CANADA AS AN ENERGY : HOW CLEAN, HOW POWERFUL, HOW SUPER?

Mike Cleland

Canada has laid claim to being an emerging clean energy superpower. Can this claim be sustained? The notion of power has several attributes that can be used to assess Canada’s circumstances and whether we can substantiate our claim. While the country has many capabilities with respect to energy resources and our capacity to deliver them to markets, we are less obviously well endowed on items such as technology, institutional strengths, and leverage to use our energy strengths in pursuit of broader geopolitical interests. Canada can, however, be a voice in support of market-based approaches to energy and an open international trade and investment regime, but glaring gaps need to be addressed, including the lack of an at the national level.

Le Canada affirme qu’il sera bientôt une superpuissance de l’énergie propre. Peut-il soutenir pareille affirmation ? La notion de puissance suppose certains attributs qu’on peut utiliser pour évaluer la conjoncture du pays et déterminer s’il pourra confirmer son ambition. Si nous possédons d’abondantes ressources énergétiques et la capacité de les mettre en marché, nous sommes moins bien pourvus en technologies, en institutions et en leviers financiers pour exploiter cet atout au profit d’intérêts géopolitiques plus vastes. Nous pouvons cependant contribuer à l’application d’approches énergétiques axées sur le marché et à l’ouverture d’un système international d’échanges et d’investissements. Mais il nous faut au préalable combler d’inquiétantes lacunes, celle notamment d’une réelle politique énergétique nationale.

anada has laid claim to being an “emerging clean In geopolitical terms “power” means possession of control, energy superpower.” Although the expression authority or influence over other countries and having the abil- C has been used by Prime Minister Harper and his ity to affect world events. With that in mind, it would seem ministers and a few others since the summer of 2006, it that a “power” of any sort would have the following attributes: has been subjected to very little analysis or debate. This ● a capability that gives one the potential to influence the idea is timely, given the growing importance of energy behaviour of other countries and the course of world events; and the environmental implications of energy in interna- ● the capacity to deploy that capability where and when tional relations, but if it is to be more than a slogan it it can be effective; needs much more thought than it has been given to date. ● an articulate understanding of one’s national interest Given Canada’s position in the energy world and the and policies that specify how the capability in question importance of energy to our economy, our environment can be used to further that interest; and our diplomacy, it seems clear that the world of energy ● a will, credibly understood by others, to use the capabil- is hugely important to us. Whether Canada is sufficiently ity in question when called upon to do so. important to the world of energy to warrant “superpower” status is a more debatable proposition. framework such as this allows us to test the hypothesis Anyone knowledgeable about Canada’s energy A that Canada is a “power” in energy — and if it is, resources would readily concede that we have a lot of them whether we can credibly claim to be a superpower. It may by world standards. Resources are, however, a critical but by also provide some insight into what it would it take for an no means sufficient prerequisite for status in the world of “emerging” power to actually emerge. energy. That begs the question: what are the attributes of a The most obvious capability is the “power” — super or otherwise, energy or otherwise? base and our established production capability, where

