Introduction
As geopolitical tensions continue to unsettle global markets, the North American energy alliance between Canada and the United States has emerged as a cornerstone of regional security and economic stability. However, this critical partnership is now facing uncertainty, driven by climate policies that risk undermining the very energy trade that has bolstered both nations for decades. The Business Council of Canada has voiced concern about the impacts of Canada’s ambitious climate goals on cross-border energy trade, urging policymakers to adopt a more balanced approach that preserves energy security while advancing decarbonization efforts.
The Strategic Importance of the U.S.-Canada Energy Relationship
For decades, the energy trade between the United States and Canada has played an essential role in maintaining both nations’ energy security. Canada, despite not being as widely recognized for its energy contributions, supplies the U.S. with over half of its petroleum imports, the vast majority of its imported natural gas, and crucial electricity and minerals like uranium. As Alberta’s former Premier Jason Kenney pointed out to the U.S. Senate in 2022, “Calgary is a lot closer to Washington than Riyadh,” highlighting the strategic proximity and reliability of Canadian energy compared to overseas suppliers.
The numbers speak for themselves. In 2023, two-way energy trade between the U.S. and Canada, including oil, natural gas, electricity, and uranium, reached an unprecedented $156 billion USD. This deep interconnection has reduced the United States’ reliance on OPEC nations, aligning energy security with North American interests. While the U.S. remains the world’s largest producer of oil and gas, its dependence on Canadian heavy crude oil for its refineries has grown, especially as global geopolitical instability intensifies.
Impact of Canadian Emissions Cap on U.S. Energy Security
The Business Council of Canada warns that the proposed sector-by-sector cap on emissions in Canada, aimed at achieving the country’s 2030 greenhouse gas reduction targets, could inadvertently curtail energy production. Although the policy does not directly impose production limits, the substantial costs and long lead times for implementing emissions-reducing technologies like carbon capture and storage (CCS) could effectively force energy companies to reduce output.
Estimates suggest that Canada may have to cut crude oil production by 626,000 to 2 million barrels per day—up to 52% of U.S. imports of Canadian oil. Natural gas production could see a similar decline, with estimates projecting a 2.2 billion cubic feet per day reduction, equivalent to 76% of Canadian gas imports to the U.S. This would occur at a time when energy demand is surging due to coal plant retirements, increased transportation electrification, and the expansion of power-intensive industries like data centers.
The implications are stark: U.S. energy security would be compromised, with a heightened risk of price spikes and supply shortages. As the demand for natural gas grows to meet the needs of power generation and industrial use, a contraction in Canadian energy production would expose the U.S. to greater volatility and increased reliance on less stable foreign sources.
Balancing Climate Action and Energy Security
Despite these concerns, the Business Council of Canada does not oppose aggressive climate action. On the contrary, energy companies in both the U.S. and Canada have demonstrated a strong commitment to decarbonizing the sector. From multi-billion-dollar investments in CCS and clean hydrogen to breakthroughs in renewable natural gas and methane reduction technologies, the energy industry has made substantial strides toward a cleaner future.
The key issue, however, is ensuring that climate policies are designed in a way that doesn’t disrupt essential cross-border energy trade. The U.S. and Canada have a shared interest in reducing emissions while maintaining a secure energy supply. Policymakers should focus on harmonizing climate regulations across both countries, ensuring that decarbonization efforts do not lead to unintended consequences like production cuts that weaken North America’s energy security.
One path forward is strengthening collaboration on the development and deployment of clean energy technologies. Joint projects in CCS, small modular reactors, and electrification infrastructure can accelerate progress while protecting the economic interests of both countries. Additionally, building resilience in energy supply chains and infrastructure, such as cross-border transmission lines and pipelines, would ensure that North America remains energy-secure in the face of global uncertainty.
Risks of Production Limits on North America’s Global Energy Role
Limiting Canadian production through emissions caps could also have far-reaching global consequences. Together, Canada and the U.S. have driven global oil and gas supply growth in the past decade, contributing to a secure, low-emissions energy supply chain. Curtailing production would not only jeopardize North America’s domestic energy stability but could also leave NATO allies and other global markets more vulnerable to supply disruptions.
Both nations must consider their roles as key suppliers to international markets, particularly as Europe and other regions face ongoing energy challenges due to geopolitical conflicts. A disruption in North American energy exports could lead to increased volatility and higher prices globally, with allies left scrambling for alternative, often less environmentally friendly, energy sources.
Climate Insider Analysis
The debate surrounding Canada’s emissions cap highlights a complex challenge: how to reconcile ambitious climate goals with the need for secure and reliable energy supplies. On the one hand, it is essential to accelerate efforts to reduce greenhouse gas emissions and mitigate climate change. On the other, imposing restrictions on Canada’s energy sector could have unintended consequences that undermine North American energy security and economic stability.
Key points for consideration include:
- Energy Security Trade-Offs: Limiting Canadian oil and gas production would directly affect U.S. energy security, increasing reliance on less stable regions like the Middle East and OPEC nations.
- Technological Investment: Both the U.S. and Canada are investing heavily in technologies such as CCS and clean hydrogen. These innovations have the potential to decarbonize energy production without cutting output. Coordinating on technology development and deployment is essential to achieving climate goals without harming energy security.
- International Implications: North America’s role in the global energy market cannot be overlooked. Reducing energy exports would expose NATO allies and other nations to heightened risks, potentially undermining collective security efforts.
- Balanced Policy Approach: Policymakers must ensure that climate policies do not sacrifice energy trade and security. Harmonizing standards, fostering cross-border collaboration, and promoting clean energy technologies are essential to maintaining a resilient North American energy system.
In conclusion, the challenge lies in finding a policy path that protects both the environment and North American energy security. The Business Council of Canada advocates for a collaborative, balanced approach that strengthens the U.S.-Canada energy partnership while supporting long-term climate goals.
Featured Image: Credit: Global Trade Magazine
