Copyright of the Daily Oil Bulletin 2018
CGAI Series: DOB Introduces Energy Papers Series
By Colin Robertson
These short essays on energy, (starting today with a piece by Monica Gattinger, click here to access it) which also address climate and the environment, were commissioned by the Canadian Global Affairs Institute (CGAI), with support from Natural Resources Canada, to help stimulate discussion in energy policy development. They complement the Trudeau government’s “Generation Energy” cross-country dialogue that culminated in a conference held in October 2017 in Winnipeg.
The topics were chosen following discussions with legislators and senior officials at the various levels of government, the private and public sector, and with the advice of the Advisory Council of the Canadian Global Affairs Institute.
The authors write from practical experience, all having either served or done work with governments and/or the private and research sectors. Our instruction to the authors was that the essays be short enough to be digested in a single sitting and that they offer policy advice based on the authors’ experience and analysis. The authors also participated in conversations that are all available in podcast form on CGAI’s Global Exchange.
The general thread running through these essays is that Canada can and should be a global player in energy and climate development and that our knowledge and experience enable us to play a helpful role in global affairs.
However, our influence and capacity have limits, many of which derive from how we manage and how we are seen to manage both our resources and climate at home. Domestic initiatives depend on social licence. This is something Canadian governments are coming to terms with, but coming to terms does not mean waiting forever. Consensus does not depend on unanimity. After deliberation and consultation, to govern is to choose.
We have abundant hydro resources and we should be using renewable sources like wind, solar and tidal. However, in a cold climate, we need to maximize all our energy resources, including fossil fuels.
Monica Gattinger writes about “Big Projects, Big Politics, Big Policy,” suggesting we need to strengthen public confidence in our energy decision-making if we are to avoid a “slow-motion train wreck.” Oilsands and pipelines may be today’s points of contention but so will be wind farms, fracking and big hydro projects.
“Renewable or not,” writes Gattinger, “linear or non-linear, energy projects of all kinds and descriptions are running into opposition.” Failure to resolve Canada’s energy challenges costs the country in environmental performance, attracting investment and fostering economic growth and innovation.
With lack of trust and policy gaps, Gattinger says public confidence in energy decision-making is low and declining. As a result, she says “decision-makers need to accept that social and value changes — and changes in the information and communications environment — are here to stay.” Regulators, for example, “need to develop more flexibility to engage with local and Indigenous communities and governments on big projects” and “decisions need to be taken in a timely fashion on big policy and on big energy projects.”
Dennis McConaghy has written a pair of papers. In “Can Canada Restore a Functional Regulatory Process for Major Infrastructure Projects?” McConaghy looks at recent pipeline experiences —Kinder Morgan, Northern Gateway, Energy East, Keystone XL — to argue that any political intervention should come early and only in respect to specific public interest issues. This will help avoid uncertainty for industry, including “the expenditure of hundreds of millions of dollars to comply with the expected regulatory rigour of a complete application.” McConaghy concludes “it remains in the country’s long-term interest to, at the very least, find as much efficiency in its regulatory processes as possible. If value judgments are to be imposed on resource development then that should be as up front as possible, and not waste capital and human resources.”
How does Canada respond to stranded asset risk whether it be oil or gas? Amy Myers Jaffe says: “Canadian companies have stepped up the purchases of oilsands assets on the sale block from the international majors but it remains unclear whether reducing project size and deferring projects will be sufficient to allow these companies to keep the oilsands as an expanding production domain.”
She says much will depend on global market oil prices as well as competition from other sources, including natural gas. “If protecting jobs and preventing more companies from exiting Alberta are more of a priority than revenues,” Jaffe writes, “Canadian provinces might need to reconsider how companies are taxed for riskier, higher cost oilsands projects. Diversification of government revenues to other sources of income as Canada shifts increasingly to non-resource related industries would be a prerequisite for this strategy.” Other policy levers to be considered include “increased public commitment to R & D spending to find technologies and processes to lower the break-even costs of new and existing oilsands production projects and long-run programs to increase market creation for Canadian natural gas.”
Mike Cleland, in his “Canada and the Low Carbon Energy Revolution” says that meeting our Paris targets will require a “massive energy transformation” that under current conditions will mean “a huge shift in the role of electricity as a source of end-use energy, from where it stands today — approximately a fifth to a quarter (depending on province) of all end-use energy — to something closer to three-quarters by 2050.”
Cleland says while this may be desirable there will be costs, namely: “the stranding of Canadian resources and established infrastructure, the loss of Canada’s comparative advantage, higher end use energy costs to the economy and the diminution of the fuel diversity which has underpinned the security, reliability and resilience of our energy systems.” Cleland observes that “it will be hard. And for governments it will involve mostly political grief and only rarely, political joy.” We need “an open and realistic public debate on energy … a debate that confronts our physical, economic, social, institutional and political realities (and) that at the same time addresses our aspirations regarding greenhouse gases.”
