Climate Change Adaptation in the Canadian Energy Sector
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The following section summarizes the material that was provided by the workshop’s four guest presenters.
The world’s climate is changing. Canada is experiencing relatively pronounced increases in temperature and changes in precipitation and sea level.3 The impacts of climate change are already evident in every region of Canada and range from increased erosion of our coastlines to permafrost degradation in the North, reduced ice and snow cover, and reduced lake and river levels. With respect to our ecosystems, some regions are experiencing an earlier onset of spring, increased plant productivity, and changing animal distributions. Climate change projections suggest that such impacts are expected to continue and amplify over the coming decades. Adaptation is therefore a necessary complement to ongoing research on impacts.
Adaptation is defined as adjusting decisions, activities, and thinking because of observed or expected changes in climate in order to moderate harm or take advantage of new opportunities. Adaptation and mitigation are necessary complements in addressing climate change. The capacity of different countries, regions, and sectors to adapt can vary. In general, the adaptive capacity of Canada is high, but some regions (e.g. the North) and communities (e.g. Aboriginal and resource-based) are particularly vulnerable for a variety of physical and socio-economic reasons.
Although sector-specific assessments have yet to be conducted, there is evidence to suggest that the energy sector will be somewhat vulnerable due in large part to the climate-related risks associated with water availability, extreme weather events, and changes in seasonal temperatures. These particular impacts will have implications for energy supplies, including hydro, oil and gas, and thermal power, all of which depend on water at some stage of their production. From the demand side, increased temperatures will cause an increase in demand for electricity in the summer and a decrease in demand for heating in the winter. Energy infrastructure, such as transmission lines and off-shore drilling rigs, are particularly vulnerable to extreme weather events such as flooding, landslides, wave heights, and ice storms. The degradation of permafrost and other physical impacts will also have important implications for infrastructure.
There is some adaptation occurring in Canada, particularly within industry, but it is still ad hoc and reactive. Integrating climate change impacts into existing planning processes such as risk management is a constructive approach. Barriers to overcome to make adaptation more strategic include limitations in awareness, availability of information, and decision-making support tools. In addition, ongoing research is required but we know enough now about the nature of the risks to begin to act and put in place adaptive measures that can be adjusted as we learn more.
Climate change will not have impacts on oil reserves but is likely to impact the access, development, and transportation of oil. Oil and gas exploration is all about risk management – physical, technical, political, policy, and market risks. Climate change magnifies all of these risks and adds increased complexity (e.g. energy security and the intersections between climate change, energy, and foreign policy). Addressing these risks is generally associated with higher capital and operating costs – particularly when operating at the frontier, including offshore. However, failure to address risk can have costly consequences. Large international companies may have an advantage in responding to these risks through the experience and lessons learned from operating under different conditions (physical and otherwise).
The loss of capital can be dramatic with an increased frequency of extreme events and conditions. Risks to infrastructure can be assessed over the life of the facility to recover from or prevent damages. More importantly, the risk to human life needs to be front and centre. For example, Nexen consults climate experts and meteorologists that provide early warnings of potential climate-related threats to their facilities and their people. This direct link to developments in weather conditions has proven to be more informative and efficient than conventional sources – thus reducing risk.
One of the challenges that industry faces is the patchwork of initiatives and regulatory regimes across North America. There is a need for some certainty and harmonization of rules. There is also a need for more education and sharing between governments and industry. Costs are reduced significantly with increased experience. Finally, being engaged and addressing political risks is also part of corporate risk management.
In Quebec, adaptive resource management is being used as an approach for dealing with climate change in water resources planning and operations. Climate-associated risks to existing and planned water resources infrastructure prompted impact studies and adaptation initiatives within Quebec’s hydro sector. To refine the projected impacts on water resources, outputs from downscaled global climate models were integrated into hydro models. The results suggested that climate change will impact the hydrological regime, which will have implications for hydro projects across the province. These results were then used to inform adaptation strategies.
Adaptation of hydro infrastructure can fall within two categories – adaptation of operating rules (non-structural) and adaptation of physical configuration (structural). Table 1 outlines some examples of non-structural and structural adaptation instruments, the latter of which are typically more costly.
