Newsletter June 30, 2023
A WORD FROM THE PRESIDENT
Workforce evolution
I’ve never been comfortable with the idea that there is an energy “transition” underway. I think the term “evolution” is more accurate. Energy industries are responding to changing economics, technology, consumer preference, and government policy, as they always have. For example, the dominant suppliers of energy for households have come from a succession of sources over the years, including coal, fuel oil, natural gas, and electricity. All of this took place within as few as two generations. The energy sector has always evolved and continues to do so.
The energy workforce is also evolving. I was privileged in May to host the Women in Energy breakfast at the Enlit Africa energy conference in Cape Town, South Africa (read more about this in ECC Q2 Activities, below). The event brought together women who work in Africa in the energy sector, including some employed by Canadian-based businesses with operations in Africa. Participants had the opportunity to share experiences and thoughts on how to ensure that talented women and members of marginalized groups are not discouraged, frustrated, or indeed restricted in their ambition to work in the energy sector. ECC supports the expansion of women’s participation in the sector through the Equal by 30 program of the Clean Energy Ministerial and International Energy Agency.
Electricity Human Resources of Canada (EHRC) – an ECC member – has recently launched a survey to support the preparation of a report offering labour market intelligence to electricity industry members, academics, and the public at large. The report will update EHRC’s Workforce in Motion study, published in 2019. In that study EHRC reported that over the last decade and a half the electricity industry workforce has been getting younger. Although, the proportion of young people in the industry was below that of the workforce generally. The report also found that 26% of industry employees were women, compared with 48% of the entire Canadian workforce. On the other hand, Indigenous Canadians made up 4.7% of the electricity industry workforce and 5% of the population as a whole, underlining the fact that the energy sector is particularly important to Indigenous people and they are important to the sector (see the ECC’s Canada’s Energy Story for more on this).
The new EHRC report is expected to be published this Fall. Its findings might be indicative of developments in the energy sector as a whole. The demographic trend of baby boomer retirement touches all industries. And the energy sector is in a stage of accelerated evolution. New energy sources are emerging. New ways of producing traditional energy commodities and services are being developed. New technology and expertise are playing more important roles. Canada is rightfully proud of the world class quality of the people who work in energy in this country. To sustain that reputation, the sector must ensure that all talented people have the opportunity to participate in this vital economic sector. The ECC is pleased to be able to contribute in its own way to promoting that evolution.
ECC to Honour Nancy C. Southern of ATCO Ltd. as
Canadian Energy Person of the Year 2023
On the evening of 28 September 2023, the Energy Council will hold an award ceremony and dinner in Calgary honour of Ms. Nancy C. Southern, the 2023 Canadian Energy Person of the Year. The event will be held in the Devonian Room of the Calgary Petroleum Club (319 Fifth Avenue SW, Calgary, Alberta T2P 0L5). There will be a reception from 5:30 to 6:30 pm MDT, followed by the dinner and presentation ceremony.
For information on sponsorship opportunities please contact David McGrath: david@energy.ca
GUEST COLUMN
David McGrath, Chief Consultant, Energy Council of Canada
ESG: It Might Not Be Exactly What We Thought It Was
There are no facts, only interpretations - Friedrich Nietzsche
The 20th century’s use of Nietzsche’s writings to justify all manner of ghastly opinions suggests that he was on to something. So it is with many things. For me the acronym ESG – environmental, social, and governance – has been a source of confusion (and the awkward grouping of two adjectives and a noun isn’t helping matters). The more I read about ESG, the more I realize my initial interpretation needs to be revised.
I originally thought the concept was the latest expression in a series of terms that have attempted to capture the idea of what constitutes an “ethical company”. At one time we spoke of good corporate citizens. That evolved into corporate social responsibility. Then came the idea of businesses needing to earn a social licence to conduct operations. The principle common to all these concepts was that businesses must be at least accountable for the externalities their operations create.
My understanding now is that ESG is not exactly equivalent to the earlier terms. It does, however, take a more roundabout route in pursuit of a similar objective. It assumes that firms will eliminate or neutralize unintended negative consequences because investors will punish them if they don’t. According to industry commentators, the evidence supporting this theory is mixed, at best.
Despite industry’s experience with corporate ethics, a definitive understanding of what they encompass remains elusive. What is a “good” company and what is “responsible” behaviour? Are corporate enterprises the appropriate vehicles to pursue social objectives? How should the social benefit created simply by an enterprise’s commercial operations be integrated into ESG as an indicator of corporate behaviour? (For example, electricity generators keep the lights on. The oil and gas business helps keep us mobile and warm. That must be worth something.) How does a business balance ethical obligations to society in general with its legal obligations to its creditors, shareholders, suppliers, employees, etc.? Despite ESG’s attempt to resolve the last question, they all remain open to debate.
