Impact Podcast | Powering the future: Striking Canada’s energy balance

KANINA BLANCHARD: Exclusive insights, actionable strategies and ideas that ignite change. You're listening to the Ivey Impact Podcast from Ivey Business School.

JULIAN BIRKINSHAW: Hello and welcome to Dialogue with the Dean. The inaugural series on the Ivey Impact Podcast. I'm Julian Birkinshaw, Dean of the Ivey Business School. Energy powers everything from the lights in our homes to the data centres fueling AI, but behind every flick of a switch lies a world of complexity: How we generate electricity, how we plan for the future, and how we balance affordability, reliability and sustainability. In Canada and around the world, the energy sector is undergoing profound change. Ambitious climate goals, demand concerns and shifting geopolitics are reshaping how we produce and consume power. And in Ontario, bold new plans for nuclear builds, electrification, and grid expansion, are on the table, alongside real questions about risk, uncertainty and long-term impact. To help us make sense of this fast-evolving landscape is Brandon Schaufele, Associate Professor of Business, Economics and Public Policy and Director of the Ivey Energy Policy and Management Centre. Brandon is one of Canada's leading thinkers on energy markets forecasting and public policy. His research explores how economic forces and government regulation shape our energy future. Brandon, welcome to Dialogue with the Dean. It's a pleasure to have you here.

BRANDON SCHAUFELE: Pleasure to be here, Julian.

JULIAN BIRKINSHAW: We are going to just hear a little bit about you. Just tell us about yourself and how you came to be at Ivey, before we dive into the subject matter.

BRANDON SCHAUFELE: So, I consider myself in some way to be a quintessential Canadian economist. I've been trained in Canada, my entire career has been in Canada, most of my research focuses on Canadian topics, whether that's environment, energy, or regulation. I'm on the board of the National Association, the Canadian Economics Association, where I'm an officer and treasurer, and so I really see myself as being situated in the Canadian business and policy landscape.

JULIAN BIRKINSHAW: Excellent. Well, great to have you here. And we'll get into some of your work on policy as we get into it, but we'll start big picture. And I found a couple of very crude statistics, just with a little Google search: Energy accounts for around three quarters of all greenhouse gas emissions, which, of course, are the contributor to climate change. And fossil fuels represent something of the order of 80% of total energy emissions. So, the environmentalists, of course, have a point when we're looking at climate change, pointing the finger, as it were, at the energy sector and saying, “this is an energy problem,” is not wrong. Now, how do you address that? Because, we need to address climate change, but we also need to literally keep the lights on.

BRANDON SCHAUFELE: The stats you provided are roughly accurate. And when I talk to students or the public about energy, I usually bring up four key themes. The first one is high GDP per capita countries are high energy consumers. And so, energy and GDP, so wealth, are highly correlated. Rich countries consume a lot of energy. Second, when we talk about energy and whether that's renewable energy or fossil-based energy, we've got to keep in mind a threefold tradeoff. There's affordability, there's reliability, and then there's environmental impacts. And there are tradeoffs between those three dimensions. The third point is there is no clean source of energy. There's just different kinds of dirty. And so, you brought up one kind of dirty contribution to global climate change that is an issue that absolutely needs to be addressed in the energy sector. But there are other kinds of dirty, as well. And often those are more localized or more regional than the global effects of climate change, but they are still affecting the environment. The fourth point, I think this one is important, and this leads into your last stat there, is that the trajectory for energy going forward is greater electrification. More of our energy consumption will be electrified. And I think that there's a big question with respect to the pace that we electrify. And then the second piece is whether electrification will be a net addition to energy consumption, or whether we will see a transition away from fossil fuels and emitting sources of energy to non-emitting sources of energy, including solar, wind, and nuclear.

JULIAN BIRKINSHAW: And just to be clear, I mean electrification, in other words, various different ultimate sources of energy, power a grid, and that grid creates the electricity that runs various devices in our homes. And of course, runs the batteries in our cars and stuff. That's what you're saying.

BRANDON SCHAUFELE: So, I'm actually talking about the final consumption of energy. And when we think about final consumption of energy, we can think about things such as transportation, which is still largely fossil fuel driven. The car you drive, the car I drive, likely run on gasoline. If we can transition to EVs, we can then electrify transportation, personal transportation. That's the example.

