A new study found that Canadian energy companies are factoring higher carbon-related costs in their investment, planning, and technology decisions.
The study, prepared by the Ottawa-based think-tank Sustainable Prosperity, found the companies are using a self-imposed, internal carbon price as they plan for the future, suggesting they’re anticipating a day when carbon tax or cap-and-trade systems are more widespread.
Without a clear sense of the country’s energy strategy, companies are creating their own carbon price to make long-term strategic planning and investment decisions, said Alex Wood, a senior director at Sustainable Prosperity.
“At some future point, there will be a price on carbon,” he said.
“What they are doing is essentially anticipating that and they’re factoring that into their decisions and so are addressing that risk.”
Carbon pricing, the generic term for putting a price on carbon through a carbon tax or a cap-and-trade system, aims to encourage reductions in carbon emissions and spur innovation in low-emissions technology.
The use of a so-called shadow carbon price can help companies decide whether or not to go ahead with a given project, decide which technologies to choose and practices to implement, according to the study.
It also helps companies remain competitive internationally where carbon pricing schemes are already in place.
Sustainable Prosperity, based at the University of Ottawa, surveyed 10 companies for the study, including energy giants such as BP, Shell, Suncor, and Enbridge. All the companies surveyed used some form of shadow carbon pricing.
“They are essentially making decisions about their capital investments, the big plants and big investments they are making as companies, and essentially carbon proofing them,” Wood said.
“Those are investments that in some cases will last 40 to 50 years, and what those companies are doing is essentially inoculating themselves against some of those prices that will come in the future.”
The study concludes that Canada’s current carbon pricing systems — which vary across provincial lines and by sector — can make it difficult to plan, and reinforces the call for a national energy strategy.
It calls for a “clear public policy regime around carbon pricing” that establishes pricing levels that would help Canada reach its national emissions reduction obligations.