunity? How would you characterize it?

Mark Carney: “One of the main drivers of competitiveness—in other words, of exports and jobs, higher wages for Canadians in the future—is going to be whether or not we can produce things with lower carbon, produce things in a more sustainable way. And we start with a massive set of advantages. One of them is most of our power is clean. It comes from hydrogen, it comes from nuclear, increasingly it comes from renewables, and we can finish that job. More than 80 per cent is clean today. We need to get it to 100 per cent by 2035. Actually, in the last budget, a number of measures were put in place that are going to help that along.

So that’s one thing. Second thing, we’ve got a lot of the skills that are necessary in order to build out this new economy: we have it in the auto sector, we have it in the energy sector. A lot of the skills that helped build the oil sands, for example, are exactly the types of skills that we need to make the oil sands low carbon, low cost, as well as building out a hydrogen economy, which is going to be another massive opportunity.

So it’s an inflection point in the world. Things are moving much faster than I think people had expected and maybe even realized. We have a number of the strengths that can take advantage of it. Really the issue is, are we going to execute over the next five years?”

Kapelos: What is the greatest risk to realizing the opportunities that you just laid out?

Mark Carney: “I think in the Canadian context, there are a couple of risks. We’re doing a lot of things right. It’s starting to come together. But the first is, it’s fine to talk about these things, you actually have to build them out. So to go for this clean grid, to have zero-emission power generation across the country, we have to get permits for new wind installations, for new nuclear builds, for new solar, for new battery productions. We have to get those and we have to get those quickly, and that means you have to have plans. You have to share the gains of those upfront with local communities, and with First Nations. So that’s a huge element.

Second big thing we have to do is, we need plans. Plan beats no plan. This isn’t just going to happen. We’re getting a plan in place. I’ve been talking about the clean grid, we’re getting a plan in place for that. Plans are coming together for the energy sector—the oil and gas sector—but we need to pull them all together, all levels of government and industry, and then execute. We need plans for buildings, we need plans for our agriculture sector.

Last thing I think we really need to do, we need to do two other things. The first is my world, if you will, in finance. We’ve been slow. We’ve been slow to put in place all the elements that the financial institutions or big pension funds, individual Canadians or banks and others, need in order to put money behind solutions, to find out where the solutions are and where they aren’t. We need to speed that up. Then the last thing we need to do is we need to be much more disciplined within government about how we support this transition, by which I mean when we put things in place, we should be very clear about what we expect to get from those measures. How many emissions are going to fall because of that? Which jobs are going to be created? How is our industry going to move forward? And very importantly, if I may, if the political discourse — which you know, from time to time people will have different ideas — are going to change things, they need to explain what they’re putting in is better than what they’re taking out, and we just don’t have that level of discussion these days.”

Kapelos: Do you think there is a lack of clarity right now about the last part of your answer, around plans? I’m thinking of the interviews I’ve done with, for example, the premier in Alberta or even opposition leaders in Alberta, and their concerns around the framing of Just Transition and the possibility of jobs and the lack of details around that. I’m not saying everything they say has merit, but there is a political divide around the issue that exists right now. Do you think there needs to be more clarity?

Mark Carney: “There does need to be more clarity about how effective various policies are, but also we need to be straight with Canadians. There is a transition going on. We’re at an inflection point and the world is moving much faster than people had expected. Canada can lead that change, but if we don’t lead that change, we will be, by definition, left behind, and then there will be a very painful transition in our energy sector, in our auto sector, and other sectors. That doesn’t need to happen. In fact, the exact opposite should happen. The best transition for workers in all of those sectors is to have a clear plan about where we’re going, get the right policies around that, and then really let the private sector drive the investments. Because these are enormous investments. This is ultimately something in the order of $2 trillion of investment is going to be required over the next 25 years. That’s not going to come from government, or if it comes from government, it’s not going to be well spent. It needs to come from the private sector.”

Kapelos: You lead a group that represents a lot of the private sector on this. You’re also a special envoy to the UN on climate. It’s in that vein that I want to ask you: there’s so much of what the UN has laid out recently saying you can’t go to net zero, you can’t do a lot of what you’re talking about, with additional investment in fossil fuels and the industries associated with them. Do you think that’s true?

Mark Carney: “It’s true in the following sense. We need to transition our energy sectors in Canada and around the world, that’s without question. What’s been happening, if I go back to where I started quoting a bunch of numbers, is that we’ve moved from investment around the world of about 50 cents in clean energy five years ago relative to every dollar in fossil fuels, in conventional energy, to now, that ratio is we’re spending more on clean energy than we’re spending on fossil fuels in terms of investment. But that ratio, by the end of this decade, to be on track to where the world needs to get to, needs to go to about four-to-one or five-to-one, clean to fossil fuels. We’re starting to get on track for that. But it’s four-to-one, it’s not four to zero, so there still does need to be some investment in fossil fuels. If you look at our economy, look at the oil sands, and at other aspects of our fossil fuel economy, we need to make that competitive. Competitive is not just about cost, is it relatively low cost, and it’s not just about risk, it’s the lowest risk in the world, that’s clear. But we also need to make it low carbon, and that’s going to take very large investment.”

