Canada and the Low Carbon Energy Revolution 9

cgai.ca SPECIAL EDITION: ENERGY SERIES 2017

quarterly publication of the Canadian Global Affairs Institute

ALSO IN THIS ISSUE: Understanding the Shift in Energy Security 23 With the latest Developments on the North American Pipeline Landscape, is Energy East Necessary? 30 Energy as a Service: Going Beyond Energy Supply 43

Published by the Canadian Global Affairs Institute Contributing Fellows:

Howard Anglin Frédérick Gagnon George Petrolekas David Bercuson Sarah Goldfeder Joël Plouffe Jean-Christophe Boucher Andrew Griffith Andrew Rasiulis Brett Boudreau Marius Grinius Tom Ring Brian Bow Robert Hage Colin Robertson Yves Brodeur David Higgins Lindsay Rodman David Carment Rolf Holmboe Stephen Saideman Joseph Caron Rob Huebert Darren Schemmer Anthony Cary Peter Jones Hugh Segal Andrea Charron Thomas Juneau Elinor Sloan Michael Cleland Tom Keenan Gary Soroka Howard Coombs Adam Lajeunesse Hugh Stephens Barry Cooper Eugene Lang Alan Stephenson Daryl Copeland Julian Lindley-French Stéfanie von Hlatky Jocelyn Coulon Randolph Mank Charity Weeden Mike Day Dennis McConaghy John Weekes Ferry de Kerckhove Eric Miller Jim Donihee Robert Muggah Paul Durand Kevin O’Shea Ross Fetterly David Perry Patricia Fortier Vanja Petricevic

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I N S I D E SPECIAL EDITION: ENERGY SERIES 2017 | VOLUME XVI • ISSUE III

5 30 Introduction to the With the latest Developments on Energy Papers Series the North American Pipeline by COLIN ROBERTSON Landscape, is Energy East Necessary? 9 by KELLY J. OGLE

COVER STORY Canada and the Low Carbon 36 Energy Revolution Can Canada Restore a by MICHAEL CLELAND Functional Regulatory Process for Major Infrastructure 15 Projects? The Inescapability of Carbon by DENNIS MCCONAGHY

Taxes for Canada by DENNIS MCCONAGHY 43 Energy as a Service: Going 18 Beyond Energy Supply How does Canada Respond to by NORMAND MOUSSEAU

Stranded Asset Risk by AMY MYERS JAFFE 47 Thoughts on Canada’s Carbon 23 Tax Agenda Understanding the Shift in by KENNETH P. GREEN Energy Security by PETRA DOLATA 51 More Hydro Power in Canada: 26 Tapping our Potential Big Projects, Big Politics, Big by JOHN HAFFNER AND JIM BURPEE Policy: Strengthening Public Confidence in Energy Decision-making in Canada by MONICA GATTINGER

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CGAI Advisory Council

Rona Ambrose Hon. Rona Ambrose is a former leader of Canada’s Official Opposition in the House of Commons, former leader of the Conservative Party of Canada and currently, a Global Fellow at the Woodrow Wilson Center’s Canada Institute in Washington D.C.

Ian Brodie Former Chief of Staff to Prime Minister Stephen Harper and currently, an Associate Professor of Law & Justice at the University of Calgary.

Jean Charest Hon. Jean Charest is a former Premier of Quebec and Federal Cabinet Minister and currently, a Partner at McCarthy Tétrault LLP.

Laura Dawson Director of the Canada Institute at the Woodrow Wilson Center in Washington D.C.

Richard Fadden National Security Advisor to the Prime Minister from 2015—2016, and from 2009—2013, Director of the Canadian Security Intelligence Services.

Bob Fowler Canada’s longest serving Ambassador to the United Nations and served as Canada’s Ambassador to Italy.

Dan Hays Hon. Dan Hays is a former Senator and is currently a Senior Partner with Norton Rose Fulbright.

Janice MacKinnon Executive Fellow at the University of Calgary’s School of Public Policy and a Professor of fiscal policy at the School of Public Health at the University of Saskatchewan.

John Manley Hon. John Manley is President and CEO of the Business Council of Canada and former Deputy Prime Minister of Canada.

Jack Mintz President’s Fellow of the School of Public Policy at the University of Calgary, and is Chair and Vice-President of the Social Sciences and Humanities Research Council of Canada.

Kathleen Monk Former Director of Strategic Communications for former NDP leader Jack Layton and currently, a Principal with Earnscliffe Strategy Group.

Marie-Lucie Morin National Security Advisor to the Prime Minister from 2008 to 2009 before becoming an Executive Director at the World Bank.

Bob Rae Hon. Bob Rae, former Premier of Ontario and was the interim leader of the Liberal Party of Canada. Partner at OKT—Olthuis Kleer Townshend LLP.

Chris Waddell Associate Professor and Director of Carleton University’s School of Journalism and Communications.

Rob Wright Canada’s Ambassador to China from 2005—2009 and Ambassador to Japan from 2001—2005.

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Introduction to the Energy Papers Series

by Colin Robertson

hese short essays on energy, which to terms with, but coming to terms does not also address climate and the mean waiting forever. Consensus is not T environment, were commissioned by unanimity. the Canadian Global Affairs Institute, with support from Natural Resources Canada, to We have abundant hydro resources and we help stimulate discussion in energy policy should be using renewable sources like wind, development. They complement the Trudeau solar and tidal. However, in a cold climate, we government’s “Generation Energy” cross- need to maximize all our energy resources, country dialogue. including fossil fuels.

The topics were chosen following discussions Dennis McConaghy has written a pair of with legislators and senior officials at the papers. “The Inescapability of Carbon Taxes various levels of government, the private and for Canada” points out that recent decisions — public sector, and with the advice of the the Trump administration’s approval of the Advisory Council of the Canadian Global Affairs Keystone XL pipeline and the Trudeau Institute. government’s approval of the Kinder Morgan Trans Mountain and Enbridge Line 3 The authors write from practical experience, all expansion projects — solve the market access having either served or done work with crisis for Canadian hydrocarbons. governments and/or the private and research sectors. Our instruction to the authors was that McConaghy also argues that “carbon pricing, the essays be short enough to be digested in a reflecting the market, is the only viable answer” single sitting and that they offer policy advice and he makes a series of suggestions as to its based on the authors’ experience and analysis. implementation, including uniform adoption as The authors also participated in conversations a federally imposed national tax with no that are all available in podcast form on CGAI’s mandates or cross-subsidies for clean Global Exchange. technologies.

The general thread running through these In “Can Canada Restore a Functional essays is that Canada can and should be a Regulatory Process for Major Infrastructure global player in energy and climate Projects?” McConaghy argues that any development and that our knowledge and political intervention should come early and experience enable us to play a helpful role in only in respect to specific public interest global affairs. issues. This will help avoid uncertainty for industry, including “the expenditure of However, our influence and capacity have hundreds of millions of dollars to comply with limits, many of which derive from how we the expected regulatory rigour of a complete manage and how we are seen to manage both application.” McConaghy concludes “it our resources and climate at home. Domestic remains in the country’s long-term interest to, initiatives depend on social licence. This is at the very least, find as much efficiency in its something Canadian governments are coming regulatory processes as possible. If value

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judgments are to be imposed on resource increasingly to non-resource related industries development then that should be as up front as would be a prerequisite for this strategy.” Other possible, and not waste capital and human policy levers to be considered include resources.” “increased public commitment to R & D spending to find technologies and processes to Mike Cleland, in his “Canada and the Low lower the break-even costs of new and existing Carbon Energy Revolution” says that meeting oilsands production projects and long-run our Paris targets will require a “massive energy programs to increase market creation for transformation” that under current conditions Canadian natural gas.” will mean “a huge shift in the role of electricity as a source of end-use energy, from where it With the latest developments on the North stands today — approximately a fifth to a American pipeline landscape, is Energy East quarter (depending on province) of all end-use necessary? Kelly Ogle says yes, because energy — to something closer to three-quarters “North American market diversity and access to by 2050.” tidewater are needed so Canada can safely and profitably realize on its enormous resource Cleland says while this may be desirable there bounty.” will be costs, namely: “the stranding of Canadian resources and established Ogle looks at four aspects of Energy East: the infrastructure, the loss of Canada’s comparative ever-fluid and dynamic global oil trade and advantage, higher end use energy costs to the Canada’s place in it; Canada’s asymmetric oil economy and the diminution of the fuel diversity relationship with the U.S.; the safety, economic which has underpinned the security, reliability benefits and relative simplicity of the and resilience of our energy systems.” Cleland construction and operation of the Energy East observes that “it will be hard. And for pipeline; and export optionality for this largest of governments it will involve mostly political grief Canadian resources. and only rarely, political joy.” We need “an open and realistic public debate on energy … a To understand the shift in energy security, Petra debate that confronts our physical, economic, Dolata says we need to look at both short-term social, institutional and political realities (and) geopolitics and partisan politicism, especially in that at the same time addresses our aspirations democracies, and long-term energy regarding greenhouse gases.” development — the gradual shift away from fossil fuels — trajectories. She contends that How does Canada respond to stranded asset besides “focusing on the supply side through risk whether it be oil or gas? Amy Meyers Jaffe championing renewables, demand-side says: “Canadian companies have stepped up measures, including energy efficiency targets, the purchases of oilsands assets on the sale will become more important.” Her block from the international majors but it recommendations include: broad public remains unclear whether reducing project size discussion and debate on our energy future, and deferring projects will be sufficient to allow and supporting natural gas as a transitional these companies to keep the oilsands as an energy resource. expanding production domain.” Monica Gattinger writes about “Big Projects, She says much will depend on global market Big Politics, Big Policy”, suggesting we need to oil prices as well as competition from other strengthen public confidence in our energy sources, including natural gas. “If protecting decision-making if we are to avoid a “slow- jobs and preventing more companies from motion train wreck.” Oilsands and pipelines exiting Alberta are more of a priority than may be today’s points of contention but so will revenues,” Jaffe writes, “Canadian provinces be wind farms, fracking and big hydro projects. might need to reconsider how companies are taxed for riskier, higher cost oilsands projects. “Renewable or not,” writes Gattinger, “linear or Diversification of government revenues to other non-linear, energy projects of all kinds and sources of income as Canada shifts descriptions are running into opposition.”

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Failure to resolve Canada’s energy challenges other signatories to the Paris agreement costs the country in environmental pledged to achieve.” performance, attracting investment and fostering economic growth and innovation. To avoid this calamity, Green recommends postponing the implementation of the various With lack of trust and policy gaps, Gattinger climate action plans and carbon taxes, until says public confidence in energy decision- analysis can be done on their impact on making is low and declining. As a result, she Canadian competitiveness. In the meantime, says “decision-makers need to accept that says Green, Canadian policy-makers need to social and value changes — and changes in refocus their attention on making Canada the information and communications resilient to climate change while ensuring that environment — are here to stay.” Regulators, Canadians can adapt, whether climate change for example, “need to develop more flexibility is man-made or natural. to engage with local and Indigenous communities and governments on big In their paper, “More Hydro Power in Canada: projects” and “decisions need to be taken in a Tapping Our Potential”, John Haffner and Jim timely fashion on big policy and on big energy Burpee argue that hydro power is the most projects.” significant power generation source in Canada’s electricity system and it needs to be In “Energy as a Service: Going Beyond Energy harnessed to advantage. Supply”, Normand Mousseau argues that Canada would greatly benefit from “focusing its Haffner and Burpee point out the transition largely on the consumption side.” environmental and economic advantages Rethinking energy usage, writes Mousseau, that would accrue to Canada by doubling forces us to question almost all our habits, our hydro power capacity. To do so, they structures and processes. It helps all aspects make four recommendations: add a of society to find “more efficient approaches to reliability factor in evaluating costs of building, heating, transporting and future generating options; push for a North manufacturing.” The electricity sector, for American carbon price; include de- example, needs to finish its transition to low- carbonization contribution as part of carbon production and find solutions for heavy project assessments; and strengthen low transportation. A national vision, says carbon electricity co-operation across Mousseau, requires a combined, collaborative jurisdictions. effort adapted to each sector: building, transportation, urbanism, industry, agriculture, Our authors offer differing and sometimes etc. contrasting policy options but they are united in recognition that our resource In “Thoughts on Canada’s Carbon Tax wealth is our national heritage. The Agenda”, Kenneth Green writes that “in the rewards of this heritage should be applied new Trumpian environment … the U.S. is to national purpose and to the national poised to boost its energy economy. Canada is welfare. Development can be done in a poised to contract its own, through carbon sustainable fashion. pricing and climate action plans that are inimical to provincial and federal economies, We are innovative in the application of and to people’s detriment in terms of higher technology to reduce the impact of prices for everything.” development on our land, water and air. We have been creative in the development Until we generate power and fuel mobility more of practical rules and regimes to govern cheaply than with carbon-intensive methods, use of these resources in a sustainable and more reliably than current alternatives fashion, and we have also adapted. As such as wind and solar power, Green contends Mike Cleland points out, “In the past we will see little progress on the kind of century we’ve moved from wood to coal to “massive decarbonization that Trudeau and oil and now multi-fuel sources.”

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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.

A former Canadian diplomat, COLIN ROBERTSON is a Senior Advisor to Dentons LLP living in Ottawa, Canada. He is Vice President and Fellow at the Canadian Global Affairs Institute and hosts our regular Global Exchange podcast. He is an Executive Fellow at the University of Calgary’s School of Public Policy and a Distinguished Senior Fellow at the Norman Paterson School of International Affairs at Carleton University. Robertson sits on the advisory councils of the Johnson-Shoyama School of Public Policy, Conference of Defence Associations Institute , North American Research Partnership , the Sir Winston Churchill Society of Ottawa . He is an Honorary Captain (Royal Canadian Navy) assigned to the Strategic Communications Directorate. He is a member of the Deputy Minister of International Trade’s NAFTA Advisory Council. He writes a regular column on foreign affairs for the Globe and Mail and he is a frequent contributor to other media.

