Germany’s pandemic recovery has a direct effect on Alberta

It is rare for the Province of Alberta to feel the effects of a policy decision made by the German Federal Government. However, it is clear that over the next few years, Alberta’s economy – from Calgary to Edmonton, from Banff to Lloydminster – will begin to see an unprecedented change and less of a demand for what we do because of the actions of many – but most importantly, because of the actions of the German Federal Government. 

So, at the end of April 2020, the German Federal Government announced that it had created a COVID recovery budget and that budget was to be $145 billion USD dollars. Now of that $145 Billion dollars, some $46 billion dollars was to be allocated to “green projects” like renewable power and electric vehicles. When one reads about this proposal what is most remarkable is the notion that not a single cent will go towards gasoline or diesel powered cars. Or put differently, Germany – one of the world’s largest producers of internal combustion (i.e. gasoline and diesel) – is going to spend nothing on their traditional industry and everything on transitioning that traditional industry to a new future. Given that a whole heck of a lot of money will be spent on transitioning Germany to electric vehicles, renewable power and things like “green hydrogen” to be able to store renewable power; one would think that the Government of Alberta would have taken notice. But I didn’t hear a peep.

Now, let’s be clear. This $46 billion dollars that was put forward in April was new money and it was on top of an additional $60 billion package of climate policies introduced by Angela Merkel’s government last year to get “Germany back on track to meet its goal of reducing greenhouse gas emissions by 2030.”  (Germany Unveils $60 Billion Climate Package, New york times, Melissa Eddy, Sept. 20, 2019)

Now this is not to say that Germany has been doing anything on the “Climate Change” file. According to DW, Germany emitted 6.3% fewer Greenhouses Gases (GHG) in 2019 as compared to 2018. Germany has had an interesting combination of programmes to accomplish this, including but not limited, an emission trading scheme (i.e. carbon pricing), phasing out of coal-fired power plants and the expansion of wind and solar energy generation capacity. All of this has allowed it to increasingly become a climate change success story. Accordingly, with the exception of the 2009 Global Economic Crisis, the 6.3% decline from 2018 to 2019 was the largest annual decline since 1990. “Compared to then, Germany has already reduced its emissions 35.7%”. However, the rub is still evident: this is not enough because last year the German Government announced that it will not meet its 2020 GHG emission goals. It was that announcement in pre-COVID/pre-pandemic times that led to a $60 billion dollar spending package.

Now what does this have to do with Alberta? Well, Germany is just one country that is spending billions of dollars on ridding themselves of the modern sin: “the internal combustion powered automobile”. The European Union, the UK, Japan and South Korea have all indicated that they want to be carbon neutral by 2050. China’s aim is to do so by 2060; while India has said they will do so if they can afford to. So far, all have pushed their respective societies to move to a carbon neutral economy by using the same first step: reducing their dependence on the internal combustion engine.. Some have opted for a combination of hybrid (HEV), plug-in electric (PHEV), battery (BEV) and hydrogen fuel cell (FCEV) powered cars; others have not. Only one thing is clear: the global electric vehicle market will grow significantly over the next decade.

If you want a practical example, let’s look at Norway. Their hard ban is coming up fast. By 2025, Norway wants to ensure that, for all intents and purposes, no internal combustion cars will be sold within its borders. Consequently, it should not be a surprise that 61% of the cars sold in the country are now electric; and, if you throw in hybrids, the number jumps to 89%. But the surprises don’t stop there because Volkswagen (VW) has topped Tesla as the top selling car brand in Norway. In fact, if Tesla is not careful – Polestar (a brand jointly owned by Volvo Cars and Geely) might overtake them. 

Now, if I were an MLA who sat in the Leg in Edmonton, I would be scared because small and “under resourced” automobile and vehicle manufacturers are no longer taking the lead on electrification. Unlike Tesla, both Volkswagen and Volvo Cars have a global footprint. VW has 61 factories which are distributed on five continents: Asia, the North and South America, Europe and Africa; while Volvo Cars – now a subsidiary of Chinese car manufacturer Geely – makes cars in the US, India, Europe and China, has 43,000 employees and sells cars in 100 countries. Unlike Tesla, these are companies with global reach. These are companies that can change supply chains and diminish the number of people who buy Alberta’s primary exports: fossil fuels. 