POLICY OPTIONS 63 DECEMBER 2007-JANUARY 2008 Mike Cleland

Canada is in a distinctive position as respected players in oil and gas, pipelines markets is at risk. The social consensus illustrated in table 1. and electricity, but no big household- in favour of resource development — By world standards in terms of name national champions. particularly but not only in Aboriginal reserves, production and exports we are In short, we are probably in the communities — can’t be taken for grant- a significant player. Equally striking is top five worldwide in terms of natural ed. That is especially true for linear infrastructure such as wires Canada has technological leadership in a few areas such as and pipes. Approval process- some parts of the fuel cell industry, possibly nuclear energy and es are protracted and uncer- the deployment of advanced technology in resource extraction, tain, adding significantly to but our position as developers, producers and exporters of both costs and risk. Canada’s resource capability risks energy technology is thin. In corporate terms we have several becoming stranded, and a well-respected players in oil and gas, pipelines and electricity, capability with no capacity but no big household-name national champions. to deploy is no power at all. Capacity to deploy — in the diversity of our resources; and, resources, but somewhere well short of the sense of exercising power — also being a geographically large country that in terms of other attributes. has to comprehend the notion of lever- with extensive land, water, coastline, a age in relationships, including in eco- largely untapped north and moving air apacity to deploy means several nomic markets. This can mean being a above it all, we have the potential to C things. Two of them are the ability monopoly supplier who is prepared to grow — whether in renewable energy to harness the resources and the ability hold supply hostage to other interests, such as hydro and wind or hydrocar- to connect them physically to markets. being a swing producer and potential bon resources such as and In that regard we have done well, to price setter, or being able to use energy methane hydrates. It would be hard to date, if we take our production and supplies to advance ideological inter- imagine a serious world energy discus- export rankings as indicators. Our ests. Alternatively, it can mean the abil- sion without Canada at the table. national energy infrastructure — long- ity to deploy energy resources in But it needs more than that. distance pipelines and electricity trans- support of industrial development, as Capability needs to include human and mission — is world class by any standard many Canadian provinces have done in organizational capital in the form of edu- (distances covered, construction and the past by attracting processing indus- cated professionals, visionary thinkers upkeep in challenging geographic and tries based on cheap electric power. and reputable institutions; technological climatic conditions, efficiency, safety This last point is where it starts to leadership; and leading corporations. and reliability). Just as important, that get complicated if we want to think of Canada has some very capable people infrastructure effectively connects the energy as a source of . and institutions when it comes to think- resource base to almost all regions of ing about energy, but disproportionately Canada and to a huge export market. irst, our geographic position, far from fewer than our resource base would The building of energy infrastructure F allowing us to act as a monopoly imply. Canada has technological leader- ranks second only to the railways as part provider, in fact ties us to a monopsony ship in a few areas such as some parts of of Canada’s national heritage. buyer who also happens to be our most the fuel cell industry, possibly nuclear So far so good, but deployment important economic partner overall. energy and the deployment of advanced capacity has to be maintained and Second, our production, although large, technology in resource extraction, but enhanced. Despite having an invest- in no way affords us , our position as developers, producers and ment climate that is open and attractive nor is it large enough to materially affect exporters of energy technology is thin. In by international standards, our ability to most markets, aside from our own; we are corporate terms we have several well- harness resources and connect them to a price-taker in international markets. We have no real ability to exercise power in a TABLE 1. CANADA’S RANKING IN GLOBAL ENERGY MARKETS, 2006 unilateral sense as do countries like , or . Crude oil Uranium Electricity And neither should we necessarily want to. For very good reasons — on Proven reserves 2nd 21st 3rd n/a which I expand below — we have over the years adopted policies that fore- Production/ generation 7th 3rd 1st 7th close such actions, even to the extent of greatly limiting our capacity to Exports 17th 2nd 2nd 4th deploy energy resources for domestic industrial policy reasons.

64 OPTIONS POLITIQUES DÉCEMBRE 2007-JANVIER 2008 Canada as an energy superpower: how clean, how powerful, how super?

CP Photo The oil patch has been the great driver of Canada’s wealth creation in this decade. But is Canada truly an energy superpower, as Prime Minister Harper has asserted?

Adding it up, Canada has been es its belief to our international partners electricity (2005 figure), which is very successful at developing its ener- that our interests are best served by equivalent to about half of our gy resources and connecting them to comprehensive systems of internation- exports and 4 percent of our domes- domestic and US markets, which has al collaboration. tic consumption in the same year. had a hugely positive impact on our In our bilateral relationship with the economic well-being. But this capacity US, Canada benefits from the fact that anada also benefits from increas- is at risk. Moreover, if the topic is agreements such as NAFTA are a two- C ing degrees of cooperation in power as normally defined, Canada’s way street that affords protection for pipeline and power line regulation, ability to exercise power through uni- both buyers and sellers of energy. Along including provisions — unique in the lateral deployment of our energy that two-way street, Canada receives pro- world — for shared regulation of elec- resources is at best modest. tection in many ways. For example: tricity reliability. Neither our interests with respect ● Over 340 billion cubic feet annually In a multilateral sense, Canada has to energy nor our policies are explicitly of natural gas (2006) transits through one of the most open economies in the expressed. We do have an implicit poli- the US into Ontario and — world, which means that our economic cy expressed largely through interna- equivalent to over 30 percent of the prosperity, and by extension our energy tional treaties such as our membership gas used in those provinces. security, is tightly linked to that of all of in the World Trade Organization (WTO) ● A total of 103 million barrels our economic partners. Cooperation the International Energy Agency (IEA) annually (2006) of refined petrole- through the IEA affords member coun- and the North American Free Trade um products are supplied from US tries the relative luxury of managing Agreement (NAFTA) and in our open refineries — equivalent to 20 per- energy crises like those in 1979 and 1990 investment regime. Through these cent of total Canadian refined while avoiding the beggar-thy-neigh- instruments, although we seem reluc- product consumption. bour policies called for by protectionists tant to say it at home, Canada express- ● We import 19.3 terawatt-hours of in many countries, including Canada.