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will require both steep reductions in energy COVER STORY intensity and a radical transformation of the fuel mix. In other words, it is a massive Canada and the energy transformation, arguably a necessary one, but massive nonetheless. Mainstream Low Carbon thinking suggests that this transformation will be dominated by a huge shift in the role of Energy Revolution electricity as a source of end-use energy, by MICHAEL CLELAND from where it stands today — approximately a fifth to a quarter (depending on province) of all end-use energy — to something closer nder the Paris Accord of 2015 to three-quarters by 2050. Canada has committed to reduce its U greenhouse gas (GHG) emissions by ...with the great majority of 30 per cent from 2005 levels, by 2030. Less Canadians quite unaware of formally, we have set out a goal of 80 per “ what they are ostensibly cent reduction by 2050. It is important to put committed to. As long as this in perspective. The time frame involved that remains the case, we here is 13 to 33 years. Over the really are not committed to approximately 25 years since 1990 when anything at all. Canada made its first GHG reduction pledge, its emissions have grown by 20 per Although the above is largely well cent, albeit with significant ups and downs understood among the people who and various underlying causes for both. dominate the energy and climate change conversation in Canada, most choose to The 2050 pledge involves a time frame brush off the implications. Consequently, the approximating our GHG management conversation has a surreal quality, with the history to date but it is an abrupt reversal of great majority of Canadians quite unaware of direction in emissions performance which what they are ostensibly committed to. As

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long as that remains the case, we really are end use energy costs to the economy and not committed to anything at all. the diminution of the fuel diversity which has underpinned the security, reliability and Canada and other western countries have resilience of our energy systems. experienced several fuel mix transformations over the past century or so. Since 1900 we It is important to be clear with Canadians have moved from an energy economy that they are being asked to step up to some largely dependent on wood to one serious choices if their aspirations to do the dominated by coal, then oil, and more right thing for the global environment are recently to what we could call the multi-fuel more than political rhetoric. Canadians are economy. This involves all the traditional also going to have to believe that their fuels combined with natural gas and a broad governments can get this right. The previous spectrum of power-generation technologies energy transformations resulted from a mix from hydro to nuclear to new renewables. of factors: world economic forces, technology largely developed in other Big transformations are far from countries, the happy coincidence of energy unprecedented, although they typically entail needs with the emergence of means to time frames of approximately 50 years, not exploit Canadian resources, and a great deal the 30 years contemplated for the of private capital and entrepreneurial energy. transformation to a low-carbon economy. These market forces cannot be relied upon The trend has been to add to the diversity of to shift our energy systems at anywhere near our energy sources. These transformations the degree or speed that the Paris accord have typically entailed use of resources suggests. where Canada had a very significant comparative advantage (oil, natural gas, Government had important roles in the hydro power, uranium) or where Canada previous transformations, especially in was a technological leader (nuclear). They exploiting hydro power or developing conferred several big benefits. They gave the nuclear technology, as well as less direct but Canadian energy-using economy a large critical roles in establishing sensible tax, advantage with respect to both cost and regulatory and trade regimes. Government security. And they typically led to the played, on balance, a relatively modest role; emergence of important industries — in contrast, the low-carbon transformation particularly in regional economies — as well will unavoidably require a much larger role as significant export opportunities. for government. It will have to establish heavy new regulatory and tax regimes and in ...Canadians are being many cases directly mobilize capital asked to step up to some investment. All this will happen at the same “ serious choices if their time that the forces of slowing economic aspirations to do the right growth, aging demographics, aging thing for the global infrastructure throughout the economy and environment are more than growing expenditure demands in other areas political rhetoric. are creating other priorities.

Energy transformations have been a big Meanwhile, public trust in government is in economic plus for Canada. Common sense question and apparently declining, a reality suggests that the low-carbon transformation, underscored by recent research by the even if it is made manageable with realistic University of Ottawa’s Positive Energy time frames and the most efficient possible Program. mix of policy, will be a different proposition. It will quite likely entail net economic costs: the One of the inevitable consequences of the stranding of Canadian resources and low-carbon fuel transformation will be a large established infrastructure, the loss of growth in new energy infrastructure. Recall Canada’s comparative advantage, higher that we are talking about our electricity

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systems not only being cleaner but this; the question is whether governments potentially delivering a vastly greater share do, in the sense of something more than of energy end use than they do now. In rhetoric. some instances the inherent efficiency gains from electricity use (in vehicles, notably) will ...for governments it will offset the new demand. But the inherent land involve mostly political grief intensity of the new energy systems will be “ and only rarely, political joy. much greater than today — from a potentially massive increase in hydroelectric The new world of energy decision-making capacity, and because wind and solar have will need a lot more than warm words. It will much lower energy density and much add significantly to the time required to get greater land requirements compared with things done. It will require genuine a priori fossil fuels. commitment to changing plans if need be. It will involve substantial hard costs to account ...meeting a major for changed plans including various electrification push in only measures to mitigate impacts, to offset “ the buildings and road negative effects on communities or to ensure passenger transport sectors that local communities have a genuine would require power financial stake and some measure of generation to more than ongoing control. It will involve significant triple from today’s level. rethinking of our decision-making infrastructure and institutions. It will require There are many ways of looking at the new human resources, skills and numbers. However, to illustrate the point, organizational cultures far beyond anything according to recent work done by the undertaken or envisaged to date. Canadian Energy Research Institute, meeting a major electrification push in only It will be hard. And for governments it will the buildings (residential, commercial and involve mostly political grief and only rarely, institutional) and road passenger transport political joy. sectors (which alone would leave Canada far short of the requirements to support the None of the foregoing is an argument for pledge for 2050) would require power governments to walk away from their climate generation to more than triple from today’s commitments even though Canadian level. In addition to new capacity and governments – federal and provincial going probably new transmission to support that back to 1990 – have not been able to generation, we would need to replace or connect rhetoric with results. This is an refurbish older power infrastructure whether argument for getting real. because of its carbon emissions (either through retirement or adding carbon ...We are very unlikely to capture) or simply because of age. This meet most of the targets adds up to a very large construction “ that governments have program, all to be undertaken in an era when expressed. Governments the old way of making decisions has can’t admit that but all become as obsolete as Ontario’s coal-fired knowledgeable observers power plants. know it.

Canadians no longer accept that major First, a massively interventionist economic capital projects can be undertaken without policy framework is – fortunately – extensive engagement of affected improbable. The transformation will need to communities. There is a growing skepticism be done in a framework of open trade and on the public’s part that government can be investment largely supported by private trusted to do its job fairly and competently. investment sources. It will need to engage a Much of the private sector appears to get multitude of private players complemented

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by local and indigenous governments and system integrity challenges and how to many participants from civil society. It will be ensure environmental performance. How enormously complex and will need to rely at that will actually get done remains to be its foundation on sound, stable market seen. signals rather than direct government action.

Second, we need to worry less about targets Fourth, the transformation will inevitably and more about what needs to be done. involve an immense number and broad Such a change of focus would steer us in diversity of players in active roles, relying on much more productive policy directions. We a broad base of well understood, stable are very unlikely to meet most of the targets rules and price signals. Many actions that that governments have expressed, whether involve detailed government interventions for 2030 or 2050. Governments can’t admit will be unavoidable (building codes, that but all knowledgeable observers know equipment standards) but history tells us it. So what? As noted, this has become that the big forces generating truly something of a national specialty and the transformative change are far beyond the world has not collapsed around us. The reach of governments. Most — including question is not about targets but about what market and technological changes — will path Canada’s medium-sized, open, come from outside Canada. resource-intensive economy — which contributes very little to the world’s Far too much has been emissions — should follow so that we stay done in the past few aligned with our competitors in the decades to erode the transformation. We will need to protect and “ independence of ideally improve our competitive economic regulators at both federal position and maintain (or perhaps recover) some measure of moral authority and self- and provincial levels, respect. making their decisions subservient to political If carbon price signals could priorities unsupported by be delivered through objective evidence. “ straightforward carbon taxes that can truly be offset What about price signals? The clearer and by reduced taxation the simpler the better, ideally with a future elsewhere, then we would path that investors can see. If carbon price have the most essential part signals could be delivered through of the foundation needed for straightforward carbon taxes that can truly real change. be offset by reduced taxation elsewhere, then we would have the most essential part Third, we need to recognize that no one can of the foundation needed for real change. know what the physical energy economy The issue is efficiency. If we are taking on might look like in 2050. Public policy should what may be the toughest public policy strive at all costs to avoid actions that challenge in our history, we can’t afford to presume that we do. This means whatever go about it except as efficiently as possible. policies are chosen must be flexible, and just as important, that we get ready to make lots We will also need new and redesigned of mistakes as we grope our way forward. institutional infrastructure and much more, The challenge is to keep the mistakes small and more effective, use of civil society. and correctable and to learn from them. The Public policy-making mechanisms will need new energy economy may be predominantly to be more inclusive and able to operate electrical, or it might not be. The issues here effectively at a regional scale to catch the are how best to deliver the energy services land-use implications of the transformation. we demand, how to manage cost and That includes more effective regional

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planning and strategic environmental next 25 years but it is not impossible to assessment, mechanisms that we have make real progress — and the point is real worked with for years but which remain a progress, not targets — if we learn the long way from being adequately developed lessons of the past 25. or deployed. We will need much more extensive, deeper, more broadly accessible MICHAEL CLELAND is a private consultant with and more credible energy information, extensive experience in energy and environment policy. He is Senior Fellow with the University of Ottawa and a something that governments persistently member of uOttawa’s Positive Energy research team’, ignore. All of this will entail significant Chair of the Board of Directors at the Canadian Energy investment by government, and investment Research Institute and a member of the Board of in government or government-like Directors of QUEST (Quality Urban Energy Systems of Tomorrow). In 2015, Mr. Cleland was named Canadian capabilities with zero direct political payoffs Energy Person of the Year by the Energy Council of — a reality that political leaders will have to Canada. He is formerly President and CEO of the be prepared to admit to taxpayers. Canadian Gas Association, Senior Vice President, Government Affairs for the Canadian Electricity Association, Assistant Deputy Minister, Energy Sector at Much of the job of approving projects needs Natural Resources Canada, and Director General of the to be left in the hands of diverse, Energy Policy Branch. From 1987 to January 1990, he independent energy regulators. Here we was Assistant Director, Resource Policy Division in the have a conundrum. We need better policy Department of Finance. Before joining the federal government, Mr. Cleland was a private consultant who and planning mechanisms that operate with also lectured in business –government relations at clear and direct political accountability. Dalhousie University. Prior to that he worked in various However, they need to be able to operate in capacities with the Nova Scotia Departments of better co-ordinated ways with the regulatory Development and Municipal Affairs. Mr. Cleland was educated at the University of British Columbia (BA in system — treating regulators as sources of political science 1972) and Queens (MPL urban and advice as well as execution capacity. Then, regional planning 1974). the regulators need to be left to do their jobs. Far too much has been done in the past few Lead image: Louis Helbig decades to erode the independence of regulators at both federal and provincial levels, making their decisions subservient to political priorities unsupported by objective evidence. This needs to be reversed.

Ultimately, an open and realistic public debate on energy is missing, a debate that confronts our physical, economic, social, institutional and political realities at the same time that it addresses our aspirations regarding greenhouse gases. The optimists may be right and Canadians may come out of all of this as winners three or four decades from now, but it is certain that there will be costs and risks. Some people and communities will bear the bulk of the negative consequences. Those realities raise political questions. As long as those questions continue to be glossed over, they will continue to emerge and crystallize around individual energy projects of all sorts, unhinging regulatory processes, adding cost and risk and satisfying no one.

All in all, this adds up to a very big job for the

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Another consequence is that carbon The emissions from the oilsands are likely to be sustained at least at current levels, if not Inescapability of likely grow, over the economic life of these projects. All of this would unfold in the Carbon Taxes for context of the developed world still trying to realize absolute carbon emission reductions, Canada as codified in the Paris Climate Accord.3 by DENNIS MCCONAGHY Incredibly, Canadian governments have consistently committed Canada to carbon hat had been called Canada’s emission reduction targets in successive “market access” crisis for its United Nations’ processes, without any W hydrocarbons has been tangible plan on how such reductions could substantially redressed via the Trudeau be physically achieved or at what cost to government’s explicit approval of the Canada relative to what its trading partners Kinder Morgan Trans Mountain and were prepared to impose on themselves. Enbridge Line 3 expansion projects, This has continued from Kyoto to and its public support for a revived Copenhagen to Paris. Keystone XL project, albeit catalyzed by Donald Trump’s election to the U.S. Moreover, the world has yet to demonstrate presidency. 1 it is capable of materially reducing its demand for crude oil and natural gas, at If built, these pipeline projects would least out to the middle of this century, if not not only provide more efficient access longer.4 to incremental markets for Canadian oilsands production but also potential Canada has as much right as any country to for additional capacity for future exploit its hydrocarbon resources, incremental production. 2 regardless of the relative carbon intensity of

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its oilsands production and attributed carbon However, it had no intention of truly emission per unit of production. Yet that intervening to achieve targets. The cynicism relative carbon intensity has been the was apparently not lost on the Obama principal reason for the unique animus which administration. the ENGO community directs at the Canadian oilsands, and which former U.S. Can it now be said that Prime Minister Justin president Barack Obama ultimately bought Trudeau “gets” what former prime minister into in his fatuous and cynical rejection of Stephen Harper didn’t — that carbon pricing Keystone XL in November 2015.5 (Ironically, is the only viable carbon policy option for this was the same month that Alberta Canada? Premier Rachel Notley would introduce her carbon tax regime in Alberta). Who can reasonably argue that the Notley government’s initiative to impose a carbon Unless Canada chooses to eschew any tax with significant stringency — $30 a tonne opportunity to grow its oilsands and natural — was not a necessary condition for production, or even more extreme, to Trudeau to justify the pipeline approvals of constrain existing production, Canada is late 2016?7 Trudeau’s subsequent national unlikely to meet its Paris commitment, which carbon-pricing standard was intended is essentially a 25 per cent reduction in largely to have carbon policy in other existing emissions by 2030.6 provinces conform to it. Clearly, carbon pricing is a cornerstone of carbon policy for With that reality, how does Canada ever find the Trudeau government.8 credibility vis-a-vis other countries in terms of its contribution towards dealing with the For those conservative elements in Alberta global climate change risk? Obviously, who ask what their province got for having to carbon pricing is the only viable answer — endure a carbon tax, the answer should be by reasonably internalizing economically the obvious — regulatory approval of pipelines otherwise unaccounted-for cost of its carbon by liberal governments. Yet many are emissions via a carbon price. However, this unwilling to concede the point, including, is a price essentially set by what Canada’s sadly, the current leaders of the province’s trading partners are imposing on themselves two right-wing options. Conservatives across via comparable explicit carbon pricing Canada, and certainly in Alberta, should regimes or implicitly via their other policy focus on ensuring that appropriate instruments. If Canada’s oilsands industry conditions apply to carbon-pricing regimes can afford that price, then it can continue to in the country, rather than deconstructing produce its hydrocarbons and therefore be them. Conservative should not expect that deemed to have contributed adequately to outright climate denialism is somehow a dealing with the climate risk. Such a viable policy position. formulation should have been all that Obama could have reasonably asked of Canada Specifically, the following should be codified given the significance of hydrocarbon as fundamental conditions of Canadian production to its economy, and it should carbon-pricing policy: have been enough for him to have rationalized a Keystone XL approval. The  Carbon pricing is to be implemented same is true for Canada’s other major uniformly across the country via a trading partners. consistent and transparent carbon tax on actual emissions that occur. No Of course, the Harper government was never exceptions. No cap and trade. Ideally, it prepared to accept this logic. Instead, it should be as a federally imposed offered disingenuous emission-reduction national tax; targets, regulated reductions in specific  Moreover, such a carbon tax is the pre- economic sectors and issued dubious eminent, if not sole, policy instrument to invocations of technology breakthroughs. deal with the risk of climate change in

