By Ashley Stedman
and Elmira Aliakbari
The Fraser Institute
Despite widespread need, particularly in Canada’s energy sector, the federal government’s Large Employer Emergency Financing Facility (LEEFF) program, meant to provide emergency funding to large companies, has yet to approve any applications.
To be eligible for LEEFF support, firms must agree to several environmental goals and conditions, including this government’s goal of reaching net-zero emissions by 2050.
The program includes a covenant requiring companies to publish how their “strategies, policies and practices will help manage climate-related risks and opportunities; and contribute to achieving Canada’s commitments under the Paris Agreement and goal of net-zero by 2050.”
But the government hasn’t released details of its own plan to reach net-zero emissions, which means Ottawa wants struggling firms to agree to a program without details that could mean enormous costs in the future.
Consider, for instance, what a net-zero target (without any details) could mean for companies in Canada’s oil and gas sector. Given the emission-intensive nature of oil and gas operations, it’s reasonable to assume that a net-zero plan for the country as a whole would require substantially reduced emissions from this sector in the absence of substantial breakthrough technology.
The plan could include fundamental changes for firms (that agree to LEEFF) with respect to drilling and extraction, which currently rely largely on carbon-emitting fuels such as diesel and gas.
If firms were forced to substitute existing energy sources with so-called clean energy sources such as solar and wind, the costs would be prohibitive and likely render operations both uncompetitive and perhaps even uneconomical. (Unless again Ottawa’s assumption of major breakthrough technologies is achieved.)
Now consider freight transportation, another area of the economy with high emissions. The government could, for example, require trucking firms (receiving LEEFF support) to increase their use of low-carbon fuels such as hydrogen, biodiesel or ethanol, which are comparatively more expensive than conventional fuels. That means fuel costs would increase markedly for these firms.
And remember, not all firms can easily pass added costs on to consumers. Again, firms in this sector (agreeing to LEEFF) could put themselves in an uncompetitive and even uneconomical position depending on the specific requirements ultimately imposed by LEEFF.
Clearly, the uncertainties associated with the LEEFF program and its underlying commitment to the net-zero emission target carry potentially grave financial implications.
The scenarios described above don’t include the potential impacts on firms in other sectors, including commercial office space, electricity generation, agriculture and waste disposal (the federal government has also failed to detail these potential impacts).
As a result, it’s difficult to imagine that many struggling companies could sign on to this agreement when they’re unable to properly assess the risks associated with the government’s vague climate plans.
It’s unreasonable for the federal government to require firms, many of whom are genuinely struggling to stay afloat, to enter an agreement that includes almost no details about the environmental requirements.
Ashley Stedman and Elmira Aliakbari are analysts at the Fraser Institute.