June 5, 2024 – The federal government should develop its own publicly available energy policy scenarios to direct Canada’s energy policy decisions instead of relying on the Canadian Energy Regulator’s (CER) energy outlook, according to a new report from the C.D. Howe Institute.
In “Shaky Assumptions: The Hazards of Relying on Energy Scenarios and Forecasts in Federal Energy Policy,” author Ben Brunnen examines the role and key limitations of forecasts and scenarios from energy agencies as well as how to strengthen their development and use at home. He highlights how the Canadian government has expressly tied the CER’s Canadian net zero scenario to its proposed oil and gas emissions regulation and cautions against this.
“Energy scenarios are purely conceptual, and their use as a tool to direct macro-level energy investment policies and regulations can create country-level exposure to significant energy supply, affordability and security disruptions – particularly if they lack objectivity in their development and application,” says the author.
The CER’s energy information mandate, by nature of its relationship to the federal government, is susceptible to government influence and direction, according to Brunnen.
He cites how in 2021, the federal Natural Resources Minister requested the CER undertake scenario analysis consistent with Canada achieving net zero emissions by 2050. This requested analysis marked the CER’s first long-term outlook modeling net zero by 2050, and subsequently was tied to the federal government’s December 2023 Regulatory Framework for an Oil and Gas Sector Greenhouse Gas Emissions Cap.
“The fact the government requested that the CER produce a Canada net zero scenario, and then used that scenario in the same year in a proposed regulatory framework suggests that the relationship between Canada’s federal government and its national energy information agency is not sufficiently arm’s-length,” says Brunnen.
The author also finds the international assumptions used for the CER’s global net zero and Canadian net zero scenarios rely on the International Energy Agency’s (IEA) net zero and announced policy scenarios, respectively. He says this is problematic as the IEA’s scenarios predict distinctively lower total energy and oil and gas consumption relative to its peer agencies, and how the IEA’s mandate has shifted from a focus on energy security and affordability to now be aimed at “leading the global energy sector’s fight against climate change.”
“Over reliance on the IEA for scenario modelling and, subsequently, Canadian policy decisions risks relying on an agency that is increasingly an advocate for an emissions reduction agenda, as opposed to a source for objective energy forecast information,” says Brunnen. He adds that using the CER’s Canadian net zero scenarios as a regulatory instrument is also a concern as the production scenarios in the organization’s 2023 Canada Energy Futures report differ depending on whether the dataset draws from the charts or appendix.
To strengthen the development and use of energy forecasts and scenarios in federal Canadian policy decision-making, Brunnen recommends the CER’s future reports: i) Adopt an approach that incorporates assumptions from a breadth of comparable global agencies in the development of all its Canada Energy Future scenarios; ii) continue to consistently produce a reference case energy futures scenario as a comparative forecast benchmark for any additional policy scenarios it develops; iii) and apply a breadth of assumptions of energy supply and demand across multiple energy sources in the development of lower emissions scenarios, including modelling the prospect of higher oil and gas prices and, correspondingly, Canadian export production.
Meanwhile, he recommends the federal government adopt a policy of only relying on energy scenarios as context to inform energy policy discussions and commit to revisiting forecast and scenario informed government decisions regularly; and conduct detailed, realistic and practically applied analysis of lowest cost pathways to reduce emissions while maximizing economic value for emissions policy decisions.
Similar to the US Energy Information Administration, Brunnen recommends the government enhance the structural independence of CER’s energy information function by establishing the function as an arms-length objective information sharing agency with a mandate to “promote sound policymaking, efficient markets, and public understanding of energy and its interaction with the economy and the environment.”
“Objectivity in energy forecasting and scenario modelling is critically important to sound energy policy decision-making,” says Brunnen. “The tools need to be developed robustly and applied judiciously – ideally used as context to inform policy and regulatory decisions, rather than as policy or regulatory instruments in and of themselves.”
For more information contact: Ben Brunnen, Partner, Garrison Strategy, and Founder, Verum Consulting; and Lauren Malyk, Senior Communications Officer, C.D. Howe Institute, 416-865-1904 Ext. 0247, lmalyk@cdhowe.org