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Canada. No mandates or cross- no assurance that all Canadians will face the subsidies for clean technologies. No same price. Does the federal government early phase-out of certain fuel types in expect that obstruction to specific certain sectors beyond what the infrastructure projects that have regulatory incremental price signal from the carbon approval and related hydrocarbon tax may or may not induce. And production in Canada must cease? As long certainly, there is no place for arbitrary as the carbon tax is being paid on emissions emission reductions in specific attributed to specific projects and related economic sectors. All emissions are production, then there is no constraint on priced the same, given that their impact them from a carbon perspective. Either a is physically the same; carbon tax implies a right to emit or it does  The stringency of such a national tax not. over time will be a function of what Canada’s major trading partners are Canadian political leadership’s great doing in terms of carbon pricing challenge is whether it can bring such explicitly, or implicitly via other carbon appropriate rationality to carbon policy via policy instruments; carbon pricing, appropriately conditioned.  The tax will be applied as close as is Much remains for them to do. practically possible to where the emission occurs; End Notes 1 http://www.cbc.ca/news/politics/federal-cabinet-  Adjustments for trade-exposed sectors trudeau-pipeline-decisions-1.3872828, https:// must be provided; www.whitehouse.gov/the-press-office/2017/01/24/  Such a tax will be revenue-neutral in presidential-memorandum-regarding-construction- terms of overall tax collection to keystone-xl-pipeline 2 https://mobile.twitter.com/trevortombe/ Canadian governments. Off-setting its status/803741757431107584 most regressive impacts is a priority, as 3 http://environmentaldefence.ca/2016/12/01/how-will- is advancing tax reform to reduce those canada-achieve-2030-carbon-reduction-target-despite- taxes that most negatively affect re- pipeline-approvals/ 4 http://corporate.exxonmobil.com/en/energy/energy- investment and productivity outlook improvements within the country; 5 https://obamawhitehouse.archives.gov/the-press-  Existing and future Canadian emission office/2015/11/06/statement-president-keystone-xl- reduction targets, such as the INDC from pipeline 6 http://www4.unfccc.int/submissions/INDC/Published% the Paris Climate Accord, are 20Documents/Canada/1/INDC%20-%20Canada%20-% acknowledged to be only aspirational, 20English.pdf not binding legal commitments; 7 https://www.alberta.ca/climate-carbon-pricing.aspxb  Acknowledge existing contractual 8 http://news.gc.ca/web/article-en.do?nid=1132149

commitments that previous governments DENNIS MCCONAGHY is the former Executive Vice- made to third parties to advance low- President of Corporate Development at TransCanada carbon technologies. These should Corporation. Previously, he was Executive Vice- persist as a matter of law. President, Pipeline Strategy and Development. Dennis joined TransCanada in 1998, and has held senior positions in Corporate Strategy & Development, The Trudeau government has yet to Midstream/Divestments, and Business Development. He embrace such conditions explicitly. This is all has more than 25 years experience in oil and gas, the more reason for Canadians to insist that including responsibility for Keystone XL. the federal government clarify itself on Lead image: Pexels.com carbon policy and resolve contradictions and ambiguities. It ratified the Paris accord, but has yet to acknowledge how much it will cost the country to comply with it or what its actual legal constraints on Canada are. Pipeline approvals have been achieved although Paris emission-reduction commitments are at odds with them. There is

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long-term game of setting the stage for How does Canada competition to prevent prolific oil reserves from getting stranded, OPEC has achieved a Respond to round one victory against the Canadian oilsands. The oilsands are an important Stranded Asset target for Saudi Arabia since it cares about long-term market share and continued Risk? access to the U.S. market. Saudi Arabia has by AMY MYERS JAFFE both commercial and vital geopolitical interests in maintaining its U.S. market share and is taking concrete steps to protect this t the end of 2014, when Saudi Arabia market, including its recent announcement was assessing its loss of market of possible expansions in its U.S. Motiva A share worldwide, the tally showed a refining network.1 loss of close to 500,000 barrels a day from the U.S. market, mainly on the back of The stakes for Canada are high in terms of competition from Canada. At the time, the jobs and government revenues. Previous increase in coking refining capacity in the forecasts were that Alberta oilsands royalty U.S. Midwest strongly favoured Canadian revenues would be quite considerable at heavy crude while U.S. crude imports, C$676 billion for the period of 2016-2036 or mainly to the U.S. Gulf Coast, from the roughly US$7.14 to US$13.50 per barrel of Organization of the Petroleum Exporting oil produced, should oil prices average $50 a Countries (OPEC) had been slashed in half barrel.2 Current oilsands production remains since oil’s price peak in 2008. high at 2.2 million barrels a day. Oilsands operations employ roughly 130,000 people, Much ink is being spent writing about how according to Alberta government statistics. OPEC (read Saudi Arabia) has not been successful in fashioning a price war against In a sign that the Saudi strategy is, in fact, U.S. shale producers and Russia. But in the succeeding where Canada’s oilsands are

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concerned, Marathon Oil, Statoil, Total and, natural gas industry as well. In a recent to a large extent, Shell and ConocoPhillips Citibank research brief, entitled “A Revival of have announced their exit from Canada’s Oil Sands, New Pipeline Deals and oilsands resources.3 Under pressure from Competitive Costs to Give Canadian Gas a the U.S. Securities and Exchange Lift”, Citi nonetheless noted that “Canadian Commission, ExxonMobil has written down gas remains in a constant battle for market its massive and costly Kearl oilsands project. share, as abundant shale resources Considering that the Canadian oilsands throughout North America have created gas- represent a major heavy crude competitor to on-gas competition.” For now, the opening Saudi Aramco which owns refining capacity of TransCanada’s Mainline’s open season in the United States, it is reasonable to helped create markets for Canadian gas. question whether Saudi Arabia, which, like However, longer term access to U.S. Canada, holds between 50 and 70 years’ markets, especially California, is worth of low-cost oil reserves, has targeted questionable, given rising supply from the the Canadian oilsands for stranding. Permian Basin, the Niobrara play and increased competition from utility-scale Canadian companies have stepped up the renewable projects paired with battery purchases of oilsands assets on the sale storage. The U.S. East Coast is increasingly block from the international majors but it supplied by regional pipelines such as remains unclear whether reducing project Algonquin/TETCO from the Marcellus and size and deferring projects will be sufficient Utica plays, while Massachusetts and New to allow these companies to keep the York state are also seeking to increase the oilsands as an expanding production proportion of renewable energy in their domain. Steam-assisted gravity drainage electricity mix. If, on top of competition for (SAGD) project phasing to allow for the U.S. electric power market, Canadian continuous improvement in operational gas producers find their gas is not needed in efficiency, well design and well pad Alberta for oilsands operations, the longer- construction are hoped to be effective in term outlook for Canada gas reserves could reducing costs and requiring less land be similarly dim. reclamation when production ends. The Canadian Association of Petroleum The Canadian government has few levers to Producers (CAPP) has lowered its 2030 pull to assist its oil and gas industry so it outlook for oilsands production several times must decide fundamentally what its priorities in recent years. are. The oil majors’ withdrawals from resources should be taken as a wake-up call Lowering costs of production4 is of critical that these companies do not anticipate importance in today’s volatile oil market. At a current technology will lower costs recent U.S. oil gathering in Houston, top sufficiently in the future. executives from the world’s largest firms such as ENI and Statoil noted that they In the short run, if protecting jobs and lowered hurdle rates for new upstream preventing more companies from exiting projects to $30 a barrel.5 By contrast, the Alberta are more of a priority than revenues, Canadian Energy Research Institute (CERI) Canadian provinces might need to reports that the West Texas Intermediate reconsider how companies are taxed for equivalent costs for a greenfield SAGD riskier, higher cost oilsands projects. project have fallen 25 per cent to US$60.52 a Diversification of government revenues to barrel based on lower operating costs.6 other sources of income as Canada shifts Stand-alone mines are higher at US$75.73 a increasingly to non-resource related barrel. Thus, getting down the costs of next industries would be a prerequisite for this generation oilsands projects is existential. strategy.

Moreover, the cost challenges for the In past times of oil price volatility, oilsands bleed into the health of Canada’s governments have adjusted their royalty

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payments systems to be more responsive to natural gas into trucking or to sell Canadian changes in nominal oil price levels. The LNG fuel into the U.S. trucking market. current oilsands regime includes a sliding scale that automatically calculates a reduced Abundant, inexpensive fossil natural gas is tax burden during times of low prices and leading to increases in the natural gas restores higher royalty rates when oil prices vehicles market in the U.S. with several are rising for both pre-payout and post- states such as Oklahoma and Utah offering payout net royalties. While the pre-payout incentives.9 Major corporations are already tax is very low when the oil price benchmark investing billions of dollars to build is below $55 (Canadian dollars for West infrastructure to feed natural gas into the Texas Intermediate crude oil), the withdrawal U.S. trucking industry and expand its use in of major companies from Canadian assets fleets. United Parcel Service (UPS) has been indicates that additional incentives are ordering more gas-powered tractors in needed. A longer tax holiday and even recent years and Cisco, H-E-B, Pepsi, infrastructure investment subsidies might be Verizon, Ryder, AT&T, Waste Management needed to stimulate renewed investment in and Walmart are also trying out natural gas anything other than incremental extensions trucks. In the state of California, natural gas to existing operations, given the ongoing fuelling infrastructure is expanding, risks of uncertainty about long-term oil especially in and around the ports of Los prices. Costs for greenfield projects remain Angeles and Long Beach. China is also well above those for competing resources focused on expanding the use of natural gas around the world, including reserves inside in its on-road freight sector with a growing OPEC and in the U.S. shale plays. market for LNG fuel for trucks.

Adjusting royalty rates and taxes during Blending natural gas fuel with renewable times of low oil prices was an effective natural gas (RNG) from biomass can strategy used by the U.K. government to potentially help improve the climate protect North Sea investment during the oil performance of such a market.10 Given the price war of the 1980s.7 More recently, slightly lower carbon intensity of fossil Russia has moved to protect the natural gas, switching from conventional competitiveness of its costly Yamal fuels like gasoline and diesel into fossil Liquefied Natural Gas (LNG) project by natural gas achieves a small reduction in offering developers, led by Russian firm emissions. RNG has substantially lower Novatek, a 12-year tax holiday from the carbon intensity and adding it to natural gas mineral extraction tax and allowing the fuel can achieve substantial reductions in LNG project to be free from export taxes. overall climate performance in The Russian government has also transportation. subsidized the construction of port facilities to be used by the project as part Conclusion of an infrastructure development plan for Canada is one of the world’s most important the Russian Arctic.8 oil producers but it is facing a high degree of stranded asset risk. In particular, the If the politics of adjusting royalty systems Canadian oilsands represent a specific are challenging, the Canadian government target of market share competition with should consider expanding other kinds of global oil powerhouse Saudi Arabia and thus forward-looking programs that signal a face cost pressures from current oil price commitment to the Canadian oil and gas levels. The cost challenge of new oilsands industry’s long-term future, such as an projects, combined with the possibility that even larger expanded program for Saudi Arabia and other major producers will oilsands research and development. Long- continue to target high-cost producers like run programs for market creation for the oilsands for stranding, has prompted Canadian natural gas could also be several major international oil companies to helpful, such as federal incentives to move sell their oilsands assets to local Canadian

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firms. Lowering the cost of production will be 2 “Canadian Oil Sands Supply Costs and Development vital to the local Canadian firms who have Projects (2016-2036),” Canadian Energy Research Institute (CERI), Study No. 163, February 2017. purchased the reserves and increased their 3 http://business.financialpost.com/news/economy/ exposure to stranded asset risk. statoils-exit-starkest-sign-canadas-oilsands-resource- has-lost-its-lustre The oilsands industry employs 130,000 4 https://www.ft.com/content/47dbcb80-08ae-11e7-ac5a -903b21361b43 people and is an important contributor to the 5 https://www.ft.com/content/47dbcb80-08ae-11e7-ac5a Canadian economy. Provincial governments -903b21361b43 will have to consider the appropriate 6 “Canadian Oil Sands Supply Costs and Development response to the possibility that global oil Projects (2016-2036),” Canadian Energy Research Institute (CERI), Study No. 163, February 2017. prices will not return to the levels needed to 7 https://www.gov.uk/government/consultations/review- ensure a steady flow of capital to exploit the of-the-oil-and-gas-fiscal-regime-a-call-for-evidence/ remaining oilsands reserves. In light of review-of-the-oil-and-gas-fiscal-regime-a-call-for- recent developments, Canadian provinces evidence 8 https://www.oxfordenergy.org/publications/russian-lng might need to reconsider how companies -progress-delay-2017/ are taxed for riskier, higher cost oilsands 9 https://trid.trb.org/view.aspx?id=1345491 projects. Other producers, notably Russia, 10 https://www.arb.ca.gov/research/apr/past/13-307.pdf are offering tax holidays and government AMY MYERS JAFFE is UC Davis Executive Director of subsidies to infrastructure development for Energy and Sustainability. She is a leading expert on oil companies to encourage development of global energy policy, geopolitical risk, strategic energy Arctic resources. Precedents exist for tax policy, corporate investment strategies in the energy regimes that vary widely with the price of oil sector, and energy economics. She has a joint appointment to the Graduate School of Management and but it would require diversification of the Institute of Transportation Studies (ITS-Davis). At ITS- provincial government revenues to other Davis, Jaffe heads the fossil fuel component of the sources of income and a concerted effort for Sustainable Transportation Energy Pathways Canada to shift increasingly to non-resource (NextSTEPS) program. Prior to joining UC Davis, Jaffe served as director of the Energy Forum and Wallace S. related industries. Wilson Fellow in Energy Studies at Rice University’s James A. Baker III Institute for Public Policy. Jaffe is Other policy levers that could be considered widely published, including as co-author of “Oil, Dollars, to lower the chances of stranding are Debt and Crises: The Global Curse of Black Gold” (Cambridge University Press, 2010, with increased public commitment to R & D Mahmoud El-Gamal). She is a member of the US spending to find technologies and National Petroleum Council and the Council on Foreign processes to lower the break-even costs of Relations. She holds a bachelor’s degree in Near new oilsands production projects and long- Eastern Studies and Arabic from Princeton University. run programs to increase market creation for Lead image: Pexels.com Canadian natural gas. Since strategic capital programs in oil and gas are set many years in advance, a timely response to long-term competition from other oil producers is of critical importance to meet the challenges that are already emerging in the global oil world. The longer it takes for Canada to forge a strategic response, the greater the risk of stranding will be added for oilsands reserves. Producers who get projects off the ground sooner will maintain a first mover advantage that may discourage investment in remaining reserves if demand for oil fails to exhibit sufficient growth to accommodate all players in the coming decades.