Table 1: Examples of Non-Structural and Structural Adaptation Instruments for Hydro Infrastructure Planning and Operations (from René Roy’s “Adaptive Management for Climate Change in Water Resources Planning and Operations,” June 19, 2008)
|• Bring changes to operating rules
• Develop or improve hydrological
• Better co-ordination of the operation
of the project with other water-use
projects in the watershed
• Develop improved technologies to
evaluate the performance of projects
and to identify ways of operating
them under modified climatic
• Modification of engineering design
|• Divert water course of upstream tributaries
• Create new upstream storage reservoirs
• Increase the capacity of spillway
• Design dams in such a way that, if needed, additional
spillways or other physical components could be
considered in the project
• Modify the dimension of canals or tunnels
• Change the number and type of turbines
• Modify the dimensions of canals in order to reduce head
loss or increase their discharge capacities
• Modification to the characteristics of electrical
components (generators, transformers, transmission
• Add controllable gates to free spillways.
In the context of the hydro sector, adaptation requires a long-term vision, long-term monitoring and documentation, modelling (climate and hydrology, and possible management pathways and infrastructure design), documentation of management actions, trust among parties, an organizational structure that values learning, and risk acceptance. Conversely, there are a number of barriers to adaptation including the maintenance of status quo, legal and political concerns over adaptive management, internal rules and regulations, jurisdictional boundaries, and the asymmetry between present certain costs and possible future benefits. Furthermore, the fixed discount rate typically used for the cost-benefit analysis of hydro installations renders the benefits beyond a time-scale of several decades irrelevant.
Despite uncertainties (although important) climate change impacts need to be considered on existing and planned hydro projects. For existing equipment, operational adaptations (i.e. non structural) may need to be considered whereas structural adaptations can be integrated into the design of new equipment. Although there is enough science on which to make such adaptations now, climatology and hydrology research and development (R&D) efforts need to be maintained while striving to reduce the gap between such research activities and decisions regarding planning, design, and operations.
For businesses, sustainability and climate change are now mainstream topics and they are becoming increasingly important from the perspective of corporate governance, strategic risk assessment, and community planning. Regulatory drivers and pressure from informed investors and rating agencies as well as consumers are leading to an increased demand for disclosure of environmental and climate-related risks. Initiatives such as the Carbon Disclosure Project, Standard and Poor’s 2008 Enterprise Risk Management Review, and the Corporate Governance Guidelines of the Ontario Securities Commission are all encouraging industry to better identify, plan, manage, monitor, and disclose risks, including those posed by climate change, to support the investor in 6 making decisions. In looking forward, as soon as carbon has a price, companies need to assess if their risk is material or not, and disclose it.
Sectors that could face significant climate change risks are those with long-term planning and investment horizons, sensitive to weather conditions, and dependent on extensive infrastructure and international supply chains. Most energy-sector businesses possess at least one of these vulnerabilities. Governments are also at risk from climate change impacts that directly and indirectly affect the public sector’s mandate, as well as institutional and budgetary implications related to natural disasters and emergency response.
Currently the business response to climate change risks illustrates a disconnect between awareness and action. While 98.6 percent of businesses believe that climate change will affect their organization, only 17 percent have a formal action plan in place. Most surveyed consider government policy critical to promote and facilitate adaptation action, including qualitative data and the identification of tools.
Addressing climate change requires an integrated and enterprise-wide risk-management approach that examines the potential impacts of climate change on all aspects of an organization, including external factors like weather and workforce, operations and organizational scope and structure, the delivery of products and services, suppliers, and customers or the end user. The following are examples of the types of big questions that a business could consider in such an approach4 :
- What if access to water is restricted, regulated or expensive?
- What is the response to 100-year floods occurring every five years?
- What if oil remains above $100/barrel?
- • What is the response to heat waves, drought, or extreme weather events?
- What measures are in place to adapt if your supply chain is impacted due to extreme weather events?
The determination of climate-related risks and potential future scenarios will provide the context in which to develop integrated climate change strategies that plan for mitigation and adaptation responses as well as new business opportunities. For the energy sector, risks include: regulatory (municipal, provincial, federal and international – especially the United States) both for the energy company and the supply chain; technology (e.g. accelerated investments or uncertainty of mitigation technologies); price and market risks (e.g. carbon price volatility and lack of historical data); physical operations (e.g. severe weather impact on infrastructure); and volume (e.g. changes in supply or demand).
There are a number of examples that illustrate the nature of strategic responses that could be planned for, some of which are shown in Table 2. Although mitigation and adaptation are shown as distinct, linkages between the two may exist.