JULIAN BIRKINSHAW: But of course, electricity is not completely clean. I mean, that's your point, right? And just tell us a little bit about, let's assume that we actually have solar power and hydro and all the things powering the grid which powers our electric cars. Is that clean or, where is the dirtiness in that, in terms of climate change.

BRANDON SCHAUFELE: So, let's compare gasoline cars to EVs as an example. Gasoline cars burn gasoline. That requires drilling a well, getting crude out of the ground, refining it. And that's going to contribute to global climate change. We're going to have emissions at all stages of the production process. EVs, presuming the grid is generated by clean electricity, and so, Ontario's grid is relatively clean. We've got a lot of nuclear. We've got some wind. We do have gas, mainly for reliability reasons, but let's assume it's a relatively clean grid. EVs require electric motors. Electric motors require rare earth elements. Most rare earth elements are refined in China. So, something like (uncertain). That is an incredibly damaging environmental process to refine these with huge toxic tailings ponds. And so, we haven't necessarily cleaned up the environment per se. We've reduced emissions. That is a net win. But we've done that at the cost of damaging the environment in China with these tailings ponds and the damage caused by refining these rare earth elements.

JULIAN BIRKINSHAW: So, let's turn to your centre, the Energy Research Centre at Ivey, just tell us a little bit about what it does. What is your job, as it were, in terms of, are you writing briefing papers to try to influence policies that way?

BRANDON SCHAUFELE: So, the Ivey Energy Policy Management Centre is comprised of a number of faculty here at Ivey; Guy Hubbard, Adam Fremeth, Bissan Ghaddar. Our strength is on, what I would call, energy regulation. Now, as soon as I say that most people's eyes glaze over and rightly, they should. The energy sector is a really complex sector. It has complex laws, rules, it has complex technologies. And understanding those details and designing those details can really matter for how much people pay for electricity, whether the lights stay on, whether we can build new plants. And that is where we tend to focus.

JULIAN BIRKINSHAW: So, I want to just ask a couple of basic questions about Ontario Energy. If you break it down by sources, what is the current situation? Where is it moving to?

BRANDON SCHAUFELE: So, currently the majority of electricity in Ontario is generated by nuclear power. The largest nuclear facility in North America is based here in Ontario, it’s only about two hours away, Bruce Nuclear Power. The provincial government currently owns Ontario Power Generators, which owns two nuclear facilities, Darlington and Pickering. Pickering is being refurbished currently and so it is going to be taken offline. Going forward, the Ontario government sees nuclear as being a key player in the growth of electricity demand in Ontario. Once we move beyond nuclear, we've got a number of sources. Hydro electricity is still a huge provider of electricity in the province. The Adam Beck facility in Niagara Falls is the well-known one. But across northern Ontario, we've got hydroelectric dams. We've got about 8 to 9 per cent wind generation per year. And so, we've got a meaningful share of renewable generation in the province. We use gas, natural gas, mainly as a backup for reliability. We do have gas plants that run but overall Ontario is a nuclear province.

JULIAN BIRKINSHAW: You wrote a recent policy brief, “How confident should we be in Ontario's electricity forecast?” Just tell us a little bit about what you were saying there.

BRANDON SCHAUFELE: So, this is one of those insider briefs. It's hard to parse from the outside. Every year, the organization that runs the Ontario grid, they're known as the IESO, the Independent Electricity System Operator, they put out a forecast for what they think Ontario's electricity demand will be next year and to 2050. But this year, they increased their forecast by 15 percentage points, roughly 25 per cent. So, an enormous amount. And what that policy brief does is it looks at how good their forecasts have been over the last twenty years. And this is not to malign the IESO or their forecasts, they're very competent and they're very able. It's just that they face organizational incentives. They tend to overestimate electricity demand in this province. And that's what that brief was largely saying. And so, the consequence of that is we need to appreciate that there's a systematic upward bias in the forecasters’ projections for growth in electricity demand.