End Notes 1 http://www.reuters.com/article/us-saudi-aramco- exclusive-idUSKCN0WK2HX

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policies such as the German Energiewende Understanding or the EU 20-20-20 targets have introduced a gradual shift away from fossil fuels. A similar the Shift in development can be expected in China, which has already introduced laws that Energy Security address air pollution and climate change. by PETRA DOLATA Even OPEC producers are planning for a low -carbon future for their own energy consumption, intending to use their lobal shifts in government policies sovereign wealth funds to finance these and in public opinion with regards to shifts. While most of these policies stipulate G energy transitions and energy an increase in renewable energies, they also security will affect the demand for fossil fuels leave room for natural gas as a bridge or produced in Canada and elsewhere. In order transitional energy resource, especially for to understand and respond to these heating purposes. Power plants will be changes, it will be crucial to differentiate refitted to phase out CO2-intensive coal. between short-term and long-term trajectories. Nuclear power, while undergoing a revival in some countries and being introduced in the Long-Term Trajectories oil-producing countries in the Gulf region, For over a decade now, energy security has could potentially play a larger role in the long been recalibrated to increasingly include -term future, especially if CO2 reduction sustainability and efficiency objectives. Both goals cannot be met as envisioned. the International Energy Agency (IEA) and However, the current lack of investment in the European Union (EU) insist that energy new nuclear power plants, public opposition security not only means “the uninterrupted and long lead times make it difficult for availability of energy sources at an nuclear power to make such inroads in the affordable price” (IEA) but also “clean and future energy mix. Renewables will also need sustainable energy” (EU). Government new infrastructure, but the more

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decentralized character of some of these and entrepreneurship. At the same time, sources will make construction more flexible they may create new global inequalities as and achievable in the mid-term. they depend on existing strengths in STEM education and research as well as As renewables increase their share in the favourable investment climates for small energy mix, energy grids and systems will and medium-sized enterprises. become more decentralized and will allow for small-scale local solutions. While Long-term prognoses such as the above peripheral areas such as Canada’s northern are difficult to substantiate and there may and Arctic regions will welcome this because be legitimate skepticism about the expected the access to energy may help overcome shift toward renewables and a low-carbon current energy insecurities (energy poverty), future. However, the fact that discussions it will also mean that business, and on sustainability and efficiency have especially large-scale energy corporations, continued and even picked up while oil will lose consumer markets in the core prices were low — and thus did not segment of their commercial activities. necessitate the search for alternatives — Investments will be redirected to industries shows the longer term and possibly and activities that provide renewables irreversible trend toward an increasingly technology as well as energy infrastructure. decarbonizing world. With the exception of transport, where oil will continue to play a crucial role, fossil fuels will Short-Term Trajectories become less of an internationally tradeable In the short term, partisan politics affect commodity and possibly lose some strategic energy policies, particularly in democracies, significance. As economic actors compete and so do geopolitical crises. Currently, the more fiercely for diminishing markets, two most influential developments are the (global) public opinion might be able to play rollback of climate change-related energy a more deciding role. As we have seen with measures in the U.S. in the name of job the discussions on offshore Arctic drilling, creation and European discussions of some of the big multinationals such as Total energy independence from Russia. Since have already decided to accommodate the mid-2000s, new NATO and EU public resistance to drilling in the Arctic. In members in Central and Eastern Europe general, broader public discussions on have pushed for the inclusion of European energy justice and energy poverty will further energy security because their high redefine the meaning of energy security. dependency on Russian energy supplies They will address questions of equal access made them more sensitive to their energy to energy as well as increased community vulnerabilities and more willing to define involvement in energy matters. Here is where them as a matter of national security. While local and global activism potentially impacts they were muted towards the end of the business activities. Discussions such as decade, these traditional energy security those focusing on free, prior and informed concerns were revived as a result of events consent may attract increasing attention in in Ukraine since 2014. This caused the EU such a scenario. to pass an energy security plan which proposes a number of strategies, one of Besides focusing on the supply side through which is to diversify supplier countries and championing renewables, demand-side routes. As long as these supply measures, including energy efficiency dependencies and vulnerabilities to targets, will become more important. These disruption persist in the region, have the potential to considerably lower diversification strategies will prompt energy demand, but they are not easy to European countries to look for alternative accomplish, as they would add to job losses suppliers. This is where natural gas from in established coal, oil and gas industries. Canada shipped through LNG facilities in However, they will also provide new the East could become attractive for opportunities for technological innovation European markets.

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The direction of energy policy under the new Recommendations Trump administration is more important for  Support natural gas as a transitional Canada in the immediate future. The official energy resource. This includes America First Energy Plan prioritizes creating facilitating infrastructure (pipelines and coal jobs, ensuring prosperity for American LNG facilities). In the short term, LNG workers and guaranteeing U.S. energy shipments could also be attractive for independence. President Donald Trump’s Europe which hopes to diversify its March 28 executive order confirms this by natural gas intake away from Russia; repealing many of former president Barack  Differentiate between short-term Obama’s energy policies that address pressures on energy policies due to their climate change and pledges to “review significance for the creation of jobs as existing regulations that potentially burden well as their strategic and geopolitical the development or use of domestically implications and long-term redefinitions produced energy resources and toward energy efficiency and appropriately suspend, revise, or rescind sustainability goals; those that unduly burden the development of  Engage in public discussions which domestic energy resources beyond the combine a mid-term solution of natural degree necessary to protect the public gas with longer-term trajectories toward interest or otherwise comply with the law.” renewables and explain how both are Experts agree that the U.S coal industry part of the path toward a low-carbon cannot create many more jobs, since society; increasing mechanization has taken most of  Create a favourable investment climate these. Nor can it compete internationally for small and medium-sized enterprises against foreign coal (lower priced Columbian that can push the shift toward renewable coal) or nationally against domestic energy energy through technological innovation sources (natural gas through fracking). and providing infrastructure needs; Despite these challenges, Trump will pursue  Encourage technological and this kind of energy policy, as energy security entrepreneurial solutions to local and is now defined as meaning job security and decentralized energy supply (northern translated into a push for domestic energy and Arctic regions, Indigenous production at any price. The emphasis on communities) as best practice; U.S. domestic production will result in a  Engage in circumpolar and global strengthening of small, medium-sized and discussions on free, prior and informed independent producers who traditionally are consent by highlighting best practices more active with respect to upstream with regards to existing co-management activities within the U.S. and production from arrangements in Canada; unconventional sources. There will be new  Engage internationally in discussions on discoveries in offshore regions including the energy justice (equal access to energy) Arctic; however, these will be increasingly and energy insecurities (energy poverty). developed by mid-size independent producers and/or relative newcomers to DR. PETRA DOLATA is Associate Professor and these oil and gas plays. Canada Research Chair (Tier II) in the History of Energy at the University of Calgary. She is a Senior Research Fellow at the Centre for Military, Security & Strategic To summarize: In the short term, energy Studies and co-convenor of Energy In Society, a security will continue to mean ensuring working group at the Calgary Institute for the Humanities. energy independence and a secure supply Her research focuses on energy security, European and North American energy history after 1945, and the role of of oil and gas. In addition to this traditional energy in the circumpolar Arctic. understanding of the concept, the U.S. will increasingly define it as ensuring job Lead image: Force Ten Design security. In the long run, however, energy security will include sustainability and efficiency targets as well as address issues of energy justice and energy poverty.

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wind farms in Ontario or fracking in New Big Projects, Big Brunswick. Renewable or not, linear or non- linear, energy projects of all kinds and Politics, Big descriptions are running into opposition. In hindsight, some of this was predictable. But Policy: in the here and now, the country needs to figure out fast how to address the situation. Strengthening There are tremendous economic Public Confidence opportunities before us when it comes to energy. More than $700 billion worth of in Energy natural resource projects are planned or in the works in the coming decade, and most Decision-making of these are in the energy sector. Many of these opportunities are on, run across or are in Canada adjacent to indigenous communities. While by MONICA GATTINGER energy development could transform many communities’ energy security, energy affordability and economic, social and anada has been in a slow-motion cultural development, it has been highly train wreck when it comes to energy contentious. But the lost opportunity doesn’t C decision-making. The last decade end there. Failure to resolve Canada’s has seen increasing conflict, energy development challenges is costing — contentiousness and polarization around big and will cost — the country in environmental energy projects. While oilsands and major performance, and in our capacity to attract pipelines are the key flashpoints for investment and foster economic growth and opposition, they are by no means the only innovation. This failure will also affect the contentious projects or forms of energy. energy system’s ability to cost-effectively Think large-scale hydro in British Columbia, deliver reliable energy, and ultimately,

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Canada’s ability to manage the traction or even fall on deaf ears. The transformation to a much lower-carbon transformation in the information and energy economy. communications environment — notably the rise of social media — magnifies and The Diagnostique: Why All the Ruckus intensifies the above tendencies. over Energy? So what’s the problem? Why is Canada All told, it’s no wonder energy has become seemingly facing a crisis of confidence when so much more contentious in recent years. it comes to developing its energy resources? It’s a brave new world of politics and energy decision-making. The first and most fundamental reason is that the context for energy decision-making The second reason driving down public has transformed in the postwar period. confidence in Canadian energy decision- Extensive, widespread and permanent social making relates to gaps in public policy. and value change has taken place over the Three gaps stand out: climate, reconciliation last six decades. This includes declining with indigenous peoples and energy levels of trust in government, declining development’s cumulative/regional effects. deference to authority and expertise, Debate on climate change, the future of increasing preoccupation with risk, and fossil energy and the path toward a low- growing expectations to democratize public carbon economy has gone on for 25 years decision-making and involve citizens in without coming seriously to grips with the decisions that affect them. It also includes underlying challenge of how to actually social fragmentation, greater individualism make progress on these fronts. The history and growing mistrust of “big” whether in the of Canada’s fraught relationship with form of business corporations or public indigenous peoples has multiple dimensions institutions. The myriad effects of social and deep-seated challenges. Indigenous media amplify all of this. communities’ opposition to energy development is often based on concerns The impacts of these changes are far extending to issues like clean drinking water, reaching and in the largest sense are evident affordable housing and government follow- in a new kind of politics throughout the through (or lack thereof) on commitments western world — neatly captured in terms and legal agreements. This gap is like “post-truth” or “post-fact” politics. exacerbated by the fact that indigenous Canada and energy are far from uniquely communities occupy and claim rights over affected. But affected we are: citizens are much of Canada’s land where energy less likely to trust that governments make resource and infrastructure projects are fair, unbiased and balanced decisions. being proposed or contemplated. We are far People lack confidence in expert opinion from establishing mutually acceptable and scientific evidence; they may give more conditions for arriving at the needed weight to evidence from sources they trust, decisions. Finally, we have yet to develop regardless of their knowledge or expertise. adequate policy and planning systems to Perceptions of risk can trump realities of risk deal with the wide-ranging and cumulative and risk mitigation. Governments are trying effects — economic, social and to open up decision-making processes, but environmental — of energy development on this can generate real and perceived local and regional communities. tensions between participatory democracy (citizen involvement) and representative The result of this is that public confidence in democracy (elected or appointed officials energy decision-making is low and taking decisions). And when people’s line of declining. Tough policy problems invoke sight is centred more on individual/local widely divergent interests and values, and interests than on national/group interests, only processes with explicit political appeals to the national interest or to broader accountability can address them. But the regional/group interests may get less political context is one in which society often

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distrusts authority and expertise. In the In brief, Canada needs to move on big midst of this, energy regulatory processes politics, big policy and big projects in a — evidence-based and expert-driven by coordinated fashion, recognizing that these design — are called on to adjudicate three P’s form part of a broader system of individual energy project proposals. It is energy decision-making that needs hardly surprising that many such strengthening. processes have failed the test of public expectations. On big politics, decision-makers need to accept that social and value change — and The ultimate consequence is that public changes in the information and authorities’ decisions on all types of energy communications environment — are here to have become increasingly protracted and stay. The horses have left the barn on this uncertain, leading to outcomes that can be one. It is the new normal. The context for contrary to Canada’s interests, without energy decision-making has changed necessarily satisfying local communities, fundamentally since the 1950s when the business community or advocacy organizations like the National Energy Board groups. We are all losing. were created. Canada needs to think in new ways about how to develop trust, credibility So what’s to be done? and legitimacy in energy decision-making. Inclusiveness, representativeness, openness Big Projects, Big Politics, Big Policy: We and transparency will be challenging but Need to Address All Three essential sine qua nons of energy decision- The most important thing to recognize making now and into the future. about Canada’s energy quandary is that it is not about big energy projects alone. Big On big policy, governments need to address projects are bound to have contentious the gaps in a way that establishes a clear elements and while we should strengthen policy framework articulating the broad project decision-making processes (as public interest when it comes to Canada’s noted below), it would be a mistake to energy future. This is particularly important think that Canada’s energy challenges can for climate change and the development of be addressed effectively with changes to Canada’s fossil fuel resources. The federal the regulatory system alone. Likewise, it government’s commitments in Paris went a would be a mistake to think that “post-truth long way to address — at least in perception politics” is solely a communications — the policy gap on climate, but now comes challenge, and that the right message can the hard part of identifying what Canada’s somehow quell opposition, contentious future energy system will look like, and politics and conflict. Communications will where the development of its vast oil and be pivotal, but only effective if part of a gas resources sits now and in the future. broader strategy to govern in the Comparator countries like the United States contemporary political context. It would and Australia are moving quickly on also be a mistake to think that consulting developing their hydrocarbon resources, with indigenous peoples on big policy including liquefied natural gas (LNG) and issues like climate and reconciliation is the crude oil for export. The window for Canada way out of this challenge. Yes, on LNG is fast narrowing. Does the country governments need to listen to people’s want to miss the boat on this one? concerns, aspirations and interests, but at the end of the day, they need to make Regulators need to develop more flexibility decisions — some of them tough. This is to engage with local and indigenous necessary to provide clarity, predictability communities and governments on big and timely answers to all involved — projects. This includes being able to investors, individual Canadians, undertake less formal, legalistic, adversarial communities, regulators, companies and processes in addition to traditional indigenous peoples. regulatory hearings. It also means

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diversifying the profile of staff and board Monica holds a PhD in public policy from Carleton members to be representative of the University. multiplicity of energy interests (indigenous, Lead image: Pexels.com local, environmental, etc.). This doesn’t mean abandoning expertise, but rather seeking different kinds of expertise and perspectives. Local and indigenous Join us on social media authorities (governments) also need greater and have your say! formal roles in energy project decision- making, ensuring that they identify and represent their communities’ views in credible, inclusive, transparent ways. Above all, for big projects, it means clarity in process: who does what, when, using which timelines and through which channels? facebook.com/ CanadianGlobalAffairsInstitute And yes, decisions need to be taken in a timely fashion on big policy and on big energy projects. People need to see that their input had an impact on decisions: what did policy-makers or regulators hear? How was it incorporated (or not) into their @CAGlobalAffairs decisions? Why did public authorities opt for the decision they chose?

Only by addressing the three P’s of Canada’s energy challenge can the country’s energy opportunities — economic, environmental and social — be unlocked. linkedin.com/company/ This is not just about projects, politics or canadian-global-affairs-institute policy: it’s about all three. Deal with only one and we’ll keep spinning our wheels. Deal with all three and the country can make real progress.

DR. MONICA GATTINGER is Director of the University of Ottawa’s Institute for Science, Society and Policy, and Associate Professor at uOttawa’s School of Political Studies. She has written widely on Canadian energy policy and regulation, and the country’s energy cgai.ca relations with the United States. Monica chairs Positive Energy, a three-year project that uses the convening power of the university to bring together industry, government, Indigenous groups, local communities, environmental NGOs and the academy to identify how to strengthen public confidence in energy decision-making in Canada. She sits on the Editorial Boards of the University of Ottawa Press and the journal Canadian Public Administration. She is a member of the Advisory Councils for Pollution Probe’s Energy Exchange and Energy Ambassadors initiatives, and was an elected member of the University of Ottawa’s Board of Governors from 2012 to 2015. Her expertise is regularly sought out by parliamentary committees, energy ministers, departments and regulatory agencies, and energy companies and industry associations in Canada and abroad.

