Canadian energy experts see the global spike in oil prices – exacerbated by the war in Ukraine – as a two-edged sword, spurring a rush to develop renewable energy sources while simultaneously encouraging increased production of environmentally damaging fossil fuels.

For Canada, a major energy exporter with the potential to fill part of the gap created by the broadening boycott of Russian energy sources, the balancing act is especially delicate.

The left-leaning government led by Prime Minister Justin Trudeau has pledged to make major investments in renewable energy. But the country is also home to the Alberta tar sands, described by National Geographic magazine as “the world’s most destructive oil operation.”

Speaking in Vancouver in late March, Trudeau announced a plan to spend $9.1 billion by 2030 to reduce carbon emissions through support for electric vehicles, energy-efficient homes and vehicles, wind and solar projects, support for sustainable farming and other measures.

“The leaders I spoke with in Europe over the past few weeks were clear,” Trudeau told reporters at the time. “They don’t just want to end their dependence on Russian oil and gas, they want to accelerate the energy transformation to clean and green power.

“The whole world is focusing on clean energy and Canada cannot afford not to do that,” he said.

But Trudeau’s long-term ambition may be complicated in the short term by the rising demand for oil from Canada – the world’s fourth largest exporter – and a renewed interest in the Alberta tar sands, which have become more profitable than they have been for years.

The environmental group Greenpeace Canada last year called for a halt to development of the heavy and hard-to-extract bitumen, saying, “The world can’t afford to expand the Alberta tar sands, not if we want to preserve this planet for future generations.”

And with world oil prices as low as $50 a barrel in recent years, many producers had in fact shelved plans to expand production, mainly because of high start-up costs that made the effort unprofitable. But with current prices topping $100 a barrel, the heavy sludge is suddenly much more appealing.

“It is certainly true that higher oil prices will increase interest in all oil resources, including the Canadian oil sands,” said Mark Finley, a former manager and analyst with an energy focus at the CIA. He is currently with Rice University’s Baker Institute for Public Policy. 

“Moreover, a growing interest in resilient supply chains and what U.S. Treasury Secretary [Janet] Yellen has called ‘friend-shoring’ will also work to the advantage of Canadian producers,” Finley said in an interview.

Hadrian Mertins-Kirkwood, an expert with the Canadian Center for Policy Alternatives, said it is “too soon to tell” what impact the war in Ukraine will have on energy investment in Canada. “We’re not seeing a lot of investment into new fossil fuel projects at this point, but that could change if the war drags on and prices stay high.”

Mertins-Kirkwood said industry announcements show “that investment in fossil fuels is up this year. That’s mainly due to rising oil prices, which started last year but really picked up after the Russian invasion.”

“Specifically, oil companies in Canada are intensifying production, which means they’re trying to get more oil out of existing projects to take advantage of the current price environment.”

On the green energy side, Mertins-Kirkwood suggested the Trudeau government’s spending plans fall far short of what its own calculations show will be needed to reach its goal of net-zero carbon emissions by 2050.

The most recent federal budget says Canada will need to between $125 billion and $140 billion of investment every year to reach that goal, he said, far beyond the current rate of investment in the climate transition of $15 billion to $25 billion.

But Finley said the Trudeau administration’s green ambitions are not necessarily in conflict with the renewed interest in Alberta’s tar sands. 

“The outcome of this situation, I think, could be both more investment in oil and gas, and an accelerated interest in pursuing the transition [to renewable energy],” he said. “In that sense, there should be common ground to be found between the government in Ottawa and government/industry in Alberta.

Finley noted that Canada is a natural partner for other Western countries as it belongs to many of the same key institutions, including the International Energy Agency, NATO and OECD, as well as being a major energy exporter.

“As the United States and Europe focus on diversifying supplies away from Russia, what kind of countries are likely to be perceived as reliable partners?” he asked.  “Canada would certainly be high on the list.”
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