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Our economy is heavily dependent ing with the role Canadians would want The National Energy Program on international capital flows as well as Canada to play in the world. (NEP) is now almost 25 years in the trade, and those flows have under- All of this would make a great deal grave, but it haunts us still. The idea of pinned our resource and infrastructure of sense were it not for the fact that energy policy at the national level is development. One of the ironies of the several parts of the policy are missing, paralyzed by the mythology of the NEP. debate in Canada at the time of NAFTA and what there is, is a well-kept secret. Canada would benefit from ratification was that Mexico was per- stronger province-to-province coordina- ceived to have “won,” while Canada hat is missing? Above all what is tion, because the provinces have the pri- “lost,” because Mexico protected its W missing is a plausible reconcilia- mary jurisdiction with respect to most industry from foreign intrusion. Since tion between the energy policy aspects of energy production and use. NAFTA was ratified in 1994 Canada has described above and the demands of It would be beneficia if there were a increased its oil production by over 30 environmental sustainability, including clearer sense of how the federal govern- percent and its gas production by over cleaner energy, energy efficiency and ment sees the national interest in energy, 25 percent and earned many billions of reduced greenhouse gas (GHG) emis- and how it proposes to act within its own dollars in foreign exchange. Mexico sions. Canada in many respects has a jurisdiction. Absent such clarity, the fed- chose a different path for its own rea- one-legged energy policy and a one- eral instinct is to shrink from its respon- sons, but it is a growing importer of nat- legged environmental policy, and both sibilities, and the provincial instinct is to ural gas despite its enormous resources, are unnecessarily hobbled as a result. assume that some malevolent design is because it is unable to mobilize the cap- In addition, it is important that being contemplated in Ottawa. ital to develop those resources. Canada stop thinking about capability as only a matter of resource endow- econd, Canada would benefit from ur implicit policy and the associated ment. If capability is expanded to S a broader public understanding of O treaties limit our ability to use ener- include human and institutional capa- how and why the multilateral and mar- gy to subsidize industrial development, but bility, as suggested above, then this ket-based policy described above serves that is a policy approach that is obsolete raises many questions for policy. Most the interests of a country like Canada and works largely to our disadvantage in important among these: What is the and is wholly consistent with the aspi- any event. To take an example, subsidizing role of government in investing in rations of Canadians to be responsible Canadian hydro power for Canadian con- skills, technology, institutions and world citizens. Canada is almost sumers — as several provinces do — has a information, and is our tax system the unique in the world in consistently triply perverse effect of creating an incen- best to support strong corporate capa- championing such an approach, but tive to waste energy, reducing the econom- bilities? It is not clear what Canadian the domestic consensus in favour of it ic advantage to the province and reducing policy has to say on these matters. is always fragile, and we should be sus- the environmental benefit of hydro, which As to Canada’s energy policy being a taining it not by stealth but by a broad- would otherwise be exported and displace well-kept secret, does that matter? Yes, it ly understood national consensus. fossil-powered electricity generation in the does, if we want to be an energy power, Third, we have a growing gap US. Sometimes the national interest is bet- because the last attribute of power is the between public expectations (nothing in ter served when governments are con- credibly understood will to act. my back yard) and energy realities. strained in what they can do. The policy also limits The National Energy Program (NEP) is now almost 25 years in what little unilateral leverage the grave, but it haunts us still. The idea of energy policy at the we might have had to use national level is paralyzed by the mythology of the NEP. Canada our energy to directly influ- would benefit from stronger province-to-province coordination, ence the actions of others. What is important, though, because the provinces have the primary jurisdiction with respect and what the Prime Minister to most aspects of energy production and use. appears to be saying in state- ments like his September 2007 speech to The will to act in a democracy Canada’s ability to develop and deploy its the Council on Foreign Relations in depends above all on developing and sus- resources faces a potentially fatal erosion New York, is that we can exercise power taining the public consensus to do so. of public and community support, and through “concerted effort among capa- Since the mid-1980s (the time of deregu- without this support Canada will fast ble, committed, like-minded nations” lation and the Canada-US Free Trade become a fading energy superpower long where middle powers can “step up to Agreement), this public consensus has before we ever emerge as one. This is not the plate to do their part.” In short, roughly existed, at least by default. Going as simple as educating and informing, something more like than forward, that no longer appears to be true. since there is often a real asymmetry of super power, but perhaps more in keep- Several examples illustrate this point. interests here; for example, that between