Moreover, what, indeed, is an externality nowadays? It’s reasonably clear that potential environmental disruption arising from operations is an externality that a firm must eliminate or remedy. But what is the appropriate response to a segment of society that condemns an entire industry for its existence? Is that a legitimate public concern?
These issues are vitally important to the Canadian energy sector. The scale of many businesses in the sector means that operations can affect large numbers of people and often have out-sized environmental consequences. At the same time, the sector includes both Crown Corporations and private sector firms. The governance issues for each are likely to be different. More importantly, the sector delivers strategically important services that sustain our standard of living and, in fact, make parts of the country habitable. Energy firms have not shied away from confronting the environmental, social, and governance challenges, a combination of factors that also includes respect for Indigenous rights and reconciliation initiatives.
However, the focus of ESG research (see ESG Investing Isn’t Designed to Save the Planet, Harvard Business Review, 1 August 2022) is not on how firms influence environmental, social, and governance elements through their behaviour. Unlike the previous concepts of ethical business, the focus is the reverse. How do environment, social, and governance conditions affect the risk to a firm’s financial valuation? A considerable amount of effort is being put into developing metrics to be used by fund managers and other investment decision-makers.
ESG relies on several critical assumptions. First, ESG risk is important enough that investor decisions can increase the value of low-ESG risk firms and depress the value of high-risk ones. Another assumption is that management can appreciably lower ESG risk by modifying the firm’s behaviour. And finally, these assumptions can only apply if the measurement of ESG risks is rigorous enough for investors to make meaningful distinctions among firms.
The evidence supporting the first assumption is not compelling. According to a special report by the Economist magazine (see The ESG conundrum, February 2022), there is little sign that firms with high ESG scores outperform competitors. There had been some optimism about the ESG relation to financial performance, but that has subsequently been questioned. Some investment funds had over-weighted high tech (i.e., low-risk ESG) businesses in the past and had seen significant incremental increases in value. However, with the war in Ukraine, traditional businesses, for the most part, have recovered in relative value. In the cases where superior financial performance and strong ESG standards appear to be associated, analysts must determine whether it is evidence of causation or correlation. In other words, do firms that do ESG well do everything well?
The second assumption attributes significant ESG risk to a corporation’s behaviour. However, it could come from factors beyond management’s control. It is possible that a business might be subject to severe environmental risk due to the impact of climate change, while at the same time its operations are effectively net-zero.
Finally, the most problematic assumption is that ESG risk can be measured in a way to allow meaningful comparisons among firms. That does not appear to have been established yet. A study of 6 ratings firms (again from the Economist’s special report), found 704 metrics among 64 ESG categories. Only 10 of the categories were shared by all the agencies – and GHG emissions were not among them. The rating agency Standard & Poor established an S&P ESG 500. Probably confounding most people’s intuition, the index did not contain Tesla but did include Exxon. In fairness to ESG enthusiasts, the measurement problem is widely recognized, and considerable time and effort are being devoted to resolving it.
It is still an unanswered question whether ESG enhances the ability and motivation of businesses to address the areas to which the term refers. Until such time as the tool is improved and standardized, energy businesses will likely have to continue to be guided by their legal obligations to deal with externalities and by their desire to ensure that the unintended consequences of their operations do not offset the considerable value their businesses create.
UPCOMING EVENTS
Energy Council Invited to Participate in Canada-Vietnam Event
To mark the 50th anniversary of diplomatic relations between Canada and Vietnam, the Consulate General of Canada in Ho Chi Minh City and the Canadian Chamber of Commerce in Vietnam will host a celebratory event at Vietnam’s Independence Palace in the evening of Monday, August 21st, 2023. The Energy Council of Canada has been invited to provide a speaker and possibly lead an industry delegation.
Vietnam is currently re-orienting its energy sector. The government foresees strong GDP growth – in the range of 6.5% to 7.5% per year – to 2050. At the same time, Vietnam is aiming for a low-GHG emissions sector. Officials are looking to Canada for advice, support, and services, given our strong, diversified sector. CCUS, SMRs, electricity transmission systems are only a few of the areas where Canada and Vietnam can work together.
ECC Q2 ACTIVITIES
Energy Council of Canada at Enlit Africa
In May ECC President Jacob Irving attended the Enlit Africa energy conference in Cape Town, South Africa. The Canadian High Commissioner in South Africa invited ECC to participate in the event and helped facilitate the visit. This was the second function in ECC’s North America and International Outreach (NAIO) program to be held outside Canada, following the regulatory and policy master class in Jamaica in late March.
ECC sponsored a Women in Energy breakfast at the conference on 17 May. The session brought together people working in Africa with an interest in exploring ways in which both women and marginalized individuals can be supported in their ambition to work in energy.
