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By Stephanie Brooks
 

It’s in our blood, it’s on our minds, and heck, it’s even in the lyrics of a Neil Young song.
As Canadians, we boast a natural resource base not exceeded by many nations around the world. And yet, on resource development, we do not stand strong and free

In fact, policy and positions on the issue to date have been the very opposite, proving energy is both a blessing and a curse in Canada. From the controversial National Energy Program of the 70s to today’s debate over a national energy strategy, Canada’s wealth in energy and natural resources has been a divisive force.

As the fifth largest producer of energy in the world, exceeded only by Russia, China, the United States and Saudi Arabia, Canada boasts oilsands that contain the third largest oil reserves on Earth. Our country is the second largest producer of ­hydroelectricity and uranium, and the fourth largest producer of natural gas.

“Our prosperity as a nation is inextricably linked to energy in all its forms, whether it’s in manufacturing, production, transportation, financing, or lawyering,” says Doug Black, president of the Energy Policy Institute of Canada (EPIC). “That’s what Canada is now about.”

But it seems the resources that set Canada apart from other nations are setting the country apart from itself, too.

Divided we stood

Energy policy has not always been perceived as being in the best interests of all parts of the country. As a result, it can be a fairly sensitive topic for many.

Bring up the National Energy Program (NEP) and you’ll be sure to boil the blood of most Westerners, who blame the program for lost oil revenue and seclusion from the East.

This is the program in which Trudeau’s federal government interfered with market-based oil prices by keeping them below that of the world market, promising redistribution in oil wealth across the country. By providing subsidies for oil and natural gas, the federal government’s share of the West’s resources inflated from 10 per cent to 36 per cent. It brought with it larger trade and federal budget deficits, and higher real interest rates and inflation. By 1983, the federal government had a structural deficit of almost $30 billion.

Grave economic consequences were not the only result of the program, as a gross alienation between the West and the East also resulted. In the 1980 federal election, the initiative cost Trudeau’s Liberals every seat west of Manitoba.
“NEP was clearly divisive because it pitted the producing provinces against the consuming provinces and artificially kept the price of oil low in the consuming provinces, which penalized the producers,” says Vice President of Government Relations and Policy at General Electric Canada, Ross Hornby. “Countries that still have energy subsidies, like Saudi Arabia and Iran, have all kinds of economic distortions.”

Deciphering a strategy

Some argue there’s little difference between the type of interventionist measures imposed in the National Energy Program and what a national energy strategy, today, could constitute.

Tom Flanagan, a political science professor at the University of Calgary and former Conservative Party campaign manager, says if a national energy strategy means the government takes over and leads one big, overall coordinated effort, it’s not possible nor desirable.

“The businesses that produce and sell their products and services should follow their own business plans under a legal and regulatory framework that’s laid down by governments,” notes Flanagan.

Jayson Myers, President & CEO of Canadian Manufacturers & Exporters, says with energy being one of Canada’s true advantages, it is imperative to ensure there is a plan in place so our supply is ample and available at a cost that is in line with our trading partners.

The plan under discussion for a national energy strategy by one organization is a pan-Canadian framework for use by federal, provincial, and territorial governments.

EPIC, whose members include energy companies like General Electric, Imperial Oil, Enbridge, and Shell, published its paper A Canadian Energy Strategy Framework in August 2012 and has many industry members endorsing its recommendations. It advocates for market diversification, to expand beyond just oil and natural gas, and to not remain solely reliant on the United States. The organization also argues for increasing energy literacy and conservation, working on new technology, and reviewing alternatives for carbon management.

EPIC’s president says every part of the energy equation is valuable. Black notes Canada needs strategies and policies that will help all of the sectors, and that will aid the industry at large.

“Strategy needs to move forward now so projects can happen. We need a plan, a strategy, a national consensus so we don’t get into this kind of debate,” he says.

A debate over what to do with our wealth in energy is one that is increasingly fueling a divide. Canada’s resources, it would appear, are as varied as the opinions that govern them.

“Geographically wise, it’s previously been East versus West. Canada is a very large country, and we have energy in the West which is hydrocarbon-based, and Eastern Canada has ­hydro-nuclear,” says the President of the Canada Energy Research Council (CERI), Peter Howard.

