Natural Gas Threatens Canadian Taxonomy
Despite warnings on its climate impact, demand for Canadian liquefied natural gas continues to grow.
Industry experts have expressed concern on the potential inclusion of natural gas in Canada’s proposed taxonomy and the way it could undermine its domestic and international credibility.
Launched in 2021, the Canadian Sustainable Finance Action Council delivered a roadmap report detailing the taxonomy’s approach and governance structure the following year – setting the path for further progress. The council completed its three-year mandate on 31 March.
But progress on the taxonomy has been slow. Research from Canadian environmental advocacy organisation Environmental Defence pointed to reports suggesting that internal government conflicts around the place of natural gas in the taxonomy had stalled its release.
“There was significant pressure for the taxonomy to specifically allow liquefied natural gas (LNG) exports as a ‘transition’-labelled activity, even though there is scientific consensus that averting the worst impacts of climate change requires the rapid phase-out of fossil gas,” Adam Scott, Executive Director at Shift: Action for Pension Wealth and Planet Health, told ESG Investor.
He added that the inclusion of gas in the Canadian taxonomy was “entirely unworkable” and a “recipe for additional greenwashing”.
“Institutional investors should listen to experts [and] be sceptical of any claims made by the LNG industry about its role in our future energy system,” said Scott.
Crushing credibility
The environmental impacts of natural gas, particularly LNG, are high. Methane, the primary component of LNG, has a global warming potential around 82 times higher than CO2 when burned as a fuel.
“Wrongfully labelling gas as ‘sustainable’ under this taxonomy would entirely squash its international credibility,” warned Julie Segal, Senior Manager for Climate Finance at Environmental Defence, adding that the inclusion of fossil fuels that do not align with climate goals would also defeat its purpose.
“If Canada diverts further from science it will not only be embarrassing, but will invalidate all of the work that has gone into creating a tool that helps clean up and align our financial system with climate action.”
Ahead of the publication of the UK’s own taxonomy, the CEOs of three major sustainable investment organisations echoed similar concerns on the inclusion of natural gas – warning it would undermine its credibility and significantly damage the UK’s leadership on sustainable finance.
“The oil and gas industry has been desperate to have gas labelled as a ‘transition fuel’ to allow low-cost finance to continue flowing, but this is absurd,” Scott added. “Such investments would actually serve to slow the transition by extending the reliance on gas in our energy system.”
According to Environmental Defence, LNG export from Canada has been growing over the last few years. “The argument that Canada should sell LNG internationally to reduce coal emissions elsewhere is entirely nonsensical,” said argued. “Canada would get no credit for enabling another country to reduce its coal use.”
Ongoing issues
Earlier this week, Turkey was reportedly in talks with US energy supermajor ExxonMobil for a multibillion-dollar LNG deal. If the transaction is completed, the country could secure up to 2.5 million tonnes of LNG a year – enough to cover roughly 7% of its natural gas consumption – for a cost of US$1.1 billion.
QatarEnergy also signed a US$6 billion agreement with the China State Shipbuilding Corporation to build 18 natural gas carriers by the end of 2031 – demonstrating yet again the overbearing use of the resource.
Despite much criticism, nuclear energy and gas were officially included in the EU Taxonomy through a delegated act. A total 328 MEPs voted against the resolution, while 278 voted in favour.
“If the federal government is considering wrongfully labelling gas production, transportation, or export as sustainable, that goes way beyond what the EU was already being criticised for,” Segal argued.
The Canadian government is expected to offer an update on the country’s taxonomy this summer, likely in June or July. According to Segal, it only started to take action on this recently due to “significant advocacy” from the financial sector.
In an open letter issued last week, Environmental Defence led a pool of 55 Canadian climate groups backing the taxonomy – only on the basis that it would exclude fossil fuel-related investments from the sustainability label. In a seperate letter, 230 members of Canada’s Clean50 called on the Canadian government to “urgently implement” a sustainable investment taxonomy.
“The government needs to set guidelines that clear up the waters instead of mudding them further,” said Segal. “That means earnestly translating the scientific and economic conclusions from global experts who say fossil fuel expansion is not aligned with a safe climate.”
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