However, this is not the only sign of a diminishing market for oil. Before BP declared that peak oil had been reached; Royal Dutch Shell, Equinor, Total and a bunch of European Energy companies saw the writing on the walls. As an example, take Ørsted. They once used to be called DONG Energy. DONG was an acronym which stood for “Danish Oil and Natural Gas”. DONG Energy can trace its history back to 1972 and it had a number of legacy GHG obligations. By the beginning of this century, it had emerged as the manager of many coal-powered, electricity generators as well as many North Sea Danish oil and natural gas assets. However, things would change. By 2009, just in time for the United Nations Climate Change Conference in Copenhagen, DONG Energy adopted a new strategy. They called it their “85/15 vision”. The vision was simple: moving DONG Energy from a company with 85% of activities fossil fuel based to a company 85% based on green energy activities. 

This change of vision has had a radical impact on Dong’s successor company – Ørsted. As an example, Ørsted plans to phase out its last coal-powered generator by 2023. The sad thing is while Ørsted and Equinor have made radical changes to keep up; our legislature – the legislature of Alberta,  NDP and UCP alike – seems to not realize that this fundamental change is coming.  In Alberta, the Keystone or Transmountain Pipelines seem to be the focus of public debate and not the very existence of our largest industry.

Just for fun, let me try to reframe the conversation. If you listened to many conservatives including the Kenney Government, you might think that the market for Oil will largely remain unchanged because it has a wide use in our society. After all, it is used in a whole bunch of products. Accordingly, Oil must be used evenly without our society and economy, so much so that the Government of Alberta or Canada should not worry about the health or longevity of the industry. 

The problem though is that this type of thinking is not exactly correct.  

Let’s take some data from CAPP. Now, CAPP is the association of Canadian oil and gas producers. On their website, CAPP declares that about 65% of the average barrel of oil used in Canada goes to one use: Transportation. This use might be gasoline or diesel fuel. It might be used by a car or a bus, a ship or a jet; but 65% of oil used in Canada is trying to get something or someone from point “a” to point “b”. In the US, the Energy Information Administration (EIA) – an American government agency who collects data on energy – says that Americans use 68% of their oil trying to do the same thing. In both countries less than 5% of our oil is used for heating and electricity; and the rest of our oil use (no more than 25%) goes to other industrial or commercial ends. Or put in other words, many players in the economy use oil because they are trying to get something from point “a” to point “b”. However, if those same players use hydrogen, electricity or some other form of power, small “c” conservatives will find that the Oil which they clutch onto will lose much of its value. So it is fair to say that the health of the Oil Industry is directly proportional to the health of the internal combustion engine (ICE) and that engine is looking like it will become an endangered species by 2030 or 2035 and almost fully extinct by 2050.

If companies like Volkswagen and Volvo Cars use the same energy in Canada and the US that they are using in Norway, one can see that over time, there would be a dramatic drop in the need for Oil in North America. We can see this in two ways. Firstly most oil used in the transportation industry is used on roads or rail. The aviation industry only represents 7.8% of final oil consumption worldwide and maritime shipping accounts for 6.7%, (according to planete-energies.com). So if Germany takes Norway’s lead, one can expect that much of the $100 billion dollars being spent on a “green energy” future will include greening the road transportation system and building renewable energy infrastructure. This switch from hydrocarbons and fossil fuels to alternatives will only help to hasten the demise of fossil fuels and Alberta’s largest industry. 

Think of it this way, as Germany – one of the world’s largest automobile manufacturers – switches from oil to electricity, so will the car manufacturers that service this market. The top five providers of automobiles in Germany are VW, Mercedes-Benz, Audi, BMW and Ford. Like Volkswagen, Mercedes-Benz, Audi, BMW and Ford have been working around the world for over five decades to service their clients. While Tesla is working hard to build a global reach, Mercedes-Benz, Audi, BMW and Ford have been working in Europe, China, South Korea and Japan for decades. They have manoeuvred through the regulatory hurdles that come with change and each have continued to make automobiles for their customers. It is clear that each of those companies will roll out new models designed to do only one thing: shrink the use of oil in Europe, China, South Korea and Japan. 

