A friend, who works for a major oil company in Calgary and shall remain nameless, was recently commenting on what has befallen the Alberta oil patch. Without putting too fine a point on it, he said: “People here are losing their shit.” Roughly translated for polite company, he was observing that the oil and gas sector was traumatized and in a state of profound shock. And for many good reasons. Let’s review.
For starters, the global price of oil has plummeted by more than 50 percent in the past year, forcing major layoffs, downsizing, suspended investments and the demise of higher-cost, lower-margin producers. The epicentre of the slowdown in the energy sector might be Alberta, but it reached far beyond, briefly dragging the national economy into recession. If the economic shockwaves weren’t enough, then there were the political tsunamis that struck within six months of each other.
First, the unthinkable for Calgary’s energy sector happened when Rachel Notley and the provincial New Democrats swept to power with a majority government last May. Gone was a Progressive Conservative dynasty that ruled for more than four decades. Gone with it were the deep political and financial connections the energy sector had into the inner sanctums of government. Suddenly, the oil patch found itself on the outs, having to not only deal with strangers, but strangers with no experience in government who also had social democratic proclivities and priorities that didn’t necessarily put the oil and gas sector at the front of the line. Talk about a radical change.
Then, after that staggering left-hook on the chin, the oil patch took another punch to the solar plexus in October that left it doubled-over, gasping for air and totally disoriented. Suddenly it was 1981, the National Energy Program, and Prime Minister Trudeau all over again. Gone were the federal Conservatives, a prime minister and senior cabinet ministers from Calgary and Edmonton, replaced by Prime Minister Justin Trudeau from Montreal, the son of you know who.
To put it a bit more delicately than my friend, no wonder Calgarians are losing it. Their world has been turned upside down.
Well, here’s a thought. Maybe it isn’t all bad. Maybe the price collapse and the political piling on by those who are not entirely in the thrall of the energy sector can actually turn out to be a good thing. Sure, it sounds like heresy to some. But it’s not as if the sector was able to make huge strides during a period when its friends were in Ottawa and Edmonton, global demand for energy was growing rapidly, and the price of oil was through the roof.
When former PM Stephen Harper declared Canada an energy superpower in a 2006 speech to a business audience in London, it didn’t sound far-fetched in the least. As the world’s third largest oil producer and with recoverable reserves – mostly in the oil sands – of more than 300 billion barrels that ranked second globally, Canada could reasonably claim to be a major player. But to clearly and truly be a superpower, Canada needed to become an energy supplier to the world, especially the rapidly growing Asia market. That meant breaking free from virtual total dependence on the U.S. for our oil exports. It meant building pipelines from Alberta to tide water so that Canadian oil, which has been stranded in North America, could actually reach the markets demanding greater access to energy.
But instead of emerging as a major energy player in the global market, and with a Conservative government dedicated to achieving that goal, what happened over the last nine years? Not much. In fact, you could argue that in some ways we’ve regressed.
Today Canadian oil and gas remains landlocked in North America. The Keystone XL pipeline to the U.S. Gulf Coast, which had been stalled for years, was finally vetoed for good by U.S. President Barack Obama last month. The Enbridge Northern Gateway pipeline to the northern B.C. coast, after years of effort, has received National Energy Board approval – with more than 200 conditions – but remains hopelessly mired in the thicket of legal challenges from First Nations and the elusive search for an ill-defined “social licence.”
Meanwhile, Trans-Canada’s Energy East proposal, which would convert the existing west-to-east gas pipeline to oil and displace imported foreign oil that serves Central Canada and the Atlantic provinces, has run into stiff opposition. Aligned against it are the usual environmental voices and some First Nations. As well, the Ontario and Quebec governments are less than enthused and have been withholding judgment. Finally there is Kinder Morgan’s proposed expansion of the Trans-Mountain pipeline to Burnaby, B.C. Even though it proposes to use an existing pipeline right-of-way to effectively double its through-put capacity, the prospect of oil tanker traffic steaming through Burrard Inlet in the heart of Vancouver has created strong opposition.
All this lack of progress to get Canadian oil to market has happened in spite of efforts by the former Conservative government to expedite the process. Its sweeping regulatory reform for major resource projects, labelled Responsible Resource Development, was specifically designed to bring greater certainty to the regulatory review process for things like pipelines. It set beginning-to-end timelines, where none existed before, for the federal review process and eliminated duplication with parallel and equivalent provincial review processes. It also embedded the “polluter pay” principle into environmental protection and improved the tanker safety regime. But it also realigned, and in some cases removed, environmental oversight, limited the scope of interveners eligible to have standing in the National Energy Board review process, and drastically reduced the number of projects that required a full environmental review.