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the eventuality of western Canadian LNG With the latest exports from Canada’s West Coast.

developments on In November 2016, Prime Minister Justin Trudeau took the controversial step of the North approving the expansion of the Trans Mountain pipeline from Edmonton to Burnaby American pipeline and the upgrading of Enbridge’s Line 3 from Edmonton to Superior, Wis. Trudeau landscape, is admitted that these decisions were difficult and controversial but contended that the Energy East pipelines were crucial to Canada’s national interest.2 During the 2016 presidential necessary? election, Republican candidate Donald Trump by KELLY OGLE promised that if elected he would immediately rescind outgoing President Barack Obama’s rejection of the Keystone XL pipeline. nergy East is a 4,500-kilometre Following his inauguration in January 2017, pipeline that would transport Trump signed an executive order allowing E approximately 1.1 million barrels of TransCanada to re-start the application crude oil per day from Alberta and process and on March 24, 2017, Trump Saskatchewan to the refineries of Eastern signed the presidential permit necessary to Canada and a marine terminal in New proceed.3 Brunswick. Most of the project, from Western Canada to Montreal, is the repurposing of the For several decades, nearly 100 per cent of existing TransCanada gas mainline. The need Canadian crude oil exports have gone for the gas mainline may become redundant exclusively to the U.S., for the most part at a due to ever-increasing gas supply1 from the deep discount to world prices. If Canada is to United States into Ontario and Quebec and continue to produce and sell oil profitably,

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markets must be enlarged. This paper asks emphasized this point when he stated the question: With Keystone XL, Kinder that Canada, with 173 billion barrels of Morgan and Enbridge’s Line 3 reconstruction oil reserves, would more aggressively likely to proceed, are the reconfiguration and seek global market share.5 extension of the TransCanada mainline, Until recently, OPEC and Russia were otherwise known as Energy East, necessary? producing at record high levels to protect Keystone will add approximately 830,000 their share of the global market. In the past barrels per day of new oil transport capacity, several years, the U.S. has become the destined either for refineries in the U.S. world’s second largest producer behind only Midwest or the U.S. Gulf Coast. The Trans Saudi Arabia. However, record production Mountain expansion (TMX) would triple the from Texas and North Dakota does not capacity of an existing pipeline network that satisfy America’s need for oil now or over the links the Edmonton and Vancouver regions, next several decades. U.S. energy self- shipping roughly 890,000 barrels of crude oil sufficiency assumes that several million and petroleum per day. Enbridge’s Line 3 barrels a day of supply from Canada would allow western oil producers to ship up continues—supply that is secure. There has to 760,000 barrels of oil per day from Alberta been a lot of discussion recently about U.S. to the U.S. Midwest, doubling the capacity of oil exports, begging the question: if the U.S. the existing line that is now facing pressure is exporting crude oil, why does it need restrictions. The question remains, however, imports? Most U.S. refining capacity favours whether an eastern connection to tidewater is oil that is more viscous, i.e., heavier. Most needed given the imminent construction of U.S. production—Texas, the Gulf of Mexico, the Keystone XL, Trans Mountain and Line 3. North Dakota and Alaska—is lighter. Perhaps more importantly, will future Canadian crude oil is for the most part a Canadian oil production require this heavier variety well suited to U.S. refining additional takeaway capacity? capacity.

Several political, strategic and economic The Canada-U.S. energy relationship6 is one factors (notwithstanding regulatory and of mutual interdependence due in large part environmental challenges) are inherent to this to the geographic distribution of oil and gas debate and one could examine a plethora of reserves and the challenges of efficient topics. However, this paper looks at four: the supply and demand distribution. The ever-fluid and dynamic global oil trade and Canadian oil industry’s rapid growth in the Canada’s place in it; Canada’s asymmetric oil 1950s led the Diefenbaker government to relationship with the U.S.; the safety, undertake a royal commission on energy. economic benefits and relative simplicity of The Borden Commission’s7 findings led to the construction and operation of the Energy the creation of the National Oil Policy (NOP). East pipeline; and export optionality for this The NOP’s establishment allowed Canada to largest of Canadian resources. According to co-ordinate and implement a comprehensive the International Energy Agency’s (IEA) latest energy policy on a national level. However, World Energy Outlook (released in November the NOP divided Canada into two 2016), oil and natural gas will still supply over consuming regions separated by the Ottawa 50 per cent of the world’s energy in 2040.4 Valley. The NOP established a protected For example, the IEA projects that by 2030, market for domestic oil west of the Ottawa India will be the world’s largest oil importer, Valley, freeing the industry from foreign ahead of China and the U.S. Canada has competition while the five eastern provinces ample opportunity to supply this burgeoning continued to rely on imports. A two-tiered market if the nation has the political will. price for oil characterized the NOP as the Although this view does not play well with eastern provinces were reluctant to extend many of Trudeau’s supporters, he transmission of western Canadian crude oil respects oil’s strategic importance to into their markets because of the existence Canada’s future. At a conference in of cheaper imported oil, a situation that still Houston in early March, Trudeau exists today.

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However, a comprehensive, binding bilateral it may incur from an accident or malfunction. agreement that deregulated energy policy Indeed, by the time this pipeline is built, it had never gained widespread political will be the safest pipeline in the world. Over acceptance. The ratification of the Canada- the next several years, if all goes as planned, U.S. Free Trade Agreement (FTA) in January TransCanada will have completed Keystone 1989 changed this. Continental energy XL, which according to the U.S. Department policy (under the FTA) was the joint planning of State,10 will result in a project that has a of energy production and shipment without degree of safety greater than any typically regard to borders. During the agreement’s constructed domestic oil pipeline system. negotiation, the bilateral energy fact-finding Energy East will be subject to the same group considered the special problems in rigour. energy trade. It concluded that a broad Thousands of men and women will be agreement guaranteeing American access to employed in the design and construction of Canadian supply in return for secure access Energy East. According to a September to the U.S. market was mutually beneficial. 2014 Conference Board of Canada study,11 The situation today is much different. As the project is expected to support an much as the FTA enhanced U.S. energy average of 14,000 direct and indirect full-time security, there now exists an equal part of Canadian jobs (over 4,000 in both Quebec demand insecurity for Canadian oil and Ontario) during the pipeline’s re- production and by association the greater purposing, development and construction. Canadian economy. Oil exports continue to Furthermore, over several decades, it will flow into Canada at increasing rates. Eastern generate more than $7 billion in additional Canada imported about 558,000 barrels per tax revenues for governments ($2.6 billion in day from January to July 2016. In Quebec, tax revenues for Ontario and $2 billion for more than half the oil used is imported. It Quebec) and add approximately $36 billion comes by pipeline from the U.S. or by tanker to Canada’s GDP. From an operational down the St. Lawrence River from Saudi economic perspective, shipping oil by rail Arabia, Algeria, Angola or Nigeria. Although costs an average $10 to $15 per barrel Canada has the third largest oil reserves in nationwide, which is up to three times more the world, last year Canadians paid $14 expensive than the $5 per barrel it costs to billion to import oil from other countries. move oil by pipeline, according to estimates Moreover, our primary customer has from Wolfe Trahan & Co.,12 a New York City- become our fiercest competitor. Without based research firm that focuses on freight access to new markets, Canadian oil transportation costs. resources will fight an uphill battle for market share and competitive pricing. Energy East will also foster substantial economic opportunities for New Brunswick if Pipelines are the most environmentally an upgrader13 in Saint John near Irving Oil’s responsible way of transporting oil over long existing refinery is constructed. The unit distances. A Fraser Institute study8 using would process heavy oilsands bitumen into statistics from the Transportation Safety light, synthetic crude, given the higher Board of Canada and Transport Canada demand for lighter grades from refinery concludes pipelines are 4.5 times safer than customers across the Atlantic. Additionally, rail when it comes to transporting crude oil. Irving plans to build another tank farm in Pipelines are also the least greenhouse gas- Saint John and in partnership with intensive way of transporting crude oil to TransCanada a $300 million deep-water market. In the case of Energy East, the marine terminal. However, without Energy equivalent of 1,570 rail cars of crude oil per East, both projects are redundant and will day would be displaced. In its initial remain on the back burner. application, Energy East conducted a risk assessment9 for the pipeline facilities In the next decade, will there be enough associated with the project to determine the supply to fill these pipelines if they are built? worst-case scenario and potential costs that Currently, Canada’s pipeline network can

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move about four million barrels per day, business/industry-news/energy-and-resources/irving-oil- which closely matched 2015’s average studying-expansion-options-post-energy-east/ article29636535/ supply of 3.981 million barrels per day. The 14 http://www.capp.ca/media/commentary/a-tale-of-two- Canadian Association of Petroleum canadas Producers (CAPP) projects that by 2030, 15 http://business.financialpost.com/news/energy/ production of Canadian oil will increase 37 atlantic-canadian-oil-headed-to-china-for-the-first-time- 14 amid-opec-cuts per cent, greatly exceeding the current pipeline capacity. More than 850,000 KELLY J. OGLE is the President and CEO of the additional barrels per day of oilsands supply Canadian Global Affairs Institute. He is a senior executive will be available by 2021, and between 2021 and scholar with more than 35 years of entrepreneurial experience covering several business sectors including and 2030 supply from Canada’s oilsands is oil and gas, agriculture, trucking, residential forecast to grow to more than 700,000 development and golf course construction and barrels per day. Although recent downward operations. He has also served as a board member for price pressure has curtailed oilsands various corporations, both public and private and has experience in all committee types; health and safety, expansion, international interest in accessing audit, compensation and corporate governance. Mr. Canadian crude oil is still strong. Husky Ogle has also participated in the securing and Energy Inc.15 recently sold a cargo of one disbursement of more than $1 Billion in debt and equity million barrels of oil from its projects offshore funding of oil and gas ventures, managed the clearing of numerous prospectuses, Annual Information Forms and Newfoundland to China, proving that Information Circulars. As well, he has orchestrated the producers and shippers can close the value merger, acquisition, strategic alternatives processes gap if the global market is accessible. and/or sale of numerous oil and gas corporations as Additional North American market diversity CEO, President and/or Managing Director. and access to tidewater are needed so Additionally, for the past 25 years, Mr. Ogle has given Canada can safely and profitably realize on numerous presentations to various sized groups as both its enormous resource bounty. The timely an industry executive and scholar and has had several development of pipeline infrastructure, journal articles published. He is also the Chairman of the Board of Silvera for Seniors, a Not For Profit organization including Energy East, is a must. in charge of over 1600 residences for low income senior Calgarians. He is also the former Chairman of the Board End Notes of Student Energy, a global non-profit organization 1 https://www.forbes.com/sites/ creating a movement of young leaders committed to judeclemente/2017/03/19/the-importance-of-u-s-oil-and- transitioning the world to a sustainable energy future. natural-gas-exports/#70b950f6b952 Mr. Ogle received a Bachelor of Arts degree from the 2 http://www.huffingtonpost.ca/2016/11/29/pipeline- University of Saskatchewan in 1978, a Masters of pronouncement-liberals-to-pass-judgment-on-line-3- Strategic Studies from the University of Calgary, Centre northern-gateway_n_13305886.html for Military and Strategic Studies, in 2014 and in 2010 he 3 http://business.financialpost.com/news/energy/the-u-s earned the ICD.D designation from the Canadian -state-department-approves-transcanadas-keystone- Institute of Corporate Directors. pipeline 4 https://www.forbes.com/sites/ Lead image: iStock judeclemente/2017/03/19/the-importance-of-u-s-oil-and- natural-gas-exports/#70b950f6b952 5 http://www.cbc.ca/news/business/trudeau-cera-week- in-houston-1.4018708 6 http://theses.ucalgary.ca/bitstream/11023/1583/2/ ucalgary_2014_ogle_kelly.pdf 7 For a comprehensive overview of the role and importance of Royal Commissions, see: G. Bruce Doern 8 https://www.fraserinstitute.org/research/safety- transportation-oil-and-gas-pipelines-or-rail 9 https://apps.neb-one.gc.ca/REGDOCS/Item/ View/2967728 10 https://keystonepipeline-xl.state.gov/documents/ organization/181185.pdf 11 http://www.energyeastpipeline.com/wp-content/ uploads/2014/10/Conference-Board-Of-Canada- Report.pdf 12 https://www.eia.gov/todayinenergy/detail.php? id=7270 13 http://www.theglobeandmail.com/report-on-

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Concurrently, the opportunity to export Can Canada Canadian natural gas as liquefied natural gas (LNG) to Asian markets emerged Restore a with sufficient economic credibility to generate several world-scale projects led Functional by real players in global LNG markets. These projects included major natural Regulatory gas pipeline infrastructure from northeast British Columbia to its Process for Major northern tidewater ports.2

Infrastructure Solely private capital advanced all these pipeline infrastructure projects on the Projects? basic conviction that the Canadian by DENNIS MCCONAGHY regulatory system would not represent a material risk to the projects ultimately proceeding. I can categorically attest ver the past 10 years, Canada this to be the case for those projects has had a unique opportunity that TransCanada Corp. advanced over O to exploit its hydrocarbon this period. I have strong confidence endowment. Hydrocarbon prices from that this was also the case for those roughly 2000 to 2015 were sufficient to advanced by TransCanada’s generate massive investment in competitors. upstream oilsands production worth well over $250 billion. This led to the Sadly, too many of these projects evolved to advent of various pipeline acquire iconic status as examples of infrastructure projects to transport the regulatory approval dysfunction. resulting incremental production to Keystone XL and Northern Gateway are markets.1 prime examples.