66 OPTIONS POLITIQUES DÉCEMBRE 2007-JANVIER 2008 Canada as an energy superpower: how clean, how powerful, how super? local costs and societal benefits and, diverse commodity production, since suggest that we should focus solely on arguably a deeper societal problem, a pre- Canada’s energy commodity mix may the North American partnership, but occupation with entitlement that makes already be the most diverse in the the interests of Canada and the US lie any intrusion on the “rights” of a given world. It does mean building our in a strengthened commitment to free group or individual simply unacceptable. strengths in the other factors that energy markets worldwide, and much Finally, if we want to become a underlie energy service delivery: knowl- of Canada’s power derives from our “clean” energy superpower we have to edge, skills, technology and organiza- ability to frame and advance that mes- begin to address the massive gap between tional excellence. Over time, the mix of sage together with our US friends. expectations with respect to Kyoto-like factors of production in the energy But that isn’t enough. We need to emission reductions and the simple facts services package will increasingly shift articulate our interest in developing our about Canada as both a producer and a toward capital, technology and expert- capability in the “smart” part of the ener- consumer of energy. The fact that we are ise, and away from commodities. gy service delivery process, and we need a big, efficient and clean energy producer Canada’s governments — all of them — much-enhanced policies to drive in that is an advantage to Canada and the world, have a large role to play here in terms of direction. Just as important, we need to integrate our thinking on We need to more clearly articulate both our interests and the energy and climate change. policies through which they are advanced. The Prime Any energy power worthy of Minister’s recent comments in New York and Sydney are a the name must have a frame- work to address the helpful start, by making clear Canada’s strong commitment to energy/climate change market-based energy policies and to a North American conundrum in order to meet partnership in a broader international context. aggressive GHG reduction aspirations for 2020 and 2050 and our environmental commitments making their corporate tax regimes while sustaining the affordability, reliabil- should reflect that fact. Even aside from more competitive, strengthening edu- ity and security of its energy system. Such the large amount of energy used to gen- cational and skills development, invest- a balancing act is not out of the question, erate exports, however, Canadians are ing in technology, and becoming more but it entails a policy commitment that is among the largest users of energy in the sophisticated consumers of the prod- massive in its implications. Canada’s world, and improving our energy effi- ucts of universities and think-tanks. efforts over the years since Kyoto are triv- ciency by tweaking the system with the We need to protect and extend our ial relative to the scale of the challenge. odd program will not address this reality. capacity to deploy. The previous point Prime Minister Harper repeatedly notwithstanding, Canada will contin- inally, we need to sustain the will refers to Canada as an “emerging” clean ue to derive a great deal of its energy F to act. In order to do so we need to energy superpower. This idea is timely but strength from developing commodi- engage Canadians and put in place the Canada has a way to go to realize such ties, transforming them and moving resources that will allow them to aspirations, and the very timeliness of the them to markets efficiently and clean- become better informed: about the issue creates a sense of urgency. What ly. That capacity is at risk if we do not important roles of all governments but would it take for Canada to emerge? significantly change the trend of the also about the limits to government; Presumably it would entail more past decade. Canada’s governments about the merits of support for a mar- than further development of the oil sands need to become much more serious ket-based international energy system; — even with carbon capture and seques- about the deep challenges that have to about the challenges of sustaining and tration — since even exports of several be met in order to mobilize the support extending our capacity to move million barrels of oil a day would not of the communities affected and to resources to markets; and about the make us a power, far less a superpower, for improve regulatory approval processes. real challenges of meeting our aspira- reasons I have already discussed. On the We need to more clearly articulate tions in a post-Kyoto world. other hand, there are some broad areas of both our interests and the policies Put simply, Canada needs an ener- policy that, if carefully attended to, might through which they are advanced. The gy policy. No energy superpower well move us along the path toward being Prime Minister’s recent comments in should leave home without one. at least a clean energy . New York and Sydney are a helpful start, To conclude, working with the by making clear Canada’s strong com- Mike Cleland, president of the Canadian four-part framework with which I mitment to market-based energy policies Gas Association, is a former assistant began, we need to do the following. and to a North American partnership in deputy minister of the energy sector at a broader international context. Natural Resources Canada, and a former e need to diversify our capabili- The last point cannot be over- director assistant of the Resource Policy W ty. That doesn’t mean more stressed. Some energy commentators Division in the Department of Finance.

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