Another way to look at energy policy, Howard explains, is ­promoting energy use within Canada. “For example, Ontario buying hydropower from Manitoba instead of building all those non-efficient solar panels, ­moving natural gas across the country to power microturbines in urban centres, or Alberta buying power from British Columbia to power oilsands projects.”

Clashing over crude

Canada has the third largest oil reserves in the world, and the oilsands span 140,000 square kilometers — ­bigger than the country of England — and contain the potential for 169 billion barrels of oil. In 2011, the oilsands produced 1.6 million barrels of crude oil a day. To put it in perspective, five million barrels a day is about three times Canada’s current oil consumption.

Still, controversy over its extraction means provinces, parties, and the public remain divided.

Last summer, when Canada’s energy ministers gathered in Alberta to discuss opening new markets for Canadian crude oil and streamlining the approval process for energy projects, all premiers but British Columbia’s Christy Clark complied with a strategy.

For Clark, no plan is good enough unless BC gets paid for associated risks with Enbridge’s proposed pipeline. The plan, to carry oilsands crude from Alberta to the west coast for shipment to global markets, became wrought with more tension as a result of Clark’s demands for five criteria, the most contentious being to grant BC a “fair share” of the project’s revenue.

Clark claims BC assumes 100 per cent of the marine risk and 58 per cent of land risks, yet only gets eight per cent of the fiscal benefit of the pipeline going through BC.

Not unlike the Trudeau days, the ­current politics of energy can be a divisive force.

“BC and Alberta need to collaborate to help to deliver the message that the oil and gas industry can operate safely, environmentally, and contribute to Canada’s wealth. This has to be done in order for Northern Gateway to proceed,” says Hornby.

With access to Asian markets only growing, the ability to export Alberta bitumen increases. The federal government says it is in Canada’s national interest to find a new route to ship crude to this growing market. July’s $15-­billion takeover bid for Calgary’s Nexen Inc. by the China National Offshore Oil Company shows the government’s increasing consideration of the role foreign interest will play in Canadian energy development.

This interest could be in part due to the projected economic boost of ­almost $10-billion a year it is expected to bring between 2016 and 2030, ­according to a University of Calgary School of Public Policy study. It is estimated that every dollar invested in the oilsands generates $9 billion in economic activity.

Alberta Premier Alison Redford has been committed to a Canadian energy strategy that includes the Northern Gateway Pipeline, but has emphasized the importance of ensuring economic benefits are spread throughout the ­country. “It’s important for us all, as political leaders, to work together to ensure there is access to international markets and isn’t any particular province that should get more or less access to international markets based on their geographic location,” she told reporters.

No stranger to politics or ­energy, Professor Flanagan says he’s not ­opposed to what the Alberta premier is doing, if what she’s doing is to promote communication among the different players.

“Sure, there needs to be consultation and everybody has to understand what everyone else is doing, and government has to do its part, but that’s different than having a strategy,” he says.

Because of the distribution in energy jurisdictions in Canada, tousles over how to implement the pipeline deepen the divide.

Constitutionally, a province cannot block the creation of a pipeline if federal authorities approve it. However, it would be an ultimate last resort for the federal government to use its legal powers to override the demands of the provinces, says Flanagan.

Barriers between borders

Provinces have authority over the exploration, development, conservation, and management of non-renewable resources, as well as the generation and production of electricity. Federal jurisdiction in energy is primarily ­concerned with regulation of inter-provincial and international trade and commerce, and the management of non-renewable resources on federal lands.

“Provincial and federal relationships and responsibilities must be respected, at the same time challenging new ­thinking and discovering new, powerful ways of working together,” the EPIC report states.

John Muir, director of government ­affairs and policy at GE Canada, says if every jurisdiction isn’t on the same ­playing field with regard to policy, it makes it more of a challenge to be an industry participant. “Especially in carbon pricing. We’ve got it going off in several directions at once.”

While Canada does not have a federal carbon tax, some provinces are moving toward imposing their own levies, including British Columbia, Alberta, Quebec, and to some degree, Ontario. EPIC calls for a review of carbon management, stating that a broad range of policy options and actions to reduce carbon emissions should be carefully evaluated and included in any national carbon management plan.

“We’ve worked to try and develop a framework that governments could use to frame a carbon management regime, but it is so incredibly complicated and multi-layered,” says Black.