While many of the reforms made good sense, others were characterized by opponents as “gutting” the environmental review process. Moreover, the reform, which included amendments to multiple federal laws, was buried in a budget omnibus bill. The effect was to significantly reduce debate and parliamentary oversight, adding fuel to the argument that RRD was about paving the way for pipeline projects by weakening environmental laws.
All this, while the Conservative government was being branded a climate change denier and being accorded “Fossil” awards internationally for failing to seriously address reductions of GHG emissions. Although the government took a sector-by-sector approach to reducing emissions, including the automotive and coal sectors, it failed to deliver on a regime to reduce carbon emissions from the oil and gas sector, and specifically the oil sands, the fastest growing source of Canadian emissions for roughly two decades.
So where does all this leave the industry? Back in 1981, or on the cusp of something new and better?
It certainly leaves the industry with the prospect of dealing with federal and provincial governments that believe a change in approach is necessary. And based on what’s happened since those heady days of Canada as an “energy superpower”, a change is probably not such a bad thing.
Clearly, Trudeau wants to remake Canada’s energy image internationally. Like it or not, Canada’s stature on the environment has taken a beating in recent years. It has been no more evident than in U.S. opposition to the Keystone pipeline. It was evident too in Europe, where the European Commission invented a so-called Fuel Quality Directive that would single out oil sands crude to make it an outlier that was an unacceptably high-carbon-intensive feedstock for refineries in Europe. It didn’t matter that Europe didn’t import a barrel of oil sands crude and had no intention to do so. What mattered was joining the growing international chorus in denouncing the oil sands and Canada’s failure to regulate their GHG emissions. (Ultimately, thanks in no small part to efforts by the Harper government, the EU backed off the idea of singling out oil sands crude.)
Given that perception is often reality, a message internationally that Canada is taking action to address GHG emissions as part of a new approach on climate change should help rehabilitate our image. If the Canadian delegation gets through the climate change summit in Paris this month without winning another Fossil award from the Climate Action Network, that will be no doubt be seen as progress.
Trudeau has committed to working with the provinces to put a price on carbon as a central policy ingredient to reducing carbon emissions. Most of them are already headed this direction, led by Alberta, which dramatically upped the ante last month in its Climate Leadership Plan. Interestingly enough, Premier Rachel Notley was flanked by the province’s top oil industry executives and environmental lobbyists when she announced a new $30 a tonne price on carbon emissions. The idea of pricing pollution as a market mechanism for incenting industry and consumers to reduce carbon consumption and emissions is hardly a hare-brained idea. It is embraced by the EcoFiscal Commission, with a diverse advisory board that includes former Liberal PM Paul Martin, former Reform Party leader Preston Manning, University of Calgary tax guru Jack Mintz, Suncor CEO Steve Williams, and former Ontario NDP premier (and ex-Liberal MP) Bob Rae. Talk about strange bedfellows.
Some will argue there’s no reason to believe the new Liberal government will do anything substantive on climate change. After all, the former Chretien Liberal government signed onto the Kyoto accord and then did nothing other than watch GHG emissions grow by the year. True, but does anyone really believe that a do-nothing approach on emissions for the oil and gas sector dating back to the late 1990s is sustainable in 2015? Is it reasonable to assume that progress can be made on pipeline and other resource projects without a change in approach and tone at both the federal and provincial level?
There will also be those who say that further regulation of the oil and gas sector – which is already heavily regulated – will make the sector uncompetitive. But a carbon price would ensure that the cost of carbon is fairly distributed across the economy, from production through to consumption, and therefore not unfairly burden any one sector. For years Alberta had a carbon price that was focused exclusively on production as a source of revenue for a clean energy fund. But the province’s new economy-wide carbon tax makes far more sense if the objective is to reduce emissions right across the production spectrum.
The fear of pricing carbon – a “job-killing tax on everything” as it was often labelled by the Harper Conservatives (and still by some of Notley’s conservative critics) – seems to be waning. Perhaps that is because the emission reduction strategies undertaken to date have produced such underwhelming results. Take carbon capture and storage, for example. It’s hugely expensive and while it does reduce carbon emissions from coal-fired power, it’s difficult to seriously believe it is anything but a small part of a much bigger answer to reducing GHGs. Nor has it brought Canada any measurable credit internationally for its efforts.
Like it or not, the time has come for a policy shift that has impact, one that can actually make a difference in reducing emissions. But just as importantly, it will send a signal that Canada is serious about reconciling energy and the environment. If that happens, maybe we can rescue the idea and image of Canada as an energy superpower, one that has its energy and environment priorities aligned.
Who better to do that then the likes of Justin Trudeau and Rachel Notley? A shocking thought? Perhaps. But better to get over it than wallow in shock, disbelief and denial.
Dale Eisler is a Senior Policy Fellow at the Johnson Shoyama Graduate School of Public Policy, University of Regina.