OPINION | Beyond Keystone XL, U.S. policy poses challenges for Alberta oil sector

This column is an opinion from Sara Hastings-Simon, a senior researcher at the Payne Institute for Public Policy at the Colorado School of Mines, and a research fellow at the School of Public Policy at the University of Calgary.

U.S. President Joe Biden’s move to rescind the approval of the Keystone XL pipeline has been in the spotlight lately, but domestic actions from his new government are poised to have a much more significant impact on the Alberta oil industry.

The new administration has announced its intention to dramatically accelerate the electrification of transportation, including passenger vehicles, buses, light and heavy trucks, and rail, and support the build-out of new transportation infrastructure such as high-speed rail across the country.

These moves are significant for the impact they will have on oil demand in the United States, where transportation is the dominant use of petroleum, accounting for 68 per cent of petroleum consumption in 2019.

A comprehensive approach 

A dramatic change to the transportation system is a significant undertaking, but in both the policies that the new president has outlined, and the political appointments he has made, Biden is lining up for a full court press on vehicle electrification, and the auto manufacturing sector is ready.

The administration has wasted no time in getting started with a broad ranging climate focused executive order signed on Day 1 that directs the government to revise vehicle mileage standards by as early as April of this year. 

The same executive order gives the government 30 days to publish an updated social cost of carbon, an effective carbon price that all agencies use when conducting cost-benefit analyses on purchasing decisions.

The action lays the groundwork to support Biden’s announcement on Monday of a plan to use direct procurement to electrify the entire 645,000-vehicle federal fleet and the campaign promise to electrify 500,000 school buses within five years.

Aside from the direct impact, the use of federal purchasing power helps create markets and encourages and enables manufacturers to scale up production.

The administration has already made a commitment to dramatically scale up charging stations, targeting 500,000 new chargers by 2030, adding to the 100,000 currently available, bringing the infrastructure on par with the 115,000 gas stations across the country.

U.S. President Joe Biden signs his first executive orders in the White House. Most of the attention in Alberta has been on the order to rescind the permit for the Keystone XL pipeline, but according to Sara Hastings-Simon, other moves will have a much greater impact on the oil industry. (Evan Vucci/The Associated Press)

With range anxiety and concerns around the ability to charge for long distance travel a commonly cited barrier to electric vehicle adoption, the new chargers will reduce that barrier. 

California has a history of driving U.S. fuel economy standards. With an economy that would make it the world’s fifth largest on its own, it has significant influence on auto manufacturers, and the 2035 ban on internal combustion engine passenger cars and trucks could serve as a blueprint for federal action.

The economics will make things easier. Electric vehicles are already cheaper to own and operate over the lifetime of the vehicle, and are expected to reach up-front price parity — the same sticker price — as internal combustion engines in 2023, thanks to falling battery prices. Biden’s plans to restore the electric vehicle tax credit could make a new electric vehicle the cheaper option even sooner. 

In addition to ramping up new EV sales, the U.S. government is also eyeing policies to accelerate the process of getting gasoline vehicles off the road.

Senate Majority Leader Chuck Schumer has released a plan for vehicle buybacks, modelled on the previous “cash for clunkers” program. The plan sets a goal of a fully electric transport sector by 2040 and has the support of both labour and auto manufacturers. 

Appointments underline importance

Biden has also signaled the importance of transportation and climate policy through his political appointments, starting with the choice of Jennifer Granholm as head of the Department of Energy (DOE).

In a departure from the typical profile of a nuclear energy expert as DOE head, Biden has opted instead for a former governor of Michigan with a long history of working successfully with auto manufacturers on vehicle electrification.

In addition to cabinet level positions, the administration has assembled an expansive team of climate policy experts to head key agencies and implement climate action across the government.

The major auto manufacturers are signaling they are ready to meet the global push for an electric future, ramping up plans to bring out hundreds of new models in the next few years, with support available for U.S. manufacturers to retool factories for EV manufacturing.

And the government isn’t acting alone, within the private sector major vehicle users have signalled their own plans to go electric, with companies such as FedEx, Walmart and Amazon already working toward electrification of their own fleets.

What this means for Alberta 

All of this creates the potential for EV adoption to happen very rapidly in the United States, moving the country from a period of relatively flat growth to mass adoption, a typical pattern of adoption across technologies.

Norway is the most well-known example of growing EV adoption. Data from last November show 80 per cent of vehicle sales in Norway were plug-in EVs (full battery and hybrid). But early signs of this accelerating adoption can be seen across other European countries as well.

After years of pure battery electric vehicles (BEVs) accounting for less than two per cent of new car sales across western Europe, the proportion grew to seven per cent for all of 2020, with growth accelerating through the year, hitting 12 per cent in the fourth quarter. 

The impact of electrifying transportation on oil consumption in the United States will be significant.

The Biden administration’s plans to dramatically accelerate the electrification of transportation will greatly reduce the U.S. dependence on oil imports for domestic consumption, calling into question arguments around the importance of a secure supply from Canada, says Sara Hastings-Simon. (Ben Nelms/CBC)

In 2019, the U.S. consumed an averaged 21 million barrels of petroleum per day, with 14 million barrels per day consumed for transportation. Electrifying just half of the current transportation sector would decrease total U.S. oil consumption by seven million barrels, cutting a third of current consumption.

In comparison, total petroleum imports in the U.S. in 2019 were 9.14 million barrels per day, the majority in the form of crude oil. Such a cut would greatly reduce the U.S. dependence on oil imports for domestic consumption, calling into question arguments around the importance of a secure supply from Canada.

Experts say legal action on Keystone XL is, at best, a long shot, but there is even less Alberta can do to fight actions aimed at the electrification of transportation in the U.S. that will decrease oil consumption over the coming decade.

Instead, the province must recognize this new reality, and change course to adapt. Action is urgently needed to enable a just transition for the workers in the oil industry and those that depend on it.

We start from a fortunate position, able to build from the prosperity that the oil industry helped create with assets including strong educational institutions and a highly educated workforce. But there is little time to waste and much to do to ensure the Alberta economy will continue to prosper in the increasingly electrified future.


This column is an opinion. For more information about our commentary section, please read our FAQ.

View Source