Energy Perspectives

Canadian energy at a crossroads? Part 3

Let’s explore a second factor shaping our energy future; climate and carbon.

Almost thirty years after the emergence of the climate debate, the public discussions on energy and climate continue as if they were being conducted on different planets. At the international level we have, on the one hand, a base case outlook from the International Energy Association (IEA) that sees emissions growth of 16 percent from 2013 to 2040. On the other, the same governments who are members of the IEA have cheerfully adopted a goal of holding warming to 1.5 degrees Celsius by 2050 which would mean a drastic reduction in emissions worldwide with correspondingly reduced demand for coal and oil and even natural gas.

Very rarely can one find a conversation in which those two realities are connected. In Canada that disconnect is as bad or worse.

Somewhat refreshingly, Canadian environment ministers recently seemed to connect some of the dots, noting that the underlying trend in Canadian emissions implies growth (albeit modest), not decline. What the environment ministers did not say was that to meet any of the 2030 national targets implies a change in trajectory which is probably impossible under any circumstances. At the very least Canada would have to very quickly adopt policy action of much greater weight than we have seen even from Ontario with its coal phase out or BC and Alberta with their carbon taxes.

So what does this mean for Canadian energy producers? It depends.

If governments find the political will to act in ways commensurate with their aspirations and commitments then we are looking at radical increases in carbon costs either directly through carbon prices or indirectly through regulation. Are we willing to tell consumers that their energy prices will need to go up by 50 or 100 percent or more – pretty much starting tomorrow – in order to meet our 2030 GHG commitments? And are we willing to absorb or mitigate the effects on high energy intensity industries that are already subject to pressure from cost and global competition?

More likely, we will continue to dither and that in turn will add greatly to risk and compound the already malign effects of low public confidence in both the energy industry and in policy makers.

Which brings me to the next factor. Public confidence or, as was, “social licence”, has become the issue du jour in Canadian energy circles.

In one of my favourite lines from Yes Minister Sir Humphrey opines that if once people start talking about something, the next thing you know they will start thinking about it. On the public confidence issue we may well be on the cusp of actually thinking about it but we have a ways to go.

The old way of doing things had to change. Canadian communities had clearly reached the point where they would not be passive hosts for energy projects whether pipes, power lines, power plants (of any sort) or oil and gas operations. But this necessity corrective risks turning into a rout in which “communities”, however defined, become the granters of “licence”, however defined, and traditional permission granting authorities – governments and regulatory bodies – are reduced to being observers or simply one of the steps along the way to a wildly risky future.

Meanwhile centrifugal tendencies in Canada seem to be growing.

Provincial and municipal government leaders – in many parts of Canada - make pronouncements about energy infrastructure that appear to belie any familiarity with Canada’s 1867 constitution. What if the bargain of Canadian confederation included a provision along the lines of the following?

“All Articles of the Growth, Produce, or Manufacture of any one of the Provinces shall, from and after the Union, be admitted free into each of the other Provinces” (implicitly, such a clause would guarantee transport across and through other provinces equally free of unreasonable hindrance)

Well it turns out that we have such a provision, just no agreement that it matters any more. If every province and every “community”, including several hundred First Nations governments all find themselves with an effective veto on energy projects then we are hardly a country any more. And so far at least, much of the debate and many political pronouncements have reinforced these tendencies.

Our challenge with respect to public confidence is to restore confidence in the institutions that actually make this country work, starting with the constitution but certainly not ending there.

The federal government’s announcement on temporary measures respecting energy approvals was probably a necessary antidote to the growing chorus of vocal opposition to the National Energy Board.

The deeper problem is the need to rebuild confidence in the whole institutional structure both within provinces and at the national level and do so while keeping processes functional and efficient. All energy regulators in Canada know this and most are hard at work looking for solutions.

But we should keep things in perspective; although much needs to be done to improve the system, it is also true that Canadian regulators are looked to by other regulators around the world as models to be emulated. The proposition that the regulatory system is fundamentally “broken” is simply a canard even though some of the public discourse suggests otherwise.

Regardless, for some time into the future most energy decision processes will be slower, more costly and more uncertain.

But the world is not slowing down, including the world of technological change, which is the fourth factor on which I want to focus.

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