On 18 May, Mr. Irving then chaired a panel discussion on coal-fired electricity generation. He outlined the efforts by Canadian governments and industry members to withdraw coal-fired facilities and replace them with lower, or zero, emission forms of generation. Canada’s experience might be instructive for comparable initiatives in Africa.
The full list of distinguished guests: Prime Minister Mateusz Morawiecki, Premier Doug Ford, Mr. Waldemar Buda (Polish Minister for Development and Technology), Minister Wilkinson, Mayor Foster, Mr. John Henry (Durham Regional Chair and CEO), Ms. Natalia Kusendova (MPP for Mississauga Centre).
ECC hosts meeting of senior Canadian officials and Prime Minister of Poland
On Friday, 2 June the ECC hosted a meeting with senior officials from the federal government, government of Ontario, and the Prime Minister of the Republic of Poland, Mr. Mateusz Morawiecki and Mr. Waldemar Buda, Poland’s Minister for Development and Technology. The Honourable Doug Ford, Premier of Ontario, and the Right Honourable Jon Wilkinson, Minister of Natural Resources Canada, and Mayor Adrian Foster of Clarington, the host municipality, participated in the event, held at Ontario Power Generation’s Darlington Nuclear Generating facility.
Participants in the discussion were drawn from across the energy sector. In addition to Canada’s nuclear capabilities and its groundbreaking work in small modular nuclear reactors, the country’s strength in natural gas, infrastructure, wind, and other renewables were touched on.
See the report on the session in Events.
ECC attends official opening of TC Energy office in Ottawa
Energy Council of Canada representatives were invited to join His Excellency Manuel Joaquin Gonzalez, Mexico’s Ambassador to Canada and Mr. François Poirier, President and CEO of TC Energy on the occasion of the opening of the the company’s offices in Ottawa. Mr. Poirier noted that the company’s presence in the capital signifies both the importance of the company as a diversified participant in the Canadian energy sector and the importance it attaches to building a strong relationship with the federal government. TC Energy, once known as exclusively a pipeline company, boasts a diversified portfolio of natural gas infrastructure, gas storage, cogeneration facilities, as well as electricity generation and storage.
Ambassador Gonzalez pointed out the important role the company plays in building and managing energy infrastructure in Mexico. In particular, he pointed to the Tula pipeline project undertaken by TC Energy that will transport natural gas to the the provinces of Puebla and Hidalgo. The gas will displace higher emitting fuel oil for electricity generation.
S&P Canadian Oil Sands Dialogue Workshop
The speed limit of oil sands decarbonization
On 8 June, members of the S&P Global Commodity Insights team hosted a workshop on the prospects for de-carbonization of the oil sands industry. The organization has recently published revised forecasts of oil sands production and the history of producers’ progress in reducing the GHG emissions intensity of each barrel of production. The company’s website contains an analysis of the prospects for oil sands production. While the current prediction is below where the pre-covid trend was forecast for 2030, it is above S&P’s 2022 estimate of future performance. They see little increase in the number of operations. The expansion will be based on de-bottlenecking, efficiency improvements, and “step-out” expansions, i.e., production from existing operations exploiting adjacent properties.
Emissions intensity has followed a downward trend recently. Future improvement opportunities will be dependent upon the type of operations, roughly speaking mining versus SAGD. Process heat improvements such as making use of SMRs might be possible and carbon capture and storage could be promising. It’s thought that the latter is more advanced than the former in offering prospective improvements.
While emissions intensity is falling, it is recognized that production increases result in absolute emissions continuing to rise.
The session was well-attended with industry and non-industry representatives. The discussion was thoughtful, informed, and frank and held under Chatham House Rules, i.e., no public attribution of information or views expressed during the discussion.
Jacob Irving Speech to Global Affairs Canada Heads of Mission
On 8 June, ECC President Jacob Irving addressed Global Affairs Canada’s Heads of Mission (HOM). The event was part of a preparation conference for new and current HOM prior to their return to their external postings. HOM for Canadian embassies, high commissions, and permanent missions include ambassadors and high commissioners. For Canadian consulates overseas the HOM is the consul general.
ECC Board Adopts Strategic Plan for 2023 - 2026
At the ECC Board meeting, held in Vancouver on 7 June, the members voted to adopt a new 3-yr corporate strategy. ECC member, Hatch, made available a team from its Management Consulting division to conduct the research and analysis underlying the strategy. The process was carried out over an 8-week period. The final report, which contained recommended alternatives based on Hatch’s research, experience, expertise, and the information and views of members, partners, as well as non-members, was presented to the Board and discussed at the Vancouver meeting.
The Board unanimously agreed to accept the recommendations in the report that best aligned with the needs of members and industry and that were compatible with the landscape, i.e., the environment made up of other industry associations, in which ECC operates, and the organization’s value proposition.