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The Canadian regulatory process was the approval process would devolve? expected to efficiently provide sustainable Likely not.3 approvals for projects that were manifestly in money, using conventional technology So, what is the scorecard that has emerged applied in topographies well within the as of 2017? project proponents’ experience and expertise, and providing accommodation  Northern Gateway was rejected entirely terms to directly affected stakeholders well on the singular determination of Prime within, or exceeding, accepted norms. Minister Justin Trudeau — Moreover, the scope of the actual notwithstanding close to six years of regulatory process was expected to be regulatory scrutiny and compliance confined to the projects’ directly efforts by Enbridge — that the project’s attributable impacts, not expanded into a basic premises were “too risky” platform for vetting fundamental policy environmentally to abide. “The Great grievances typically related to climate and Bear Rainforest is no place for a pipeline aboriginals. and the Douglas Channel is no place for oil tanker traffic,” Trudeau said; 4 Other than the approvals related to the  Kinder Morgan’s Trans Mountain project Canadian sections of the Keystone achieved approval after almost five years system, the Canadian regulatory approval of regulatory process, yet concerns process failed to meet those expectations. persist about the approval’s Even in those cases where the national enforcement; 5 regulator ultimately recommended  Energy East, after having been publicly approvals, no one could reasonably announced in 2012 and with regulatory contend that the process was efficient. application filed in 2015, has yet to Regulatory cycle times of more than five commence its regulatory hearings in years conform to no one’s reasonable earnest, due to a series of procedural standard of “efficient”. Worse, in the cases setbacks and project revisions;6 where projects were rejected, such as  The Obama administration rejected Northern Gateway and Keystone XL under Keystone XL in November 2015, not on the Obama administration, the rationale the basis of the regulatory record, but on bore no direct nexus to the regulatory the thesis that Barack Obama’s recommendations provided to final “credibility” for the Paris Climate political decision-makers. Rejections Conference required his rejecting the motivated by political considerations were pipeline. The project was essentially never made explicit or were imposed long moribund until Donald Trump’s election after significant dollars had been in November 2016. Since Trump’s expended in the expectation of deference inauguration, his administration has to the regulators’ technical competence essentially reversed the Obama and integrity. decision. The project is now in the process of reviving itself, with some real Projects of the scale that emerged in this possibility it could be under construction period in almost all cases required the by the first quarter of 2018. Canadian expenditure of hundreds of millions of regulatory approvals achieved back in dollars to comply with the expected 2010 remain valid;7 regulatory rigour of a “complete  The two most notable projects to move application”; that is, sufficiently detailed western Canadian gas to Asian markets and fulsome to ultimately establish the as LNG, the Petronas and Shell specific necessary operating and consortium projects, by year end of 2016 construction conditions for the project to achieved requisite regulatory approvals, proceed. Would private sector capital have inclusive of federal environmental taken on these projects back in 2007 to reviews. However, final investment 2011 if it had known how dysfunctionally decisions for these projects have been

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deferred until their economic bound by what the regulators had fundamentals can be reaffirmed in the recommended. Historically, the political level current commodity price environment. could only ratify or not ratify the regulatory Cycle times for regulatory approval have approval. Post-2012, it could impose its own run on the order of four years.8 decision regardless of that regulatory process. Enbridge in particular would be The election of Donald Trump has clearly affected by this change in respect to restored the possibility that the project that Northern Gateway. These were the always held the greatest value to Canada — unintended consequences arising from the Keystone XL — may actually proceed in good intentions of a presumptively 2017. Given that the percentage of the empathetic conservative regime. project within Canada is less than 15 per cent and is entirely in the hydrocarbon- What should have been done? And would it centric provinces of Alberta and still be relevant now, even if Canada’s Saskatchewan, even concerns around greatest window of opportunity has slipped enforcing project proponents’ rights to build by to some extent, given changes in should be minimal. The Kinder Morgan hydrocarbon markets post-2015?10 project has some prospect of proceeding before year end, thereby providing Canada  What would have allowed these with direct tidewater access for its oilsands projects to face a more reasonable resource, and serving as a legitimate regulatory risk while still confronting complement to the Keystone XL system. the genuine public interest issues that However, it will doubtless face both litigation legitimately should be resolved at the and civil disobedience over the course of political level? 2017.  Instead of deferring political intervention to the very end of the At present, in respect to Northern Gateway, process it should have come early and Enbridge faces likely unrecoverable losses. only in respect to specific public As yet, there is no apparent willingness on interest issues, if any, related to these its part to engage in litigation against the projects. federal government.  The basic elements of such a re- invention of the current National From 2009 to 2016, the Harper majority Energy Board (NEB) process for major government undertook one substantial hydrocarbon infrastructure projects attempt to provide “regulatory reform” as are: embodied in its 2012 budget.9 Those on the  A first phase that would resolve Canadian left deeply resented these reforms whether the project was in the as a whole, even such relatively constructive public interest or not. The essential elements as trying to impose reasonable elements of the project would be cycle times on the entire regulatory process filed, with special emphasis on and consolidate substantially duplicative how the project conformed to regulatory processes across jurisdictions. basic public interest criteria. For Most notably, this reform initiative changed example: the historical basis of regulatory approval. . national carbon policy The final decision would be in the hands of . accommodation principles for democratically elected politicians, not the directly affected stakeholders regulators. The regulators would provide a . basic economic justification recommendation, which the politicians could . alignment with other elements accept, reject or impose their own decision of national economic or social upon, distinct from the regulator. Political policy sanction of the regulatory process was  The filing for this first phase would be reaffirmed or not, but regardless, it came late sufficient to deal with these public in the process and was not necessarily interest issues, but would not be the

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“complete” application ultimately required If this basic process change had been in for phase two, if the project were to effect 10 years ago, much of the dysfunction proceed beyond phase one; that played out could have been avoided.  The NEB would provide a Some examples: recommendation to the cabinet on whether the project was consistent with  In Northern Gateway’s case, if the the public interest within one year of filing. government’s view had been that no The cabinet could either accept or reject spill risk was tolerable in the Douglas that recommendation. Once having Channel and related geography, then accepted the recommendation, the that should have been clarified within political level would have no further role in 12 months, not delayed until almost six the regulatory process. Any approval years of regulatory process had would be binding on current and elapsed; succeeding governments;  In the case of any hydrocarbon  The second phase would be entirely pipeline projects filed post- within the national regulator’s control. Its Copenhagen, the government would function would be to apply specific have been required to clarify that the operation and construction conditions on project conformed to Canadian carbon the proponents to carry out the project. policy or not within this 12-month That would be based on a fulsome period. Compliance with carbon policy application, inclusive of all relevant would not hang like a shroud over engineering and environmental impact time, to be invoked even after information. This phase would be apparent approvals had been given, as resolved within 24 months of filing a a claim to delegitimize approvals after “complete application”, a standard that the fact. This process would have sufficient information has been filed to set forced governments to have resolved reasonable conditions, in the regulator’s this issue early and explicitly, at least judgment. This phase would consolidate with respect to the infrastructure; all other elements of federal and  Again, in the case of virtually all major provincial environmental assessment in pipelines filed since 2009, the other respect to the project; great uncertainty on any approval  Significantly, the second-phase remains the inevitable litigation based deliberations would be in the context of a on whether the applicant provided project that had already been determined adequate stakeholder consultation and to be in the public interest. That point accommodation, particularly in respect could no longer be litigated in the actual to aboriginals. Government would hearing process; have signed off that the principles of  Fundamentally political judgments would accommodation proposed by the be confined to the first phase. The second applicant conformed or not to the would be fundamentally a technocratic government’s expectations. exercise — fixing of conditions for the Regardless of any future claims, the project consistent with current accepted federal government would have best practices and risk tolerances for already aligned itself with those comparable projects globally; accommodation principles or not.  Various elements would require Examples of accommodation would elaboration such as: include direct financial compensation  Specifics of phase one filing for access, project changes, social requirements investment, provision of procurement  Identification of major policy issues opportunities, etc.; relevant to the application  In the case of Energy East, if provinces  Process for testing filed material such as Ontario and Quebec are  Resolution of relevant unalterably opposed to the project, stakeholders that reality would be taken into

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account within the first 12-month its support for any of the crude oil period in respect to determining the pipeline projects accessing B.C. basic national interest. tidewater. These conditions needed to be viewed as showstoppers — a de I am firmly of the view that if such a re- facto B.C. veto regardless of any federal invention is not undertaken, then the risks of determination of national interest. Worst the existing regulatory process will have of all, various governments and become too high to justify private capital proponents of the projects largely even trying to get an approval going forward. capitulated to such demands. Whether If political intervention is to occur, as it has the projects can bear those costs the democratic validation to do, it must come remains to be seen;11 early in the process, not late. At that point,  Virtually every NEB decision is subjected perhaps, only millions of dollars of to a perfunctory legal claim that there proponents’ capital is seriously at risk, not was inadequate consultation with hundreds of millions. aboriginal groups, thereby risking delegitimizing the entire approval To fully restore Canada’s capacity to execute process. Of course, neither Parliament such projects, at least three other nor the courts has ever resolved what clarifications of existing Canadian law are represents adequate consultation, let required: alone accommodation. The visceral issue is whether the accepted norms of  All Canadians must defer to financial compensation and project determinations of national interest made modification constitute sufficient by federal regulatory entities. Provinces accommodation or not. Governments do not have vetoes on those have chosen not to confront this issue determinations and moreover, where directly, so what comes after not provincial jurisdiction applies in respect confirming those norms — a de facto to a specific project’s elements, it cannot veto for Canadian aboriginals?12 be applied inconsistently with the federal  Quebec communities say that the determination. An example of this would Energy East project has yet to prove be the denial of perfunctory provincial adequate net benefits for them. Is such a permits; consideration the actual decision  All Canadians are subject to Canadian criterion? Or is it that the ultimate law — specifically, the legal remedies of regulatory determination that the pipeline proponents to actually affect project’s mitigated risks are acceptable their projects apply to all. No Canadian is to be ignored even before it is is exempt from those remedies; rendered? Or that the federal  Finally, Canada has free trade among its determination is binding?13 provinces. Provinces disgruntled with  Potential litigation from ENGOs arguing distribution of economic rents that arise that any existing project approvals failed from resource development cannot be to recognize their impacts on Canada allowed to impose what in effect are meeting its international climate transit taxes on the flow of goods among commitments. This ignores, of course, provinces to redress that distribution. that at present there is no national prohibition on hydrocarbon production Those who doubt that these clarifications are or specific caps on emissions from that required can examine the litany of sector. Any regulatory decision can dysfunctional reactions from various never be deferred to if it does not provinces, municipalities and interest groups conform to these groups’ specific in respect to the aforementioned projects: political agendas.

 British Columbia insisted that it had Ideally, the recent NEB modernization panel conditions which must be met to ensure would be the forum by which these specific

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process recommendations and related legal infrastructure projects. The window of clarifications would be taken up and opportunity may have closed, in part due to perfected.14 Sadly, it remains to be seen if the current dysfunctional process. However, this panel will actually seize the opportunity it remains in the country’s long-term interest or even recognize the real issues. The to, at the very least, find as much efficiency Trudeau government created the panel in in its regulatory processes as possible. If response to various groups’ disgruntlement value judgments are to be imposed on at the reality that when processing resource development then that should be applications for major hydrocarbon as up front as possible, and not waste infrastructure, the NEB consistently capital and human resources. recommended approval, albeit with conditions. Most notably, this happened with End Notes 1 http://www.arcfinancial.com/assets/699/ Northern Gateway. To assuage that ARC_Financial_Corp._Fiscal_Pulse_Q1_2016.pdf disgruntlement, the panel was charged to 2 https://news.gov.bc.ca/factsheets/factsheet-lng- examine fundamental process changes that project-proposals-in-british-columbia would “restore trust and confidence”. A 3 http://www.enbridge.com/investment-center/~/media/ Enb/Documents/Investor% cynic might suggest such a mandate could 20Relations/2016/2016_ENB_Q3_MDAandFS.pdf only be construed to make the existing http://www.transcanada.com/docs/ process even more obstruction-friendly. Investor_Centre/2016_Q4_Quarterly_News_Release_FIN Efficiency and competence are seemingly AL.pdf 4 http://business.financialpost.com/news/energy/ottawa secondary considerations. -approves-two-pipelines-rejects-one-while-imposing- tanker-ban-on-northern-b-c-coast, http:// The way the regulatory process unfolded gatewaypanel.review-examen.gc.ca/clf-nsi/dcmnt/ over the past seven years would hardly have rcmndtnsrprt/rcmndtnsrprtvlm2chp1-eng.html 5 https://www.transmountain.com/updates led to concerns that interest groups had not 6 https://www.one-neb.gc.ca/pplctnflng/mjrpp/nrgyst/ been given sufficient opportunity to index-eng.html participate. The terms were fundamentally 7 https://obamawhitehouse.archives.gov/the-press- generous relative to the scope of the hearing office/2015/11/06/statement-president-keystone-xl- pipeline, https://www.whitehouse.gov/the-press- itself or the probative value of their office/2017/01/24/presidential-memorandum-regarding- contributions. construction-keystone-xl-pipeline 8 http://www.canadianenergylaw.com/2017/01/articles/ The reality remains that certain interest oil-and-gas/bc-lng-waiting-for-the-world-to-change/ 9 https://www.osler.com/en/resources/regulations/2012/ groups are unalterably opposed to any federal-government-releases-draft-legislation-to-r hydrocarbon development and its related 10 https://www.statista.com/statistics/262858/change-in- infrastructure. The regulatory process is a opec-crude-oil-prices-since-1960/ forum to leverage financial and policy 11 http://www.bnn.ca/b-c-approves-trans-mountain- pipeline-expansion-1.648314 concessions that may not be otherwise 12 http://rabble.ca/news/2017/02/lawsuits-pile-kinder- available to them through the democratic morgan-opponents-prepare-next-pipeline-battleground- process. courts 13 http://www.cbc.ca/news/canada/montreal/energy- east-quebec-hearings-1.3478897 A final admonition for this panel would be 14 http://news.gc.ca/web/article-en.do?nid=1149859 not to alter the NEB’s composition from one that is predicated on technocratic DENNIS MCCONAGHY is the former Executive Vice- competence and integrity to some other President of Corporate Development at TransCanada Corporation. Previously, he was Executive Vice- misplaced criteria of inclusion and political President, Pipeline Strategy and Development. Dennis correctness as ends in themselves. joined TransCanada in 1998, and has held senior positions in Corporate Strategy & Development, At some point, Canada either finds the Midstream/Divestments, and Business Development. He has more than 25 years of experience in oil and gas, capacity to deal rationally with its major including responsibility for Keystone XL. economic opportunities, or else faces the consequences of further economic Lead image: 123RF contraction. It may be too late for many of these recent major hydrocarbon

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2017-18 SPEAKER SERIES CONRAD BLACK NOVEMBER 15, 2017 CALGARY, ALBERTA

cgai.ca

supply side, particularly in the oil and gas Energy as a sector.