Volkswagen – largely as a result of their Dieselgate Scandal – was forced by various governments to invest in Green Infrastructure. In the United States, this meant creating a nation-wide network of eVehicle charging sites. It’s called Electrify America. VW did the same thing in Canada. Unsurprisingly, it is called Electrify Canada. However, that is not the end of it because VW has recently announced that they plan to open up 36,000 charging points in Europe. This is just one example of how legacy car markets work to fulfill their commitments or make up for broken promises. All of this for Alberta means one thing: existing oil producers will have to deal with an oversupply of product in the market, while few and fewer people will buy the very product that is oversupplied. 

However, if it was only Europe, China, South Korea and Japan, one might say there is hope. The problem is worse than that. For, National Governments are not the only one’s pushing for change. Legacy car companies are being pushed by cities and subnational polities like Quebec, California, Toronto, Montreal, New York and Los Angeles too. For, those subnational jurisdictions want to reach their goals: to shrink their production of GHGs by shrinking the oil use in their respective jurisdictions. If you think that this isn’t a big deal, I would ask you to reconsider. California (excluding the rest of the United States) has the fifth largest economy in the world. With one-eighth of the population of the United States of America, California is a third of the size of Japan, half of Germany’s size and almost two-thirds of the population of the UK. California’s economy is more productive than India’s or the UK’s; and its economy represents about 15% of the US’s. Or put differently, California has some sway, but it doesn’t end there. 

California has had a pollution problem since the advent of the car. In the 1960s, California was able to convince the American Federal Government that they should be able to have their own strict tailpipe emission standard. Since then, California emission standards have driven the automobile industry to innovate. This is especially true since a number of American States have adopted California’s stricter regulatory standards as their own. Depending on the way you count it, up to thirteen different States will change their regulations when California moves toward an even stronger regulatory environment with the ascension of the Biden Administration next year. Accordingly, in 2020, California, New York and 12 other States will begin to demand more efficient cars; and in a few cases, more electric cars. All of that means that the United States, as a whole, will begin to consume less oil. 

Given that Canada is one of America’s biggest oil suppliers, and that Alberta is one of Canada’s largest oil producers; Alberta will begin to feel that squeeze soon. This is especially true since Volvo, Volkswagen, Mercedes-Benz, Audi, BMW and Ford already have a presence in the United States. 

Now let me be clear, the change will not be large. We might see a small annual market shrinkage of between 1 to 2%  in the US a year. However, the problem is simple. When we try to sell that excess oil to countries like China, South Korea or Japan, we will find that two bad options are available: there will either be no takers or those who want it might require a substantial discount. The reason will be obvious: those same jurisdictions will be seeing the same 1 to 2% decrease as those jurisdictions slowly move away from oil, natural gas and coal. Furthermore, the small changes of 1 to 2% every year could add up to 5, 10, 15 or 20% market shrinkage by 2030: a decrease driven by new technology and government regulations. 

With this in mind, I ask today – as I asked several years ago – is the Alberta Legislature ready for the change that is coming? I fear, now more than ever, that the answer is no and that makes me sad. For Alberta is a province that has much. It is a province that can accomplish the impossible when it chooses.I can talk about the ‘88 Olympics or the Oil Sands Industry. It took us a while to “witness” the injustice done to our Indigenous People, the LGBTQ+ community and to those of us who have a different ethnic, religious, cultural or language persuasion. Alberta is a place where doing the best for most of us is not enough; for it is in our nature to help out those few who have the least. It is that which I value about being Canadian, about being an adopted Albertan, that one must just not look after the majority; we need to look after the few too who are our weakest. As a result, it makes me sad the Alberta Legislature is not making the changes that are needed to help the majority or our numerous minorities because such inaction will destroy the fabric of our society. 

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