JULIAN BIRKINSHAW: I mean, better to have higher projections rather than the low. I mean, you don't want to end up without enough electricity usage right, outside availability. So, are you saying those forecasts are driving investment and you're worried that they're throwing too much money into investing in too much energy?

BRANDON SCHAUFELE: The prevailing view is it's always better to overestimate than underestimate. And this is the challenge of regulators across the board. You're always trying to walk this tightrope. You don't want to over invest too much because then you're going to harm affordability, right. If you under invest, you've got to trade off on reliability. I think what is different this time is that the provincial government has committed to enormous investments in the sector that would comprise some of the largest capital investments in the Canadian economy writ large. Huge new nuclear. I think that's probably a wise decision, a strategic decision by the province. But if we're relying on systematic overestimates, we need to make sure we develop processes and systems such that we have offramps, or that we don't commit to billions of dollars of spending that doesn't materialize. I don't want to go on too long, but a good example is what has happened in the last two months. Two months ago, our forecasts for economic growth were very different than they are now. There's been a lot of uncertainty, largely due to Trump's announcements on-off tariffs. It's difficult to predict what's going to happen next year, let alone in 15 years. And we need to accommodate for that accordingly.

JULIAN BIRKINSHAW: Now, we may come back to current relations with the U.S. before we're done. Let's move out to the Canadian economy as a whole. How pivotal is oil and gas to the Canadian economy today, and how has that shaped federal and provincial policies?

BRANDON SCHAUFELE: The role of the oil and gas sector in the Canadian economy really depends upon where you were based. If you're based in Ontario like we are, it's far less important than if you're based in Alberta or Saskatchewan, out west. Currently, oil and gas comprises roughly 4 per cent of Canadian GDP, which is a sizable share. Something like 171,000 Canadians work in oil and gas extraction or service for oil and gas extraction. If we pivot to exports, in the third quarter of 2024, Canada exported roughly 190 billion dollars' worth of goods. Of that, 44 billion was from the oil and gas sector. That's just short of 23 per cent. So, it comprises a huge amount of the exports of the Canadian economy.

JULIAN BIRKINSHAW: Right. And if you go back to the Trump claims about it, a trade deficit, right? I mean, basically the oil and gas part of it is the difference.

BRANDON SCHAUFELE: If you strip out oil and gas, we're in a trade deficit with the United States.

JULIAN BIRKINSHAW: I get it. Canada relies on oil and gas as a big part of its economy. And we've got to try to figure out ways of growing our economy, full stop. And we've got to be particularly innovative, I think, now given the problems we've got south of the border. So, what should we be thinking about in terms of trying to build up the sector? Because I appreciate that there's some people who want to shut it down completely. What should be policy, I guess policy is probably the best place to start, towards companies who are major players in this industry? Should we be incentivizing them to be switching to renewables? Should we be trying to find ways to make them even more innovative than what they're doing? Any helpful suggestions, there?

BRANDON SCHAUFELE: So, that is an enormous question that we are not going to be able to answer in its entirety in Dialogue with the Dean, but I can maybe give you a flavour of some of what's going on. One of the key decisions made by the current Prime Minister, Mark Carney, when he was first elected to become leader of the Liberal Party, was to pause the carbon tax. It's important to understand what a carbon tax does. A carbon tax trades off environment and affordability. It puts a price on the damage that we're doing to the environment by causing emissions. It does that by making energy less affordable. And so, we see this tension where we are supporting, or we are at least not unduly promoting a damaging activity by imposing a carbon tax. He paused it because of the politics of affordability. And so, we face these tradeoffs. We can think about building new pipelines, new transmission lines. Canada has a strategic advantage with access to the Pacific for something like LNG. But these are multi-year, multibillion dollar projects. You need more than a couple of months of goodwill to get these projects done.

JULIAN BIRKINSHAW: Yeah, and of course, Ivey doesn't take a political view, but we can explore the rationale of that particular tax. And you're saying it was economically a smart tax as a means of essentially trying to reduce carbon and as it were, to punish the transgressors. But you're saying politically, it wasn’t a vote winner and that we now understand, at least, even if we don't agree with, Mark Carney’s view on that. Is that right?

