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Published in the Financial Post

Policy-makers around the world are trying to strike the right balance between reducing emissions, promoting economic growth and keeping energy secure, affordable and reliable. Getting the balance right is especially important in a country, like Canada, that produces large amounts of energy both for export and for domestic consumption in a cold climate.

Energy forecasts and scenarios from agencies such as the International Energy Agency (IEA) can help inform governments’ energy policies and regulations. But they are only forecasts, and they shouldn’t be baked into economic policy, especially when doing so pre-emptively damages our most important export industry and a pillar of our living standards.

In 2021, Canada’s Natural Resources Minister, Jonathan Wilkinson, asked the Canadian Energy Regulator (formerly the National Energy Board) to undertake scenario analysis consistent with Canada achieving net-zero emissions by 2050. This marked the CER’s first “long-term outlook modelling net zero by 2050,” and its Canadian net-zero scenario was subsequently tied to the federal government’s proposed Regulatory Framework for an Oil and Gas Sector Greenhouse Gas Emissions Cap. This is a problem for several reasons.

First, energy scenarios are hypothetical. They are designed to help decision-makers understand what would be required to achieve a desired outcome, such as net-zero emissions. Their use as a tool to actually direct macro-level energy investment policies and regulations can create country-level exposure to significant disruptions in energy supply, affordability and security.

Second, the assumptions behind the CER’s net zero-scenarios rely heavily on the IEA’s policy scenarios. For instance, the IEA’s scenarios predict distinctly lower total energy and oil and gas consumption than other agencies forecast — conceivably because of the shift in the IEA’s mandate from energy security and affordability to “leading the global energy sector’s fight against climate change.” Over-reliance on IEA scenarios thus creates a risk that policy decisions will be based, not on reality, but on the desired outcome of an advocate organization.

Third, there are legitimate concerns about the reliability of the scenarios the CER has generated. In its 2023 Canada Energy Futures report, for instance, oil and gas production levels differ depending on whether the dataset draws from the document’s charts or its appendix. The CER has acknowledged this in an erratum posted on its website, but the broader issue is the presence of errors and omissions in scenarios that governments lean on heavily to regulate industry and direct investment decisions.

Finally, and perhaps most significantly: The fact that the federal government requested the CER to produce a Canada net-zero scenario and then immediately adopted that scenario in its proposed regulatory framework suggests the relationship between the government and its national energy information agency is not sufficiently arm’s-length. While the CER, to its credit, has been transparent in how it responded to the government’s request, greater structural independence of its energy information function from the government would strengthen its autonomy and institutionalize its objectivity.

The CER’s role as a provider of energy information needs to be strengthened by establishing that part of its mandate as an arms-length information sharing agency, similar to the U.S. Energy Information Agency. And, rather than directing the CER’s work, the federal government should create its own publicly available energy scenarios to inform energy policy discussions — but not to serve as binding policy and regulatory instruments. And it needs to ground its emissions policy decisions in detailed, realistic and practically applicable analysis of lowest-cost pathways to reducing emissions while maximizing economic value.

As for the CER, it needs to develop forecasts and scenarios that incorporate assumptions from a broad range of sources. It should continue to produce a reference case “energy futures scenario” that it can use to benchmark any additional policy scenarios it develops. And it should also consider different assumptions about energy supply and demand in the development of lower emissions scenarios — including the prospect of higher oil and gas prices and continuing Canadian production in a lower emissions scenario.

The greatest possible objectivity in energy forecasting and scenario modelling is critical to sound energy policy decision-making. These tools need to be developed robustly and applied judiciously. They need to inform Canada’s policy and regulatory decisions, but not become policy or regulatory instruments in and of themselves.

Ben Brunnen, senior fellow at the C.D. Howe Institute, founded Verum Consulting and is a partner at Garrison Strategy.