Guest essay by Eric Worrall

According to Canadian regulators demand for fossil fuel will collapse in the next few decades, raising the spectre of a resource industry loan default crisis.

Alberta oilpatch may face lending crunch as financial regulators worry about the risks of climate change

February 3, 2022 5.36am AEDT
Robert L. (Bob) Ascah
Research Fellow, The Parkland Institute, University of Alberta

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The Bank of Canada and Canada’s Office of the Superintendent of Financial Institutions (OSFI) recently released a pilot study that looked at how prepared Canada’s financial institutions are in understanding and managing climate change risks. The study found that the creditworthiness of oilsands producers will fall dramatically over the next three decades.

As a political economist, I have been studying the shifts in climate change regulations for several years. The friction arising between Ottawa and Alberta is also playing out around the world.

Financial resilience

Financial regulators — including the Financial Stability Board, the international umbrella group of central banks and banking supervisors, and the newly formed Network for Greening the Financial System, which comprises 31 central banks and regulators from around the world — are becoming increasingly concerned about the creditworthiness of borrowers exposed to the risks of climate change. These regulators worry that as climate change worsens the financial system may become more unstable.

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Implications for Alberta

Federal jurisdiction over banking and federally incorporated insurance companies means that federal regulators can influence how much credit flows to Canada’s oil-patch. 

The Calgary oil industry is dependent on bank loans and the sale of bonds and shares, which makes the industry reliant on Canadian banks. This fact has not been lost on environmentalists.

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But Alberta has steadfastly defended its jurisdiction and the Alberta Securities Commission is expected to slow progress towards standardizing the disclosure for the oil and gas corporations it regulates. 

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Read more: https://theconversation.com/alberta-oilpatch-may-face-lending-crunch-as-financial-regulators-worry-about-the-risks-of-climate-change-175988

The idea that fossil fuel demand will collapse over the next few decades is a fantasy.

Even if the world genuinely goes all in to achieve net zero, production of all the solar panels and wind turbines would themselves require staggering amounts of fossil fuel and other minerals for many decades to come.

Silicon production for solar panels consumes vast quantities of carbon, supplied as coal or natural gas. The carbon is not just for heating and melting the ore, much of it is consumed by the chemical reaction which strips oxygen from sand to produce silicon metal, the main raw ingredient for solar panels. Bonus points for figuring out what happens to all that carbon. This process is very similar to the way a traditional blast furnace chemically consumes coal or natural gas to produce iron and steel.

Wind turbines blades are even more ridiculously dependent on fossil fuel – they are made of plastic.

A sustained drop in demand for fossil fuel products just isn’t going to happen anytime soon, no matter what course the world chooses.

But so long as governments and regulatory bodies officially embrace this junk economics, climate mania poses a real and present danger to productive sectors of the Canadian economy, like oil and gas.

Canada self sabotaging their own fossil fuel sector would do nothing to reduce global consumption. Other producers would respond to price signals and step up foreign production, filling any gap by left by Canada exiting the field. As The Guardian’s George Monbiot once noted, we’re not going to run short of oil anytime soon.

The only people who would be affected by this green bureaucratic sabotage plan are Canadians themselves.

So I guess Canada has a choice. They can play the green game, tell themselves they really love all that disgusting but nutritious insect protein, live smaller, and try to stay warm in winter using solar energy. Or they can ditch the climate lunatics who are stifling their economic opportunities, and bequeath the same resource sector enriched quality of life that they enjoyed upon their children and grandchildren.