BRANDON SCHAUFELE: I'm an economist. Economists love carbon taxes. We love prices. I've always claimed that it was a virtue that the carbon tax was in consumers’ faces. That means we know the price we're paying for the damage we're causing to the environment. What is an economic virtue? Turns out to be a political sin. And we have learned very quickly that carbon taxes are just unviable politically. We are likely going to take steps and introduce policy that reduces our emissions profile in Canada. Maybe not immediately, but over the next couple of years, that's going to make it more expensive. It's just we're not going to understand the full costs. It's going to be less transparent.

JULIAN BIRKINSHAW: Let's talk about the current political environment with the U.S., in other words, the ways in which we are responding to changes that are happening south of the border. And those changes, as we know, are happening before our eyes, literally hour by hour in some cases. You wrote a piece for your Substack channel called “Ontario Should Tax Electricity Exports, Not Cut Off Energy.” Just say a little bit about what that article was about and why you wrote it.

BRANDON SCHAUFELE: That was very much in the moment. It was motivated by a couple of phenomena that had occurred. The first one was last year the Ontario government released a white paper outlining their energy vision. One piece of that vision was they wanted to make Ontario an energy superpower that exported to the U.S. Fast forward a few months, Donald Trump wins the presidency, says he's going to impose tariffs on Canada, especially the auto sector, which is a core driver of Ontario's economy. The Premier of Ontario in the election at the time, is reasonably angry. He threatens to cut off electricity exports to the United States. That piece is responding to those two movements. Cutting off electricity exports to the United States is a bad idea. It's a bad idea for a number of reasons. One being reliability is a two-way street. We benefit from them as much as they benefit from us. But more importantly, we could levy a small charge on our electricity exports and be better off. We could earn revenues provincially, not impact the cost to Ontario consumers, and be better off. And so that piece was very much written for the provincial government to emphasize how we should go about dealing with this challenge from Donald Trump.

JULIAN BIRKINSHAW: Got it. And of course, at the moment, that particular threat is off the table. But, I mean, let's go there in terms of what happens next. I think the prevailing situation, of course, is uncertainty on multiple dimensions. I guess the question then, as we’re going to stay with energy, is how should both policymakers and how should the generators of energy be thinking about this ever-changing political relationship with the U.S?

BRANDON SCHAUFELE: You probably have as much insight on that as I do. I can offer a couple of thoughts. One being energy is a really long-term proposition. You know, a couple of months of turmoil with the United States does not determine the state of the energy system. We've got a number of other open questions. What is the extent of data centre demand and AI going forward? Is it going to be on the optimistic side, or is it could be on the pessimistic side, because the main input into data centres and AI is electrons, and we need those electrons for AI to be successful.

JULIAN BIRKINSHAW: And how big is that really? Because you hear these worries that all these new data centres, and there's a whole cryptocurrency thing as well, are taking up so much of our energy capacity. Can you put some numbers on that? How big of a threat is that in terms of increasing usage of energy, just for computer stuff?

BRANDON SCHAUFELE: There's a number of ways to answer that. Currently, data centres comprise low single digits of our energy consumption. So, not a huge amount. Forecasts place it at a much higher level. You know, step changes. The move from 60 per cent growth in Ontario consumption from now to 2050, up to 75 per cent growth, is almost exclusively attributable to datacentre growth. Not quite. But the majority of that is. These are enormous amounts of megawatts and gigawatts in reality. Yet the question that I think is more important, and this is, again, maybe a little bit too technical, is what is the shape of that load? Because good incentives, good policy can reduce the costs of having data centres on the grid. If they can shut down for a few hours a year, then we can reduce the cost. If they need electricity 24/7, 365, we should design policy to ensure that they pay for the expansions and not average citizens.

JULIAN BIRKINSHAW: Got it. So, I've got 2 or 3 closing questions. First of all, how do you teach this stuff? We've got some bright students. Most of them are not going into energy jobs specifically. I mean, a small number are. Do you teach what we've been discussing to our students? How do you make it accessible and practical to them? Because obviously, a lot of this is quite technical.