Service: Going The situation is different with respect to consumption, whether at the consumer or at Beyond Energy the commercial, institutional and industrial levels. Here, the various governments can Supply significantly modify the choice of energy and by NORMAND MOUSSEAU its usage through policies, norms, urban design and fiscal approaches, orienting millions of individual decisions. s a major natural resource provider, Canada has approached its transition Major shifts in energy consumption in A to a low-carbon economy very much Canada have occurred in the past, driven by in the light of its energy production and a combination of individual, social and supply. Its discussion about climate change governmental orientations. Between 1979 has been dominated by worries about and 1986, for example, Quebec saw its oil pipelines, oilsands, shale gas and uranium consumption drop by 43 per cent and the production without much thought about the share of renewable energy go from 29 per other side of energy: usage and cent to 47 per cent, transforming its energy consumption. Yet, Canada is a relatively basket faster and deeper than almost any small nation that does not weigh significantly developed economy. This transition was the on worldwide commodity prices, result of two oil crises that made the world consumption and investments. As an open tremble, coupled with a major recession and economy, it does not even have much direct Quebec’s decision a decade earlier to bet control of national investments and massively on hydroelectricity. As the dams production in the energy sector, except came into service, and with the support of regarding electricity. Besides worrying, there Quebec’s government, all these pressures is therefore not much Canada can do on the led to the rapid electrification of residential

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heating as well as numerous industrial on the supply side can be done in a processes, coupled with a significant growth relatively centralized fashion, energy in natural gas and biomass usage. service is spread across all human activities and requires a broad range of As Canada embarks on a program to reduce approaches that must be adjusted to greenhouse gas (GHG) emissions, it will each subgroup: rural or urban, need a transformation of even larger household or industrial, etc. Yet, this amplitude, albeit on a longer time scale, approach has the advantage of similarly requiring the combination of a leveraging energy investment for other number of internal and external factors for its social goals that can lead more directly success. to general improvement in the quality of life for all Canadians. Even as a major energy-producing country, Canada would greatly benefit from focusing Refocusing the Debate its transition largely on the consumption There are many reasons for refocusing the side: debate towards energy consumption in Canada. Of those, two are of particular  Since energy usage is distributed importance. relatively uniformly across the country, any transition will spread the First, over the last decade, much of the investments and economic benefits debate on GHG emissions in Canada has more evenly across provincial lines, been linked to oil and gas production, affecting almost all Canadians; mostly the oilsands. Yet, revenue  Investments in energy usage, including expectation uniquely drives investor savings and efficiency, have been shown interest in supporting hydrocarbon to produce considerable multiplier exploration and exploitation, which is effects per dollar invested. This means controlled by demand. If demand falls over more jobs both in urban and rural areas; the next decades, the value of these  A well-planned energy transformation, investments will drop in parallel; if the with clearly spelled-out long-term goals demand remains strong, there is not much would also avoid the pitfalls typically point in Canada stopping its oil and gas associated with short-term energy- production as any effort to reduce GHG saving programs. Such pitfalls tend to emissions will be lost in the worldwide drive prices up and bring in industries movement. with little knowledge and experience in the field. A well-planned transformation Second, transforming energy usage can would also support the formation of positively affect Canada’s economy and larger scale players who could take a the lives of Canadians irrespective of the significant role in the export business direction the rest of the world follows. This through longer term investments in is demonstrated by countries such as technology and training; Sweden that have managed to cut their  A focus on energy usage would allow GHG emissions by half while supporting Canadians to act ahead of rising carbon strong and resilient economic growth. prices, decreasing carbon control’s Rethinking energy usage forces us to economic impact and even contributing question almost all of our habits, to reinforcing the green energy sector structures and processes, helping all through a coherent transformation. aspects of society to find more efficient  There is no doubt that targeting energy approaches to building, heating, usage is more difficult from a policy transporting and manufacturing. point of view than focusing on energy Certainly, the focus on energy usage will production by, for example, closing not suffice to fully transform Canada’s down coal thermal plants or subsidizing energy sector into a low-carbon society. wind and solar electricity. While actions The electricity sector needs to finish its

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transition to low-carbon production and find trials that can only be successful if they solutions for heavy transportation. Bringing involve federal and provincial governments the benefits more directly to all citizens will as well as the various industrial sectors. go a long way towards leveraging this Given the economic importance of a transition to move Canada forward. successful transition in this sector, it could be the ideal test case for developing a Developing a National Policy national approach for transitioning to a low- Targeting energy usage in a coherent way carbon economy, as it is more likely that all in Canada is challenging because of the government levels will agree to work constitutional distribution of powers. While together to drive such a transition. most of the responsibilities linked to energy usage sit in the hands of provinces, a Towards A Low-Carbon Emission Building number are shared between the federal Sector government and the provinces, either With 13 per cent of energy-related legally or de facto through Ottawa’s emissions, building is another sector that spending powers. A national vision requires requires a global approach and specific a combined effort developed in attention from the start. While its carbon collaborative fashion, one that must be footprint represents only 40 per cent of adapted to each sector: building, transport, it is considerably cheaper to transportation, urbanism, industry, transform and it offers much greater agriculture, etc. economic return for the investment, further reducing its net cost. Building There is no space here to expand on each transformation also tends to deliver local of these sectors. I’ll focus on two that are positive fallouts, spreading its benefits more too often overlooked: industry and uniformly than almost any other sector buildings. across the country. Over the last decades, lowering the GHG emissions from this Transforming Industry sector has mostly been synonymous with Industry is a combined federal-provincial electrifying heating using simple resistors, responsibility that is associated with 42 per essentially in the residential sector. cent of the total energy-related GHG Considerable efforts are still needed to emissions (eight per cent when we exclude establish norms in an industry able to the oil and gas production sector as well as provide cost-effective retrofit solutions and process-related emissions). Most of the to propose low- or zero-emission energy is consumed to produce heat and alternatives to natural gas for residential, operate heavy machinery, often requiring commercial and institutional buildings. considerable power that needs to be delivered either by spikes or on a In order to reach sufficient transaction continuous basis and on sites that can be volumes to lower costs, provinces will have remote, without direct access to the grid. to work together to implement compatible Since no unique solution can be applicable and rapidly tightening norms. They will have to this range of requirements, replacing to create long-term programs built upon fossil fuels for these usages will require a federally supported research and multi-pronged approach to optimize the development and use federally imposed energy source from biofuels and biomass to revisions of lending approaches that would geothermal, electric sources and energy take the total cost of ownership into efficiency. This will provide considerable account, greatly facilitating the financing of opportunities for technological development these low-carbon technologies and and adaptation to specific requirements. approaches. A dedicated effort to reducing GHG Transition in the industrial and building emissions in this sector will need concerted sector cannot be simply seen as the and strategic research and development replacement, joule by joule, of the energy programs as well as large-scale innovative that hydrocarbons currently provide.

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Programs will have to induce a deep energy and natural resources issues and is the author of reassessment of needs, habits and several books on the subject, including "Au bout du pétrole, tout que vous voulez savoir sur la crise technologies in order to find the most énergétique" ("The end of oil, everything you need to appropriate solution for each situation. know about the energy crisis") (2008), "La révolution des These programs will also need to be focused gaz de schiste" ("The shale gas revolution") (2010) and on cost-efficient approaches and innovative "Le défi des ressources minières" ("Managing mining resources: a challenge for all") (2012), all published by financing to ensure that they can sustain the Éditions MultiMondes. In 2013, he co-chaired the themselves and create competitive industries Quebec Commission on Energy Issues, whose report, at the international level. "Mastering Our Energy Future", was released in February 2014. He is a member of the Sustainable Canada Dialogues and was involved in the drafting of the Action As both sectors will greatly benefit from a co- plan presented by the organization in 2015. operative approach among various Since September 2011, he has been producing and governmental levels and agencies anchored hosting the weekly scientific popularization program "La in research and development, as well as Grande Équation" on Radio VM. His latest book, " Gagner la guerre du climat. Douze mythes à experimentation, and serve as a springboard déboulonner" ("Winning the War on Climate Change: to commercial development, they represent Twelve Myths Debunked") was published in February ideal sectors for developing such models 2017 by Éditions du Boréal. while rethinking our energy use across Lead image: Getty Canada

NORMAND MOUSSEAU is a professor of physics and Research chair on complex materials, energy and natural resources at Université de Montréal and Academic director of the Trottier Institute of Energy at Polytechnique Montréal. As a specialist in the field of complex materials and biophysics, he has published more than 160 scientific articles. He follows closely

2018 SPEAKER SERIES DAVID FRUM SPRING 2018 CALGARY, ALBERTA

cgai.ca

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Plan4 and a cap-and-trade emission control Thoughts on regime aiming for an 80 per cent reduction in greenhouse gas emissions (from 1990 Canada’s Carbon levels) by 2050. In August 2016, British Columbia, which already has a carbon tax, Tax Agenda released its own aggressive Climate by KENNETH P. GREEN Leadership Plan,5 calling for an 80 per cent reduction from its 2007 emission levels by 2050. Finally, in October 2016, the Trudeau arly in 2016, Canada signed on to the government announced6 that it will institute a Paris climate agreement,1 joining 129 pan-Canadian price floor for greenhouse gas E other countries2 in taking actions to emissions, to be imposed upon provincial limit climate change to 1.5-2C. To that end, governments that do not already have a Prime Minister Justin Trudeau adopted the program in place deemed to be equivalent previous Conservative government’s with the federal price floor. That price floor greenhouse gas reduction targets. The goal will start in 2018 at $30 per tonne of is to reduce Canadian greenhouse gas greenhouse gas emitted, rising to $50 per emissions by 30 per cent from 2005 levels tonne by 2022. All of these actions are by 2030. Subsequently, several Canadian poised to increase the costs of energy, a provinces and the federal government fundamental input to everything we do, announced strong actions to reduce manufacture, build, consume and export in greenhouse gas emissions. The Alberta Canada. government rolled out its Climate Leadership Plan,3 which expands Alberta’s carbon tax to In the meantime, the United States the broader provincial economy and presidential election has utterly shattered the institutes a range of emission reduction idea that the U.S. will implement comparable programs, including a 100 megatonne greenhouse gas controls (through annual cap on oilsands emissions. Ontario regulations rather than taxes), which would released its own Climate Change Action have eased concerns about Canadian

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competitiveness, even moving forward with of the emissions). A small portion will be carbon pricing. Prior to Donald Trump’s given to low-income Albertans, ostensibly to election, one could rationally make the avoid the optics of having them freeze to argument that the U.S. was likely to proceed death when power bills become on its greenhouse gas regulations, both unaffordable. The rest, $2.6 billion/year, or those in progress and others expected to 44 per cent of revenues will be spent on have come in under a Clinton presidency government pet projects.10 (thus imposing additional hidden taxes on the U.S. economy). It would have followed, And then there’s Quebec, which also has a then, for Canada’s overt carbon tax to be cap-and-trade system that has brought in seen as a superior approach that would not $330 million, but is expected to bring in $2.5 cause a marked economic imbalance billion by 2020 (and probably more, as it will between the U.S. and Canada, and even be have to match the escalating national price less costly and more efficient than a floor established by the federal government). regulatory model. Where does the revenue go? Free permits are given out to emitters, while the remaining Several developments have changed all of revenue is to be spent on “programs to fight that. First and foremost, we’ve seen that climate change.”11 governments in Canada have no intention of instituting textbook carbon pricing. It is not Finally, consider the much vaunted B.C. revenue neutral, it does not displace existing carbon tax. A new study by the Fraser regulations, and revenues are used in ways Institute12 verifies that indeed, in this tax’s that distort the economy, rather than early years, it was truly revenue neutral. allowing the price to drive investment in the Personal and corporate taxes were reduced most efficient technologies. and additional tax reductions were introduced to ensure revenue neutrality. But Consider Ontario’s cap-and-trade system7 by 2013/2014, only five years into the tax instituted by Premier Kathleen Wynne, which system, the government had taken to shaky her government estimated would bring in $2 bookkeeping to preserve the appearance, billion in revenue per year. According to the but not the reality of revenue neutrality. Ontario Auditor General,8 out of the $8 Indeed, when Fraser’s researchers backed billion, $1.32 billion will be earmarked to help out some pre-existing tax credits that had with residential and business electricity bills. been redefined as carbon tax reductions, the The rest will be spent on the usual researchers found that the province actually governmental preferences — transit, netted $226 million in 2013/2014, with a subsidies to renewable energy, dubious cumulative tax take of $377 million for efficiency programs, etc. Cap-and-trade is 2014/2015. Projecting forward, the basically a hidden carbon tax, and like a researchers estimate a cumulative $865 carbon tax, the only real way to mitigate million tax increase by 2018/2019. That’s against economic harm is to fully rebate about $800 for a family of four. And a closer revenue via reductions in distortionary taxes look at the details shows that rather than such as personal and corporate income purely rebating revenues to the general taxes. That’s not going to happen in Ontario. population, diversions from those types of And that’s leaving aside the myriad tax reductions began in only the second year problems with cap-and-trade systems in with measures targeted at specific general.9 subgroups of the population. Those special interest tax credits rose from one in year two, Or consider Alberta. Alberta’s new carbon to six by year seven, at which point $148 tax is $30/tonne. Phased in by 2018, it is million (12 per cent) of actual offsetting tax expected to generate some $6 billion per measures were being directed to specific year in revenues. Part of that will be used to sub-populations like: Northern and Rural subsidize Alberta’s emitters (granting a Homeowner Credits; Children’s Fitness windfall to the very people putting out most Credit and Children’s Art Credit; Small

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Business Venture Capital Credit; Small mitigate actual climate risks, which are less Business CIT; Industrial Property Tax Credits related to the absolute change in for Major Industry; Industrial Property Tax atmospheric temperature and more related Credit for Light Industry; and School to derivative water-related risks such as sea- Property Tax Reduction for Farm Land. level rise, drought, flooding and so forth. In that paper, I discussed how government So it is clear, in the new Trumpian actions to compensate people who live in environment, that the U.S. is poised to boost flood-prone areas tend to encourage people its energy economy. Canada is poised to to take more risk than they might if they had contract its own, through carbon pricing and to pay the full cost of insurance against climate action plans that are inimical to rising sea levels or surface flooding. Market- provincial and federal economies, and to priced insurance, phased in slowly over people’s detriment in terms of higher prices time, would gradually encourage people to for everything. Energy, certainly, will cost move higher value properties and dense more, but so will the goods and services that population areas away from the most rely on that energy to show up in the local climatically vulnerable places at the water’s market, including food. Because of those edge or in the bottom of flood plains. higher energy prices, more people almost Similarly, shifting to fully priced and certainly are heading for energy poverty13 integrated private water systems can under these plans. mitigate drought by guiding water where it needs to be, at the price needed to pay for What should Canada be doing? The first and its provision. Infrastructure can be protected most obvious actions Canada could take through a combination of privatization and would be to postpone the implementation of market pricing, which creates an information the various climate action plans and carbon stream about which infrastructure is most taxes, until analysis can be done to (re) important to people, and provides the evaluate the impact of those activities on revenues with which to protect it from Canadian competitiveness with a Trumpian climatic risk. This is true for energy U.S. economy. Little economic analysis was infrastructure as well as for agricultural or done on these plans to begin with (and what pretty much any infrastructure. These was done, government won’t release14). It is actions will take time and certainly will probably too much to expect of policy- require significant resources, but addressing makers to actually retract their proposed the actual manifest risks of climate change climate action plans, but taking a breath to (rather than the slight change in ambient evaluate how U.S. developments will affect temperatures) is more likely to protect the impact of those plans should be people and property than is continued, justifiable even by the most ardent climate largely futile action to significantly reduce change advocate. greenhouse gas emissions.