A carbon tax is not in the best ­interests of Canadian taxpayers — individuals or businesses, says Jordan Bateman, BC director for the Canadian Taxpayers Federation. “It’s time for the BC carbon tax to go. It hasn’t accomplished its environmental goals and is hurting BC’s competitiveness both in North America and internationally.” 

These organizations are not the only ones raising the issue. Adding to the perplexity is the multitude of voices weighing in on it, including positions from the Canada West Foundation, the Canadian Council of Chief Executives, and the Canadian Chamber of Commerce.

Charging ahead

With all these reports, it’s difficult to determine when, or if, study will translate into any unified action.

This fall, Canada’s energy ­ministers convene again, this time in Charlottetown, to deliberate over what to do with the vast resources that lie in their respective jurisdictions.

“There is a pressing need to advance these issues now,” writes EPIC. “Canada has both the domestic need and global market pressure to make energy innovation a principal national focus. Through leadership across all sectors, and at all levels, Canada has the opportunity to harness its energy innovation potential.”

While the ways in which to reach this potential remain under scrutiny, being a leader on the world stage in natural resources means we are able to have these debates in the first place, proving energy is both Canada’s backbone and Achilles’ heel.

At the end of the day, Canada’s vast energy potential offers vast economic potential. And if Canadian history teaches us anything about energy wealth, it’s that the regions and Ottawa will struggle, kick, and fight for their share of the juicy pie, regardless of whether it’s next door in BC, back in Quebec, or in Newfoundland and Labrador.

Although Canadian energy politics from the past has been disruptive, it’s also been the source of ­remarkable prosperity for every region of the country. “Let’s be realistic about what we mean about energy policy, and let it need not be a divisive thing,” adds Hornby.

And that is something we can all put our energy behind.

 




 

One of the most recent positions targeting Canada’s energy potential in the oilsands is the claim that the West’s resource boom is the cause of a heightening Canadian dollar, leading to a loss in manufacturing employment and production.

NDP leader Thomas Mulcair’s Dutch Disease diagnosis is not only wrong, but quite divisive, according to CME President & CEO, Jayson Myers.

Stephanie Brooks: Why was there the emphasis on the West when we have both an active manufacturing sector and natural resources across the country?

Jayson Myers: Oil and gas are across the country, including in Ontario and Quebec, as well as mining projects, mineral resources, energy investments, electricity, and agricultural commodities, coast to coast. The message — that oil and gas projects in particular are harmful – is naive and divisive. If the diagnosis is Dutch Disease and we move to treat it, the only thing you can do politically is create a divisive policy within Canada and for business. No one wins.

SB: What are some of the benefits of these resource projects for manufacturers?

JM: They’re generating an enormous amount of tax revenue for government and a great deal of that revenue is what’s keeping our social services, health care and education alive. They’re also a tremendous source of opportunity for Canadian manufacturers. CME’s initiative over the past five years has been to connect manufacturers from Victoria to St. John’s with supply chain opportunities in the oilsands. We’re expanding that to other energy opportunities, too — renewable energy, electricity, nuclear, oilsands — but also mining and more.

SB: While the Dutch Disease diagnosis is debatable, the reality of a high dollar remains. How can manufacturers overcome the issues associated with the strengthened currency?

JM: From the point of view of a manufacturer, in a business, what are you going to do: wait for the dollar to come down and for the US market to recover, or are you going to look for new opportunities and be productive? There are only two ways businesses can overcome the problems of a high dollar: to drastically improve productivity, develop new products, and improve processes to remain competitive, or find new customers. This, in turn, will drive a lot of new development. The resource projects are providing many manufacturers with new business opportunities. Unless we see those opportunities as a major economic possibility for the country, we run the risk of falling into the same syndrome as Australia. We have a huge opportunity to supply and generate added value for these resource projects.

SB: How can we ensure Canadian companies have the ability to take advantage of these opportunities?

JM: Regulatory approvals need to be sped up and made more efficient, and we need to respond more quickly to a tightening labour market. Businesses have to work together to take advantage of the supply chain opportunities that are there. Maybe we need to look at tax changes so we are providing companies with more tax incentives for product development or the adoption of new technologies. What we should be aiming for is building up a globally competitive manufacturing technology and services sector and leveraging these energy opportunities. And that’s a very different treatment than if you assume we were suffering from Dutch Disease.

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