BRANDON SCHAUFELE: We're a case school. And what I find is really effective is pairing a case on a live issue. A caselet, sometimes, not a full 20-page case, but say, 3 or 4 pages with maybe a technical write-up on a particular small piece of what's going on and then bringing in some of these elements as we go. A nice thing about the energy space is it's really data rich. Our students love data. They love figures. And so, you can throw off figures and they interpret those figures very quickly and they're just really smart. Moreover, it's important to Canada. Energy and environment are two of the defining features of what it means to be Canadian. And so, our students really love that.

JULIAN BIRKINSHAW: Now, it's true. We can't afford to ignore the bountiful riches of Canada as a resource, heavy nation. And as you look at Canada's future, it's going to have to be a big part of that. And so, you're trying to help them to take this seriously and see the opportunities for them. And do some of them get jobs? I mean, some of them must get jobs in the energy sector, right?

BRANDON SCHAUFELE: I think a disproportionate number of our students get jobs in the energy sector. Now, you've got different kinds of jobs. You know, if you're going back to Calgary, you're in the oil and gas sector. If you're staying in Ontario, you're in the electricity sector. Those two are very different in and of themselves. Even though they're both energy, they're fundamentally different cultures and fundamentally different ways of looking at the energy system.

JULIAN BIRKINSHAW: Fair enough. My first degree was in geology in the UK, and I thought it would be great to get into oil or whatever, but of course, I was in the UK in the 70s, so I became an academic rather than that.

BRANDON SCHAUFELE: That's probably a smart move.

JULIAN BIRKINSHAW: Yeah, it works out okay. So, two final questions. What are you researching next? And then I'll ask you a couple of takeaways.

BRANDON SCHAUFELE: One of the things I'm researching, that I think is maybe in this space, is flaring and venting regulations. And this is with my Ivey colleague, our Ivey colleague, Nouri Najjar. The way I like to describe what that is, because nobody knows what that is.

JULIAN BIRKINSHAW: Flaring and venting,

BRANDON SCHAUFELE: Yes, flaring and venting. And so, about 15 years ago, if you were to fly over North Dakota, the Bakken oil field in North Dakota at night, it would have looked like hell was breaking through the Earth. And it’s because you had all of these fracked wells that were fracked to get oil out of the ground, they would also get natural gas, methane, at the same time. And they had no buyer for that methane. They didn't want the methane. And so, they would just set it on fire, and it would look like North Dakota was on fire. And that's flaring. And venting is just releasing the methane is the atmosphere. It turns out that Alberta has been on the forefront of regulating flaring and venting. And we can learn a lot of lessons from what Alberta did starting in the early 2000s that apply to other places, so that we don't have these infernos. We see these infernos in Russia, in Nigeria, and Iran. We see them around the world, notwithstanding, in the Permian Basin, which is Texas or North Dakota. We still have it in Alberta. And so, our research is really looking at what regulations work, such that we can still get the benefits of developing the oil and gas sector without some of the unintended byproducts and costs.

JULIAN BIRKINSHAW: Got it. To wrap up, one takeaway from this, in terms of our listeners. Of course, our listeners are in many, many sectors. What should they be thinking about in terms of either what they should be doing or what they should be understanding differently?

BRANDON SCHAUFELE: So again, I'm going to come back to my four main themes. I think those are the key ones. High GDP per capita has a very strong positive correlation with high energy consumption. Rich countries use a lot of energy. There is no clean source of energy, there's just different kinds of dirty. If we want to reduce our global climate change implications, then we're going to have to recognize that, cobalt is mined in the Democratic Republic of Congo. That is environmentally damaging. There's a threefold tradeoff between affordability, reliability, keeping the lights on, and environmental impact, and whether that's tailings ponds or whether that's greenhouse gases, we've got tradeoffs there. And that the future is electric, and we can keep that in mind.

JULIAN BIRKINSHAW: The future's electric. That's a good point to end. Thank you. You have been listening to Dialogue with the Dean from Ivey Business School. A big thank you to my guest, Brandon Schaufele, for sharing his time and insights. And of course, thank you for tuning in. Until next time. Goodbye.

KANINA BLANCHARD: This was Dialogue with the Dean, an Ivey Impact Podcast series. For more insights from Ivey, including thought leadership on critical issues and additional podcast episodes, visit iveyimpact.ca or subscribe on your preferred podcast platform. Thanks for tuning in!