In “Thoughts on Canada’s Carbon Tax Agenda”, Kenneth Green writes that “in the new Trumpian environment … the U.S. is poised to boost its energy economy. Canada is poised to contract its own, through carbon pricing and climate action plans that are inimical to provincial and federal economies, and to people’s detriment in terms of higher prices for everything.”
Until we generate power and fuel mobility more cheaply than with carbon-intensive methods, and more reliably than current alternatives such as wind and solar power, Green contends we will see little progress on the kind of “massive decarbonization that Trudeau and other signatories to the Paris agreement pledged to achieve.”
To avoid this calamity, Green recommends postponing the implementation of the various climate action plans and carbon taxes, until analysis can be done on their impact on Canadian competitiveness. In the meantime, says Green, Canadian policy-makers need to refocus their attention on making Canada resilient to climate change while ensuring that Canadians can adapt, whether climate change is man-made or natural.
Dennis McConaghy’s second paper, “The Inescapability of Carbon Taxes for Canada”, points out that recent decisions — the Trump administration’s approval of the Keystone XL pipeline and the Trudeau government’s approval of the Kinder Morgan Trans Mountain and Enbridge Line 3 expansion projects — solve the market access crisis for Canadian hydrocarbons.
McConaghy argues that “carbon pricing, reflecting the market, is the only viable answer” and he makes a series of suggestions as to its implementation, including uniform adoption as a federally imposed national tax with no mandates or cross-subsidies for clean technologies.
To understand the shift in energy security, Petra Dolata says we need to look at both short-term geopolitics and partisan politicism, especially in democracies, and long-term energy development — the gradual shift away from fossil fuels — trajectories. She contends that besides “focusing on the supply side through championing renewables, demand-side measures, including energy efficiency targets, will become more important.” Her recommendations include: broad public discussion and debate on our energy future, and supporting natural gas as a transitional energy resource.
In “Energy as a Service: Going Beyond Energy Supply”, Normand Mousseau argues that Canada would greatly benefit from “focusing its transition largely on the consumption side.” Rethinking energy usage, writes Mousseau, forces us to question almost all our habits, structures and processes. It helps all aspects of society to find “more efficient approaches to building, heating, transporting and manufacturing.” The electricity sector, for example, needs to finish its transition to low-carbon production and find solutions for heavy transportation. A national vision, says Mousseau, requires a combined, collaborative effort adapted to each sector: building, transportation, urbanism, industry, agriculture, etc.
In their paper, “More Hydro Power in Canada: Tapping Our Potential,” John Haffner and Jim Burpee argue that hydro power is the most significant power generation source in Canada’s electricity system and it needs to be harnessed to advantage.
Haffner and Burpee point out the environmental and economic advantages that would accrue to Canada by doubling our hydro power capacity. To do so, they make four recommendations: add a reliability factor in evaluating costs of future generating options; push for a North American carbon price; include de-carbonization contribution as part of project assessments; and strengthen low carbon electricity co-operation across jurisdictions.
In his original paper for this series Kelly Ogle argued the Energy East pipeline is necessary because “North American market diversity and access to tidewater are needed so Canada can safely and profitably realize on its enormous resource bounty.” And yet, despite the challenges in managing an asymmetric oil relationship with the U.S., and continued desire for export optionality, the project faced relentless opposition, constant regulatory hurdles, and economic and political uncertainty. In his new paper Ogle aims to examine the dynamic factors that ultimately led to the project’s failure, and affect this outcome may have on Canada’s oil industry.
Our authors offer differing and sometimes contrasting policy options but they are united in recognition that our resource wealth is our national heritage. The rewards of this heritage should be applied to national purpose and to the national welfare. Development can be done in a sustainable fashion and this includes getting these resources to market, preferably through pipelines, still the most secure and safe method of transportation, as was demonstrated in repeated studies by U.S. authorities in their consideration of the Keystone XL permit.
We are innovative in the application of technology to reduce the impact of development on our land, water and air. We have been creative in the development of practical rules and regimes to govern use of these resources in a sustainable fashion, and we have also adapted. As Mike Cleland points out, “In the past century we’ve moved from wood to coal to oil and now multi-fuel sources.”
Once again, we are adapting our energy use and energy sources but we need to do so to Canada’s advantage. We hope that these papers contribute to the generation of more ideas and better policy options.
Colin Robertson is former Canadian diplomat, and is a Senior Advisor to Dentons LLP working with the Canadian Council of Chief Executives. He is Vice President and Fellow at the Canadian Global Affairs Institute and Executive Fellow at the University of Calgary's School of Public Policy. He is an Honorary Captain (Royal Canadian Navy) assigned to the Strategic Communications Directorate. He is chair of the board of Canada World Youth.