Canada can do other things on the climate That doesn’t mean there is no room for front. There is little question that Canada will government. Many of the privatizations I be affected by man-made and natural mentioned would likely be public-private climatic changes. Indeed, one of the biggest partnerships that would require some lessons to have emerged from climate government investment. And then, there is science research is that the climate is quite the question of research and development. It volatile, with many and subtle drivers, some is well understood that the private sector of which are only weakly understood. under-invests in fundamental R&D at the levels of universities and national I wrote about this in an American context in laboratories. But as analysts with the Climate Change: The Resilience Option,15 a Breakthrough Institute16 point out, this type study I wrote for the American Enterprise of R&D is exactly what’s needed to pave the Institute. In that study, I observed that way for economic decarbonization. Until we governments can take many steps to can generate power and fuel mobility more

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cheaply than with carbon-intensive methods, 14 http://news.nationalpost.com/news/canada/canadian and more reliably than current alternatives -politics/liberals-know-how-much-its-carbon-tax-will-cost -consumers-but-wont-tell-you such as wind and solar power, we will see 15 http://www.aei.org/publication/climate-change-the- little progress on the kind of massive resilience-option/ decarbonization that Trudeau and other 16 http://thebreakthrough.org/archive/ signatories to the Paris agreement pledged national_institutes_of_energy 17 https://www.theguardian.com/environment/2014/ to achieve. jul/17/australia-kills-off-carbon-tax 18 http://www.jonesday.com/international-remedies-for- For now, while large-scale mitigation shows foreign-investors-in-europes-renewable-energy-sector- itself to be unsustainably expensive in 02-19-2015/ 19 http://www.smh.com.au/environment/climate- country after country, leading to retracted change/kyoto-deal-loses-four-big-nations-20110528- carbon taxes,17 disruptive rollbacks of 1f9dk.html renewable subsidies,18 retreats from 20 http://www.abc.net.au/news/2017-02-16/ international carbon-reduction pledges,19 policymakers-need-to-act-quickly-after-sa-blackouts- 20 prof-spoehr/8276572 power blackouts and growing levels of 21 https://www.fraserinstitute.org/studies/energy-costs- energy poverty,21 we should reconsider the and-canadian-households-how-much-are-we-spending overwhelming governmental focus on near- term mitigation of greenhouse gas KENNETH P. GREEN is Senior Director of the Center for Natural Resource Studies at the Fraser Institute. He emissions. We need to refocus some of that received his doctorate in Environmental Science and attention on the long neglected necessity to Engineering from the University of California, Los make Canada resilient to climate change, Angeles (UCLA), an M.S. in Molecular Genetics from San and ensure that Canadians are able to adapt Diego State University, and a B.S. in Biology from UCLA. Mr. Green has studied public policy involving energy, to climate changes whether man-made or risk, regulation, and the environment for nearly 20 years natural. By developing new, affordable and at public policy research institutions across North reliable forms of low-carbon energy America including the Reason Foundation, the production, and by powering more of the Environmental Literacy Council and the American Enterprise Institute. He has an extensive publication list world with our abundant supplies of natural of policy studies, magazine articles, opinion columns, gas, we can also do our part internationally book and encyclopedia chapters, and two to help developing countries get off high- supplementary textbooks on climate change and energy carbon fuels faster. These actions will have a policy intended for middle-school and collegiate audiences respectively. Mr. Green’s writing has greater impact on GHG reductions than appeared in major newspapers across the US and Canada could ever have achieved acting Canada, and he is a regular presence on both Canadian alone. and American radio and television. Mr. Green has testified before several state legislatures and regulatory End Notes agencies, as well as giving testimony to a variety of 1 http://www.cbc.ca/news/politics/paris-agreement- committees of the US House, US Senate and the House trudeau-sign-1.3547822 of Commons. 2 http://unfccc.int/paris_agreement/items/9444.php 3 https://www.alberta.ca/climate-leadership-plan.aspx Lead image: Pexels.com 4 https://news.ontario.ca/opo/en/2016/06/ontario- releases-new-climate-change-action-plan.html 5 https://climate.gov.bc.ca/feature/climate-leadership- plan/ 6 https://www.thestar.com/news/canada/2016/10/03/ justin-trudeaus-liberals-unveil-plan-to-price-carbon.html 7 https://www.ontario.ca/page/cap-and-trade-ontario 8 http://globalnews.ca/news/3097838/cap-and-trade-to- cost-people-business-8b-in-first-years-auditor/ 9 https://www.aei.org/publication/climate-change-caps- vs-taxes/ 10 http://www.cbc.ca/news/canada/calgary/carbon-tax- impact-consumers-business-1.3330391 11 https://www.thestar.com/news/canada/2015/04/13/ quebecs-cap-and-trade-system.html 12 https://www.fraserinstitute.org/sites/default/files/ examining-the-revenue-neutrality-of-bcs-carbon-tax.pdf 13 https://www.fraserinstitute.org/article/higher-energy- prices-fuel-energy-poverty-in-canada-especially-in-ontario

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As a practical matter, some of the projects More Hydro Power included in this estimate would face various economic, environmental or social barriers in Canada: that would prevent them from proceeding. For our purposes, however, even if we were Tapping our to heavily discount the estimate, the point is that Canada has very substantial untapped Potential capacity. by JOHN HAFFNER AND JIM BURPEE Our argument here is that Canada should develop some of this additional hydro, ydro power is, by far, the most because of its significant environmental, significant power generation source operational and economic advantages as a H in Canada’s electricity system. Every resource. The sections below are organized Canadian province except Prince Edward in two parts. First, we consider hydro Island has operating hydro power plants, and power’s environmental, operational and hydro provides about 60 per cent of the economic advantages. Second, we consider power generated across Canada. It provides four simple and practical ideas for advancing about 91 per cent of the electricity generation a hydro power agenda in Canada with these in British Columbia, 96 per cent in Manitoba advantages in mind. More Canadians need a and 99 per cent in Quebec. Yet, although better understanding of why hydro ought to hydro power is already the backbone of grow into an even more important Canadian electricity, there is still the potential component of Canada’s energy portfolio to develop significant amounts of additional than it is today. hydro in Canada. Canada has installed hydro capacity of 76,000 MW, and technical A. Hydro power’s advantages potential of 160,000 MW. In other words, Canada could, in theory, more than double Hydro power has environmental, operational its existing capacity. and economic advantages. These attributes

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distinguish hydro power from other sources emissions-reduction pathways. Put of generation and reinforce its importance differently, without replacing our remaining and value as a unique resource. carbon-intensive power sources with additional hydro and without further First, on the environmental front, hydro electrification, we raise the cost of reduction power emits almost no greenhouse gases efforts considerably and reduce our odds of (the initial methane emissions that success. With additional hydro, Canada can sometimes occur because of flooding are also sell surplus clean electricity to the close to negligible over the life of a facility). United States, which has much farther to go Canada has set a target of reducing than we do in de-carbonizing its electricity economy-wide emissions by 30 per cent system. below 2005 levels by 2030, and it also recognizes scientific findings that global Second, hydro power has unique operating reductions of at least 80 per cent will be benefits, including mass storage, emergency required by 2050 to limit climate change. As reserve, spinning reserve, load-following in other countries, de-carbonization of the capacity, black start and system stability. Or Canadian economy will require an electricity in simpler terms, hydro power can store lots system that is almost entirely carbon free, of energy and be turned on and off faster and one that expands electrification into than any other generation source. While other key sectors. Largely thanks to existing electricity customers often think they are just hydro power, Canadian electricity is already paying for electrons, what they really want relatively low carbon, with more than 80 per are reliable electrons and a smoothly cent of electricity from almost non-emitting functioning electricity system. sources. The Trottier Energy Futures Project (TEFP) has identified hydro power as an Hydro’s operational advantages have taken important contributor to minimum cost on greater importance with two parallel,

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carbon-related trends. On the one hand, have international divisions, but Canadian Canada is phasing out coal-fired generation companies could do more to leverage the and also looking to reduce reliance on gas- country’s deep hydroelectric knowledge to fired generation (coal and gas have support projects abroad and electrification traditionally provided some of the storage and low-carbon pathways in emerging and ramping flexibility alongside hydro). On economies. the other hand, Canada is adding generation from intermittent renewables such as wind B. How to advance a hydro power agenda and solar, non-dispatchable forms of in Canada electricity that require complementary production from hydro power for ensuring Canada is fortunate to have such a resource reliable, low-carbon electricity system in abundance. Given its environmental, supply. It is also important to note that while operational and economic advantages, hydro can provide back-up for wind and developing additional hydro potential ought solar in Canada, the reverse could not to be a key component of Canada’s energy happen. Since clean electricity needs to strategy. However, in the contest among grow to meet not just future demand but also competing stakeholder interests and to expand its role into other sectors, and sophisticated advocacy groups, this since intermittent renewables need hydro, outcome is far from certain. The following the interests of hydro and intermittent four ideas would help strengthen an agenda renewable power generation sources are for developing more hydro power in Canada. aligned. In the big picture, growth for hydro All ideas involve advancing the public is also good for wind and solar. interest, and would benefit hydro only insofar as it contributes to the public good: Finally, hydro power has significant economic advantages. Although it has a 1. Add a reliability factor in evaluating costs significant upfront capital cost, hydro of future generating options subsequently provides a stable, long-term source of electricity with very low operating It is common for different electricity costs. In North America, the cities with the generation technologies to be compared by lowest cost of electricity all benefit from using average energy costs (c/kwh) or initial hydro power. capital costs ($/MW). But these numbers only present part of the picture. From a Hydro power also provides substantial system-planning perspective it is important socioeconomic benefits – ones that have to have a high level of confidence that recently been quantified in an ambitious customer demand can be met second by study in Europe. Advisory firm DNV GL second throughout the year – their interest is conducted a macroeconomic study of hydro dependable capacity. To compare properly power in the 28 EU member states, large-storage hydro to, say, wind or solar, alongside Norway, Switzerland and Turkey. the cost of storage or demand-response The study found that hydro power’s programs to make the intermittent resource contribution in Europe per annum was dependable needs to be added to the cost around 38 billion euros, an amount similar to of energy. Slovenia’s GDP, and that this amount was projected to grow to around 75 to 90 billion 2. Push for a North American carbon price euros by 2030. In the Canadian context, “hydro power project development” could While the Trump administration represents generate, over the next two decades, “over an unfortunate reversal of global momentum $125 billion in investments and a million towards climate action following the Paris jobs.” Canadian hydroelectric expertise can COP agreement, climate science is a bigger also be applied to global markets, as story. Canada should dig in and engage with highlighted in a recent study by McKinsey & U.S. counterparts in their federal and state Company. Manitoba Hydro and BC Hydro governments, universities and civil society

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who also support climate action. We should demand should support the business case aim and push for a North American carbon- for new hydro projects in Canada. Minnesota pricing regime. If we had one, the value of Power and Manitoba Hydro recently signed hydro power’s emission-free generation an agreement that will take effect in 2020 would be obvious and reflected in market and enable Minnesota Power to store some activity. of the wind power it generates in Manitoba Hydro’s hydro stations. Many more projects 3. Include de-carbonization contribution as along these lines should be developed part of project assessments between the two countries. The challenge, however, will be to figure out how to value Many debates in Canada about the merits of the cross-border GHG reductions specific proposed hydro projects are framed appropriately so that, for instance, British too narrowly. When projects are being Columbia ratepayers are not paying for an considered, there ought to be a discussion Alberta or California benefit. Our electricity of how they could support electrification of market interactions do not capture these other sectors and allow Canada as a whole benefits appropriately today. to achieve lower emissions. This approach will require a broader discussion of costs Conclusion and benefits than has traditionally been the Tapping significant additional hydroelectric case. As part of this expansion, First Nations resources will require policy-makers to communities should not only be consulted in develop a committed, long-term, good faith about the potential impacts of interdisciplinary cross-border vision. Climate local projects and invited to partner on change is happening. In integrating scientific projects, they should also be partners in the understanding with operational and choices Canada will need to make in economic considerations in energy planning, achieving its greenhouse gas reduction Canada will be well positioned to optimize its targets. If First Nations communities can preparations for, and participation in, the low support the development of significant -carbon economy of the future, with hydro additional capacity in hydro, they are also playing a critical role. helping Canada to do its part to avert the climate crisis. JOHN HAFFNER is a consultant with extensive experience in the cleantech, energy and infrastructure sectors. As President of Haffner Group, a Toronto- and 4. Strengthen low-carbon electricity co- Hong Kong-based company he founded in 2011, he operation across jurisdictions provides advisory and execution services for clients in Canada and Asia. Haffner has more than 15 years’ experience working on energy and environmental From the standpoint of electricity planning, issues, including major projects for Ontario Power Canada’s provinces often treat their borders Generation and the Canadian Electricity Association. He as fences. We could do much more to is a 2008 Yale World Fellow, and in 2011 was nominated improve interprovincial electricity in pursuit as an Asia 21 Young Leader by Asia Society. He is also a lecturer in Climate Change and Energy Law at McGill of optimal ways to use clean electrons to University’s Faculty of Law. reduce emissions. The same applies between Canada and the United States. We JIM BURPEE has been working in the electricity sector have an interconnected North American grid on a provincial, federal, North American and global level for 40 years. He has worked as a senior executive for with multiple interties, and as mentioned much of that time (Ontario Hydro/ Ontario Power earlier, the U.S.’s electricity system is much Generation) including six years at the CEO level (Bridge more emissions-intensive than the Canadian Renewable Energy Technologies, Canadian Electricity system. Additional Canadian hydro can be Association). He still writes, speaks and consults on issues of high level corporate strategy and public policy built to serve not only Canadian de- with respect to electricity. carbonization efforts, but also those in the United States. U.S. states should be able to Lead image: Wikimedia Commons include imported clean electrons from Canada as part of their emissions reductions, and evidence of future U.S.

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Canadian Global Affairs Institute Board of Directors

George Brookman West Canadian Industries

Don Douglas Jetstream Capital Corporation

Sheila McIntosh Corporate Director

Kelly Ogle Canadian Global Affairs Institute

Craig Stewart Corporate Director

Ian Wild (Chair) Corporate Director

Canadian Global Affairs Institute Management and Staff

Kelly Ogle, President & CEO—Calgary David Bercuson, Program Director —Calgary Colin Robertson, Vice President—Ottawa David Perry, Senior Analyst—Ottawa Adam Frost, Associate Research and Development Coordinator—Calgary Jared Maltais, Social Media Coordinator—Ottawa Carri Daye, Administrative Coordinator—Calgary Mathew Preston, Outreach Coordinator—Ottawa

Volume XVI • Issue Ill The Global Exchange | 55

Canadian Global Affairs Institute

The Canadian Global Affairs Institute focuses on the entire range of Canada’s international relations in all its forms including (in partnership with the University of Calgary’s School of Public Policy), trade investment and international capacity building. Successor to the Canadian Defence and Foreign Affairs Institute (CDFAI, which was established in 2001), the Institute works to inform Canadians about the importance of having a respected and influential voice in those parts of the globe where Canada has significant interests due to trade and investment, origins of Canada’s population, geographic security (and especially security of North America in conjunction with the United States) or the peace and freedom of allied nations. The Institute aims to demonstrate to Canadians the importance of comprehensive foreign, defence and trade policies which both express our values and represent our interests. The Institute was created to bridge the gap between what Canadians need to know about Canadian international activities and what they do know. Historically Canadians have tended to look abroad out of a search for markets because Canada depends heavily on foreign trade. In the modern post-Cold War world, however, global security and stability have become the bedrocks of global commerce and the free movement of people, goods and ideas across international boundaries. Canada has striven to open the world since the 1930s and was a driving factor behind the adoption of the main structures which underpin globalization such as the International Monetary Fund, the World Bank, the International Trade Organization and emerging free trade networks connecting dozens of international economies. The Canadian Global Affairs Institute recognizes Canada’s contribution to a globalized world and aims to educate Canadians about Canada’s role in that process and the connection between globalization and security. In all its activities the Institute is a charitable, non-partisan, non-advocacy organization that provides a platform for a variety of viewpoints. It is supported financially by the contributions of individuals, foundations, and corporations. Conclusions or opinions expressed in Institute publications and programs are those of the author(s) and do not necessarily reflect the views of Institute staff, fellows, directors, advisors or any individuals or organizations that provide financial support to, or collaborate with, the Institute.

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