Prime Minister Trudeau made a global splash at the United Nations Climate Change Conference in Glasgow this week by announcing that Canada would immediately impose a greenhouse gas emissions cap on oil and gas producers and reduce that cap incrementally to force a transition away from fossil fuels. Like so many of the Trudeau government’s policies, little thought was given to the economic costs of the decision or its practical implications for the country.

The economic implications of the decision are plain to see. In 2019, Canada’s energy sector (mainly oil and gas) represented more than 10 per cent of the Canadian economy and employed (directly and indirectly) more than 800,000 people. While the specifics of how the cap and its decline will work are sparse, it’s clear the effect of the cap will be to reduce investment and expansion in the oil and gas sector. It’s likely to lead to divestment, as energy firms in Canada reallocate their investment dollars, knowledge and entrepreneurial efforts to more hospitable locations.

This decision also comes at a time when oil and gas prices are skyrocketing. Consider that Brent crude, the international benchmark, recently rose above US$80 for the first time in three years. Similarly, natural gas prices have surged to some of their highest levels in years. As the global economy emerges from the COVID-induced recession, demand for energy is naturally increasing. That increased demand cannot be met—at least fully or consistently—with wind and solar because in simple terms, it’s not always windy or sunny. Moreover, investments in traditional energy sources such as natural gas have waned in recent years as governments, including in Canada and the United States, signalled they would impose a transition away from such energy sources.

Indeed, parts of Europe are now in a full-blown energy crisis because of their rapid shift to alternatives such as wind and solar power (that cannot meet increased energy demands) while supplies of traditional energy sources such as natural gas have been restrained in recent years. Hence, average wholesale electricity prices in the United Kingdom have tripled to record levels since the beginning of 2021, and Germany’s daily average electricity prices have increased 41 per cent over the last two months.

It’s also telling that the Trudeau government imposed the cap on emissions for only the oil and gas sector. Which raises the obvious question—why are emissions from this sector any more damaging economically or environmentally than emissions from any other sector, particularly given their importance in our daily lives?

And it’s not just economic growth that will suffer from these policies. Consider the actual greenhouse gas (GHG) and environmental implications of the Trudeau government’s decision. Canada’s energy sector has made enormous technological advances to reduce its carbon intensity and lower GHGs. If other producers (instead of Canada) meet oil and gas demands, the environmental impacts will be worse. There’s a genuine environmental argument to be made that Canada should actually increase, quite dramatically, its oil and gas production and focus on exports to help the environment.

Consider that the Union of Concerned Scientists estimates that as of August 2020, China represented 28 per cent of global GHG emissions compared to less than 2 per cent for Canada. Small percentage reductions in China’s GHG emissions would, in absolute terms, dwarf large percentage changes in Canada when it comes to global GHG emissions.

Prior to this week’s climate meetings in Scotland, China committed to achieving carbon neutrality by 2060, which estimates indicate requires shutting down 600 coal-fired power plants and not building any new ones.

However, in response to growing energy demands in China and the necessity of rolling blackouts due to insufficient energy supply, Chinese leadership announced new coal-fired plants would be built and the timetable for emissions reductions would be reconsidered. This is Chinese bureaucrat-speak for we need energy, and coal is readily available and cheap.

If the Trudeau government had not cancelled the Northern Gateway pipeline, which was designed to facilitate exports to Asia, Canada would be in a much stronger position to offer a realistic win-win alternative for oil and gas production and emissions. Canada could increase production and export larger volumes to China, reducing that country’s need for greater coal power. That means a reduction in global GHGs because coal, which has higher GHG emissions, would be replaced by natural gas and/or oil, which has lower GHG emissions.

These are the kind of win-win alternatives we should pursue, but the Trudeau government continues to favour virtue-signalling at international events with ill-conceived policies that ignore the enormous economic costs to Canadians.