Canada’s provinces and producers need to embark on their own transitions if the country wants to live up to the expectations it has set with its debut green bond.
The sovereign entered the green bond market for the first time with a C$5bn ($3.98bn) deal this week, becoming the largest oil and gas producing country to print labelled debt. But if it wants to get serious about its green credentials, then it needs to address its heavy reliance on fossil fuels.
Over the last month, Russia’s invasion of Ukraine has shown how crucial energy security is, with governments worldwide scrambling to secure supplies to make up for shortages caused by the war.
Jason Kenney, the premier of Canada’s largest oil producing province, has offered his alternative: Visit Calgary, not Riyad, and buy Alberta’s ‘dictator free’ oil.
However, this oil is not free of controversy. Large amounts of it are extracted from the Athabasca tar sands, the world’s largest reservoir of crude bitumen. Unlike with traditional extraction methods, energy intensive heavy mining machinery is used.
Ramping up this supply would sit awkwardly with the green ambitions represented by Canada’s green bond this week, not to mention its legally enshrined commitment to net zero by 2050.
Six of the largest tar sand operators have pledged that they will run net zero oil sand extraction operations by that date. However, they will not receive support for this transition from Canada’s green financing framework, which excludes the sector.
Instead, the major oil extractors and producing provinces will have to look at other ways to finance this transition. Assuming it is practicable at all, it will not come cheap.
However, the bond market has shown a willingness to fund similar projects through transition themed and sustainability-linked debt in the past, taking brown assets and turning them green. Last year, for instance, Calgary-based pipeline operator Enbridge kicked off Canada’s sustainability-linked bond market with a deal in part tied to its Scope 1 and 2 emissions.
But more work is needed if Canada is to meet its net zero pledge. Now that the country has struck oil with its green debut, its provinces and energy companies must build on the sovereign’s work.