Table 2: Examples of Possible Response Elements of a Climate Change Strategic Plan (From Valerie Chort's “Ahead of the Curve” Presentation, June 20, 2008)
|• Identify and implement all
demand management/ energy
• Conduct voluntary emissions
• Implement pilot offset
• Diversify energy portfolio
• Develop renewables
• Implement clean technology
|• Understand infrastructure
vulnerability and implement
• Relocate infrastructure to
more secure locations
• Develop appropriate health
and safety response policies
to deal with catastrophes
• Consider relevant insurance
• Develop strategies to address
changing demand patterns
• Develop additional
product/service offerings (e.g.
energy audit services)
• Conduct energy-efficiency
• Develop new technologies
• Pursue new market
opportunities (expanding to
new regions or markets)
After the presentations, participants were engaged in identifying and discussing a number of issues that they viewed as important for the energy sector to address climate change adaptation. To narrow the focus of discussions, workshop participants were each asked to identify five themes they felt were most important to discuss in more depth, toward identifying specific actions for consideration by the CEM. The participants selected their themes based on their level of impact should they be pursued with actions and the sense of urgency surrounding the theme. The results from this exercise are shown in Table ii of Appendix C. The five themes that received the highest number of votes are discussed in this section. It should be noted that the following discussion captures the outcomes of brainstorming exercises in which the participants from the break-out groups were asked to consider specific questions in a limited amount of time.
4.1 Climate Change Adaptation Science
Scientific research will continue to be an important element of advancing adaptation in the energy sector. Of specific interest is the continued development of regional models that provide insight into climate change impacts including weather extremes, variability, hydro resources, mean temperatures, and wind speeds. Such information will allow analysts to assess the implications of climate on regional demand and supply of energy, which will facilitate the development of adaptation options. Other science that needs to be developed includes permafrost modelling and linking physical changes in climate to sector-specific planning tools that look at variability and market analysis.
The approach in which this science is pursued should be based on relevancy, collaboration, and effective communication. To ensure that research results and applications (e.g. models) will influence planning (including supply planning), scientists should consult with decision-makers and other users to clarify their needs. Furthermore, research efforts should be collaborative between industry, government, and other researchers, and should recognize and assess linkages with other initiatives relating to water and land-use planning, cumulative impacts, and conservation. Finally, gathering 8 and disseminating research results and information on research tools will be critical both within and outside government.
In moving forward, research should be increasingly supported and funded. Government could act as a catalyst toward facilitating and establishing regional consortiums (similar to Ouranos5 ) that focus on developing regional climate change adaptation models. Industry engagement will be essential.
4.2 Co-ordinated Local, Provincial, National, and International Policies
To ensure harmonization and clarity, different levels of government should take a coordinated and consistent approach toward mitigation and adaptation policies and regulations, including those that are related to technical standards. Integrating adaptation into legislative reviews (such as the Canadian Environmental Protection Act and environmental assessment) and annual reporting could also be considered in a coordinated approach.
Working in a collaborative way will also be important, including but not limited to, consultations with industry, and transparent review and reporting processes and requirements. Part of this involves improved communications among governments and with industry in terms of sharing research and performance results, assessments, and best practices. Engaging working-level staff from industry associations and governments will be important toward achieving improved communication and collaboration while looking to high-level decision-making fora, such as the CEM, to provide direction. A recognized appreciation of the urgency of climate change adaptation will also help in this regard.
In terms of specific actions, a review of regulatory frameworks could identify real opportunities for harmonization as well as existing barriers to adaptation, such as those that relate to the acceptance of new technologies. Furthermore, the CEM can continue to engage similar fora internationally to ensure broader markets and explore opportunities for international harmonization, particularly in North American markets.
4.3 Information Sharing and Knowledge Transfer
To advance adaptation within the energy sector, existing information, best practices, and tools need to be shared and made available. Although the sector is still in the early stages of adaptation, there are valuable sources of information resulting from ongoing research and initiatives that could have a greater impact and influence if communicated and shared. To ensure that governments and industry alike are made aware of such information (including best practices), a mechanism should be put in place to efficiently and effectively collect and disseminate. Such a mechanism could consist of a centralized body that would fund and take ownership of this task. Depending on the scope of the partnership or body, funds could also be collected to support new research needs that are identified from a gap analysis of existing work and to create adaptation education and awareness-building initiatives.
The best way to facilitate the sharing of information may be a public-private partnership with participation from governments and industry – particularly industry associations and engineer associations. Best practices for this type of public–private mechanism should be explored to maximize efficiency and participation from industry. Initial steps toward achieving this could include compiling existing research and initiating a dialogue with industry associations to clarify needs.