Kapelos: The government has signaled some of that through its tax credit though carbon capture, for example. The industry appears to be on the same page when it comes to using that kind of technology. Who isn’t though, are people who are advocating for mitigating the effects of climate change: a lot of environmentalists, and the opposition NDP, who say that amounts to subsidizing the fossil fuel industry, that technology is not proven on the scale that it needs to be, and this is misplaced investment. What is your response to that?

Mark Carney: “Well first off, I don’t agree with that, full stop, for several reasons. One, 28 per cent of our emissions across Canada come from the energy sector, from the oil and gas sector specifically, so we need to get those emissions down as part of a transition. One of the core ways is to use the (carbon capture) technology, which is being deployed at large scale, but one of the other things I do is I work for a company called Brookfield, a great Canadian company, where we invest in carbon capture in the United States and in other jurisdictions, including here in Canada. We see that the technology works. We can build that out at scale. Canadians can build that out at scale, get the emissions down, preserve our energy sector during the transition, during the course of the next quarter century, help build new industries, because you need carbon capture to help our steel industry transition, and other industries transition. You need it for hydrogen, if we’re going to use any of our natural gas for hydrogen, a clean fuel. So, this is a critical technology for Canada’s transition. And the idea that we would ignore the progress that’s been made on that, that we would walk away from the oil sands, that we would forego this enormous opportunity, that makes no sense to me. That’s why I’m pleased that the industry is getting behind it. The federal government is getting behind it. I’d like to see the Alberta government get behind it, in line with the federal government, because again, I’ll go back to where I started, this transition finally, happily, is moving much faster than people expected, and we should be at the front of the pack.”

Kapelos: Just to be clear, though, let’s say the industry does all that, the emissions start to see some ebb to them, can you build a new pipeline and also do that? That’s what environmentalists are asking.

Mark Carney: “Emissions don’t just need to ebb, they need to be eliminated, but we’re not seeing that because we’re not making the investment. Look, I know the numbers as well as anyone, that’s what I’m doing for the UN, and we have to have clean oil and gas. The emissions that are involved in the production and distribution and transportation of oil and gas have to be eliminated. Now, what the world needs to do is transition off oil and gas for most applications, and we’re seeing that. We’re on a path now in the world where one in two vehicles by the end of this decade will be electric. One in three vehicles in China this year will be electric, one in four in the European Union will be electric. These numbers are huge. By the end of this decade, that’s more than five million barrels per day of oil demand that will go away because of that transition. Now that transition is being mirrored in other industries, so in Canada, we should look at that, in my view, and say there’s still going to be demand for oil and gas over the course of the next few decades, so how do we make sure we maintain our share, but our share in a way that doesn’t produce additional emissions? We have a solution for that, we have the expertise for that, we need to put tens of billions of dollars, from industry first, but also supported by governments, in order to make that transition. We can do it, and in my view, we should do it.”

Kapelos: I want to turn to the economy. We got some new GDP numbers last week, things are slowing, but they haven’t ground to a complete halt over the quarter. What does that tell you about the prospects for a recession?

Mark Carney: “I think the first thing is, we don’t want things to grind to a halt—the economy needs to rebalance a bit. It does need to slow a bit in Canada and the United States, but ideally, the needle the central banks are trying to thread is a slower pace of growth, but still growth. I think we are at record employment in the country right now, and in that way, the economy can rebalance and Canadians can move ahead from there and we can have inflation under control. So the numbers I would say on balance, were encouraging in that regard. But look, let’s be absolutely clear: everyone watching this knows the price of food is still up 10 per cent, the price of gasoline has high interest costs. If we sit down a year from now, I think interest costs for Canadians relative to their disposable income will probably be the highest level since the late 1990s. So Canadians are there in work, but by and large they’re feeling the pinch, without question.”

Kapelos: Do you have a sense of whether they can rest easy about future interest rate hikes, or do you think it’s too early to know?

Mark Carney: “It’s too early. I think the central banks need to be vigilant and do their job. They have very specific responsibilities. They need to get inflation back down under control, getting it towards two per cent is not the same as getting it to two per cent and keeping it there. They also need to be vigilant in the financial sector. We’re blessed here in Canada, I think blessed, or maybe through good decisions, in that we have a very strong financial sector and I expect that to continue. It’s one of our strengths. But this is not ‘job done’ for central banks, and if I may, for people watching, it’s more likely that interest rates are going to be high and potentially a little higher than certainly they are going to go down. So, in terms of managing people’s affairs, thinking about it in those terms is important.”

Kapelos: This is a political show. So my final couple of questions for you are in particular around your appearance at the Liberal convention a few years ago, which created a big splash. Will you be at the one this week?

Mark Carney: “Yes. I will attend. Yeah.”

Kapelos: And will you be speaking there?

Mark Carney: “I’ll be listening.”

Kapelos: Okay. So my question then, as someone attending, do you think that the current prime minister, that Justin Trudeau, should lead the Liberals into the next election against Pierre Poilievre?

Mark Carney: “Well, look, I mean, part of the reason why I went to the convention — albeit virtually, two years ago — and I’ll go next week, is that I support the government. I think the government’s on the right track. You know, we are the best country in the world. We can always improve, the party can always improve, the world is changing, and so to provide support to the government and to the prime minister.”

Kapelos: Would you like to see him run against Pierre Poilievre?

Mark Carney: “I support the prime minister.”

With files from CTV’s Question Period senior producer Stephanie Ha

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Fossil fuel investments still necessary during clean energy transition: ex-BoC governor Carney

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