ECC thanks Hatch and the Hatch team for their generosity in conducting the work supporting this decision and congratulates them on the thorough and professional standard they demonstrated throughout.
On 7 June members of the ECC board had the opportunity of participating in a roundtable discussion on the future of hydrogen fuel cells. The Canadian Hydrogen Fuel Cell Association held a board meeting in Vancouver in conjunction with the hy-fcell International Expo and Conference. The organizations used the occasion to devote a part of their day to a joint meeting of board members and a discussion on hydrogen fuel cells.
Hydrogen Fuel Cell - ECC Roundtable
ECC President Hosts Panel on Green Hydrogen at IEFA Montreal Conference
Jacob Irving hosted a panel entitled Unlocking the Potential of Green Hydrogen at the conference of the International Economic Forum of the Americas (IEFA) in Montreal. The conference is an annual event that attracts decision makers from around the world. These include political leaders, academics, economists, and executives from industry.
Begun in 1995, the event addresses “the most pressing issues of our time”. This year’s sessions were organized around the theme of transition. It had a heavy emphasis on energy, emissions, and emerging renewable technologies. The program also contained elements dealing with innovation, financing, international supply chains, and others.
IN THE NEWS IN Q2 2023
CGA RESPONDS TO REPORTS OF PIPELINE HACKING: In April, Canadian Gas Association president, Timothy Egan, answered claims that Russian intelligence had disrupted the operations of an un-named Canadian natural gas pipeline. The claim arose from news reports in the US. Mr. Egan said that there is no evidence of interference in gas pipelines in Canada.
ELECTRICITY CANADA RELEASES TWO REPORTS ON MAJOR PROJECT REGULATION: Electricity Canada released report on streamlining regulatory approvals of major projects and another on restoring time-tested principles of public utility regulation. The organization is concerned that the regulatory system may be too cumbersome to adequately support hoped for changes to reduce GHG emissions in the energy sector.
CENOVUS RESTARTS ALBERTA PRODUCTION: The Alberta production of Cenovus was shut-in in June in the face of a wildfire threat in northern and central parts of the province. As of 6 June the company was assured there was no continuing risk and restored the 62,000 BOE/d of production that had been halted.
NB POWER HAS ISSUED A STRATEGIC PLAN FOR 2023 – 2035: The company’s new 12-yr strategic plan entitled Energizing Our Future has, as its primary strategic objectives, to find less expensive ways to serve its customers and to continue to produce “cleaner and greener” electricity.
ATURA POWER TO BE CO-DEVELOPER OF ONTARIO BATTERY STORAGE FACILITY: Ontario’s Independent Electricity System Operator has chosen Atura Power and renewable energy developer Ameresco to build a large battery energy storage system in Eastern Ontario. The two companies plan to pursue other energy storage projects across the province.
CONGRATULATIONS
Chief Jim Boucher inducted into Canadian Business Hall of Fame
The Energy Council of Canada is pleased and honoured to congrat
ulate ECC Board member and longtime leader in the Fort McKay First Nation, Chief Jim Boucher, on his being named a Companion of the Canadian Business Hall of Fame.
Chief Boucher is one of the most influential and successful Indigenous leaders internationally. He believes the practice and preservation of one’s traditional way of life is fully compatible with long-term, sustainable oil sands development. He has built relationships with the oil and gas industry and all levels of government. The results have strengthened Fort McKay’s social and economic well-being, supported proper consultation, and advanced the rights of his community.
In 1986, he established the Fort McKay Group of Companies along with numerous First Nation joint ventures. Chief Boucher has three goals: creating employment, building educational opportunities, and turning a profit to provide a higher standard of living for the community. He achieved each of these goals in short order, then improved on them year after year. Under his leadership, Fort McKay First Nation has grown into a successful, healthy community with next to zero unemployment, a per capita average household income higher than the Alberta and national averages, a $65 million (and counting) trust fund, and it controls companies that have generated $2.36 billion in revenue from 2013-2018, making it a net contributor to Alberta’s and Canada’s economies.
Chief Boucher’s appointment to the Canadian Business Hall of Fame is richly deserved. The Energy Council of Canada is proud to have him as a member of our Board of Directors.
The Canadian Business Hall of Fame celebrates the achievements of Canada’s business leaders. Each year, Inductees are chosen as Companions of the Order of the Business Hall of Fame to honour their contributions to the economic development and prosperity of Canada.
They have demonstrated the qualities necessary to ensure the success and competitiveness of Canada in a global marketplace. As Companions, they are mentors and role models for JA youth, who represent Canada’s future leaders. The Induction Ceremony & Celebration is the signature national fundraising initiative in support of JA Canada.