4.4 Aging Infrastructure and Increasing Demand
As so much of Canada’s existing infrastructure is reaching the end of its lifetime, there is a unique opportunity to address climate change adaptation. When replacing, updating, or conducting maintenance on aging infrastructure, a long-term and integrated approach is needed – one that is mindful of anticipated changes to climate both in terms of physical changes and the potential implications for energy demand. Infrastructure will typically last decades, and thus a long-term approach is essential when planning and designing new infrastructure to ensure a reliable supply of energy.
Among the long-term considerations are the frequency of extreme weather events, changes in water availability, denser developments, and mixed-use urban planning. In many instances it will not be appropriate to replace infrastructure with a similar product. New designs and approaches will be necessary. For example, design codes may need to be updated to account for physical changes to the environment. With respect to approaches, different systems may need to be considered, such as replacing an aging transmission line with decentralized energy generation.
Integrated planning within the energy sector and with other sectors (e.g. transportation, water, waste management, land use) will be important, particularly at the community level and in urban environments. This will allow for supply and demand to be considered jointly, co-ordinating energy efficiency, and demand-side management strategies with matters regarding local supplies and the energy?
In general, a long-term and integrated approach can be facilitated through decisionenabling research (climate science, technical, codes and standards), vision and leadership, collaboration, real-cost pricing, and improved communication. Some useful work is underway and there are initiatives that could serve as examples.
More specifically, the CEM could consider initiating an assessment of the energy infrastructure (including supporting infrastructure and its exposure to climate change), and a review process for codes and standards by which infrastructure is built and retrofitted. There is a need to engage other government departments and agencies, whose responsibilities are critical to addressing many of these issues in an integrated way. The CEM could work as a catalyst to engage colleagues in other portfolios.
4.5 Market Mechanism for Adaptation
This theme encompasses any mechanism that could fund, finance, and facilitate the investment in adaptation, whether it be research, capital investments, or increasing demand. Although industry has a leading role in this regard, clarity is needed in the regulatory frameworks and broader policies (including price signals) to allow industry to get a sense for the market and the operating environment. Policies that support 10 mechanisms like cap and trade or a carbon tax should use funds transparently to finance adaptation activities.
For regulated industries in the energy sector, there is a need for consistency in how climate change adaptation is accounted for in rate structures. For example, at present any access to funds for capital investment or studies must be outside the rate base. This imposes competition between mitigation and adaptation investment, and limits the possibility of linking climate change adaptation measures to demand reduction strategies.
There is also a need for education processes aimed at raising the awareness and sensitivity of boards of directors, planning authorities, regulatory bodies, and the public to enhance support for climate change adaptation measures.
Throughout the 1.5-day event, a total of 13 individual topics were discussed, with more detailed discussion focusing on the five priority issues that are highlighted in this report. Several common messages emerged. Although some of these messages were identified as themes themselves, they were echoed throughout the group discussions. Many of these messages reflect an approach, or principle, toward advancing climate change adaptation in the energy sector:
Thinking and Planning for the Long Term – The notion of taking a long-term approach to planning was identified in numerous discussions. Long-term approaches were suggested for the planning of policies, regulations, codes and standards, business strategies, and the design of infrastructure. Long-term plans should also be flexible to facilitate further adaptation as more is learned about the impacts of climate change. The rationale for this approach is to consider changing climate conditions (and the implications for the sector) and not to base decisions on historic trends or the status quo.
Information Sharing and Engagement – Many discussions offered the sharing and dissemination of knowledge, research, and best practices as an approach to advancing adaptation within the sector. Collaboration, education, and engagement are among the specific approaches mentioned in addition to the more formalized mechanisms discussed in section 4.3.
Resolving Funding Mechanisms and Market Signals – Throughout the workshop, a number of discussions noted the need for incentives, such as access to funding to advance industry’s work and progress on adaptation. This topic was discussed as an individual theme (see section 4.5); however, it was highlighted in several other discussions.
Integrating Climate Change Adaptation – Integrating climate change considerations into existing planning and decision-making processes was reiterated throughout the discussions. Integration of climate change within system planning studies (including socio-economic impacts), operations, codes and standards, hydrologic models, funding criteria, and other tools and approaches will ensure that climate change is considered 11 with respect to both mitigation and adaptation. This notion is parallel to the long-term thinking approach discussed above. New tools to support this integrated approach, such as adaptive management, scenario development, and increased information, need to be further developed and shared widely.
Inter-jurisdictional Harmonization – From an industry perspective, the harmonization of policies, regulations, and standards between the various levels of government was stated as an important element of advancing mitigation and adaptation. Harmonization and the provision of clear signals are desired by industry – some of which operate within, or are affected by, more than one jurisdiction.
Improve Incorporation of Science – Although there are many gaps and uncertainties in climate change science, there is sufficient evidence to suggest that climate change will introduce new elements of risk in the future. There is also energy-specific research regarding climate impacts and adaptation that can be adopted and further developed to help inform decisions. Governments and business should not restrain from addressing and responding to the information that is available today, and they should endeavour to conduct future adaptation research in a co-ordinated, timely, and relevant manner.
Linking Mitigation and Adaptation – There was strong concurrence about the connection between mitigation and adaptation from the business perspective, particularly in terms of investment decisions (including possible competition between the two), market mechanisms, and technological funding. The need for policy coordination between mitigation and adaptation, and for governments to understand industry needs and co-ordinate across portfolios and jurisdictions is very important. It was pointed out that mitigation and adaptation do not necessarily involve the same types of responsibilities or skill sets at either the government or industry levels. For example, mitigation focuses on financial and regulatory policies and instruments, while adaptation gets more into operations. There could be a need to bring the two groups together to address the connections between these issues.
Climate Change Adaptation in the Canadian Energy Sector
Delta Chelsea Hotel, Toronto June 19–20, 2008
- To better understand whether or how climate change has been considered and planned for within Canada’s energy sector;
- To contribute to a work plan for the Council of Energy Ministers on adaptation to climate change within the energy sector, and assess the scope and breadth of the issues to address;
- To promote awareness and dialogue within Canada’s energy sector on adaptation to climate change.
What do we need to do to best inform the CEM about work to support adaptation to climate change by energy sector industries in the coming year? And beyond?
Day One – June 19, 2008
|A. GETTING STARTED|
|8:30am||Welcome and Purpose of Meeting||Co-chairs Floyd Wist and
|8:45am||Review of Agenda and Approach for Meeting||Christopher Comeau –
|B. LAYING THE FOUNDATION|
|9:00am||From Impacts to Adaptation: Canada in a
|Don Lemmen, Natural
Dealing with Climate Change Impacts and
Adaptation at Nexen
Adapting Water Resources Management and
Infrastructure to Climate Change
Q&A – 30 minutes
|Wishart Robson, Nexen
René Roy, Hydro-Québec
Exercise based on previous presentations and
dialogue to come to an understanding of the
existing and potential impacts of climate change
(if any) on energy sectors
|C. DIALOGUE ON THE KEY TOPICS AND ISSUES|
|1:00pm||Identifying the Issues
Identify the key topics that should be discussed in
order to answer the Intention Question
|1:30pm||Dialogue Session I
Discuss 6 to 8 of the key topics identified above that
pertain to climate change impacts on the energy
|2:45pm||Dialogue Session II
An additional 6 to 8 key topics will be discussed and
reported on using the process described above
|3:45pm||Review of Discussions
Break-out discussion groups report back on their
|5:15pm||End of Day Wrap-up
Opportunity to update participants on what to
expect on Day Two and any other relevant
Day Two – June 20, 2008
D. INTEGRATING RESULTS
|8:30am||Outline of the Day||Facilitator|
|8:40am||Check-in with Co-chairs Co-chairs present their thoughts on the key
messages that they have heard so far and discuss
|Isabelle Proulx and Floyd
|9:00am||Climate Change and Risk Management in the
|Valerie Chort, Deloitte
|9:45am||Narrowing our Focus
From the topics discussed on Day One, the group
will identify priorities in terms of what will have
the most overall impact and what needs to be
done within the next 12 months
|10:15am||Dialogue III – Narrowing our Focus
Groups will discuss in more detail work that can
be done on the priority items identified in plenary
Review of the dialogue on priorities
|12:00pm||Closing Remarks||Isabelle Proulx and Floyd
3 In March 2007, the Government of Canada released its most recent assessment report, From Impacts to Adaptation: Canada in a Changing Climate 2007, which outlines our current understanding of climate change impacts and adaptation in Canada.
4 Questions from Valerie Chort’s “Ahead of the Curve” presentation, June 20, 2008.
5 Ouranos is a Quebec-based research consortium that focuses on regional climatology and climate change adaptation.
6 A summary of the workshop evaluation responses is in Appendix D.
7 Nineteen out of 20 participants who completed the evaluation indicated they would be willing to participate.