Notes for a presentation in Saint John at the NEB Modernization hearing, March 21st, 2017.

My Thanks to the Panel for giving me the opportunity to present my

views this morning.

---

While organisational, and process modernisation are key components

of your initiative, I believe it is a change in Mandate that should drive

any need for organisational and process reform or enhancement.

The historical context for establishing the NEB explains in part the

depth of challenge you have today in reframing it as an effective

broker in a broader, energy debate.

The NEB was shaped by the West’s need to get resources to market

in the late ‘50s.

History buffs will remember the national pipeline debate precipitated

by C.D. Howe who decided that a pipeline to carry natural gas from

Alberta to central Canada was a “national necessity”.

((- http://www.thecanadianencyclopedia.ca/en/article/pipelinedebate/.

Accessed Mar 13th 2017.))

That 1956 debate played out in Parliament and it was bitter. The bill to

create Canada’s first National Pipeline was approved. But, its passage

was blamed for the defeat of Louis St. Laurent’s Liberals and the

subsequent election of the Diefenbaker conservatives in 1957.

Ironically, Dief was opposed to the TCPL national gas pipeline. But once in

office he articulated the need for another pipeline, an oil pipeline to the

east to provide a market for Alberta’s independent oil producers.

These events, we are told, were the impetus for his establishment of

the NEB.

In the end, an all-Canadian oil pipeline to Montreal was never

built and cheaper foreign oil continues to drive eastern refineries while

Alberta still depends, largely on sales into the US market.

Here in New Brunswick, we understand this north-south orientation

very well.

Our local refinery is responsible for about 70% of Canada’s

refined petroleum product exports, shipped largely by sea into New

England.

Energy also moves through our province in the form of a gas

pipeline and by wire through electric power interconnections with the

State of Maine.

Given the renewed debate about pipelines from the west, it’s not

surprising that the NEB is still seen by some as carrying out the role

intended by Diefenbaker; a pipeline regulator whose job has changed

little from when Dief sought the help of Henry Borden to enable a new

market for Alberta’s oil.

Clearly Much has changed in the last 58 years:

• “Energy” is much more than fossil fuels;

• Science has improved our understanding of human impacts on our

planet;

• a revolution in science and engineering has had profound effect, not

only on the way we produce energy but also on its availability;

• Technology has also changed the way we consume energy and has

increased the interconnectivity among fuel types;

• EVs for example, have brought electricity into competition with oil in

the transport sector;

• Aboriginal rights have been clarified and Canadians expect its

government to honour those rights; as well as…

• our international obligations with respect to climate change.

– Yet while our energy horizon has transformed, the public’s view of

the NEB’s role has remained all but constant during that time.

And now we wonder what role if any, the NEB will fulfil in shaping our

new energy future if and when we leave the age of oil?

The pipelines the NEB is reviewing today may well see us past peak

consumption of oil and may even become stranded or orphaned by

change that is is increasing in intensity with each passing year.

However, the issues driving this are occurring almost completely

outside the traditional mandate and focus of the Board.

If today’s government wants the NEB is to be seen as more than a

facilitator of pipelines from the West, then its mandate should be

rethought in a way that breaks with this tradition.

Frankly it matters not a wit if the NEB returns to more open and

accessible public hearing processes, if it remains set the era of the

’50’s.

Why would you reinvent a buggy whip if there was not a market for it?

---

Just as it may be premature to get into the weeds on process

issues before addressing mandate, it would also be premature to

address the question of Mandate without first looking at what we want

to accomplish as a nation in the field of energy and the environment.

It will always come down to the need for a national vision, or a national

energy policy, or a national energy framework, or a national energy

program or as one of my former NRCan Deputy ministers frustratedly

called it, a “National energy Thingy”.

Well thingy or not, Canada must have Energy Security and,

 – It must be Sustainable and Affordable

These 3 goals have always formed the basis of what we thought

underlay the need for national energy policy.

But the National Energy Program(NEP) debate has poisoned the environment

for any national energy vision for about the last 30 years.

Other than a few halfhearted efforts after the NEP was eviscerated in

the early ’80’s, no serious attempt has been made to replace it.

I believe that the lack of a national energy policy means that not only

is the NEB without guidance, the public has no context with which to

judge the merits of energy development.

Every development that comes before the Board falls into a policy

vacuum and is forced to host a debate that re-plays the policy

challenges of the day in search of social license.

Today, development decisions must be made with more variables,

must be better informed, and must be taken before windows of

opportunity close. But without an evergreen energy plan, Canada is

missing opportunities by not examining alternatives.

If Canada really is the energy superpower the previous Prime Minister

boasted about, and if that status is still based on 165billion boe in

bitumen reserves, then we will cease to be even a minor energy

player if the world reaches peak oil demand in less than a decade

from now and Canada hasn’t developed options.

The National Energy Board is facing change without the remit to

address the underlying issues driving it or to resolve the choices we

face.

Any modernisation effort that doesn’t reflect this changing landscape

will fall short.

If I have a single take away from the national pipeline debate it is this:

 – We cannot expect each successive development review to

re-litigate the mountain of unresolved policy questions that have

balkanized public discourse in Canada. – 

It’s not the current responsibility of the NEB to resolve a national

policy debate. But a national Energy Policy is clearly a prerequisite for

modernising the NEB!

So now I’ve sprung my own trap with respect to the need for a

renewed mandate that must follow from our admittedly nonexistent

National Energy Policy!

I’ll now walk to the end of my plank and propose that, in any event,

the National Energy Board should be rolled into a new

National Energy Agency with a broader, more balanced

focus on all forms of energy development, distribution, and

consumption …And with the ability to work with the provinces on

areas of overlapping jurisdiction.

Yes, some of this expanded mandate will appear to create over lap.

I’m not suggesting we do that. On the contrary I believe we need to

develop new partnerships with the provinces to reflect our new interconnected,

interdependent world of energy.

But someone has to lead! For too long the energy policy area was vacated by the Feds, it has languished. And I say this understanding that the Provincial efforts to do this on their own have been an abject failure.

Given the lack of time, I will use a broad brush to paint a rough picture of what a new agency might look like. I’d be happy to follow up if you want more detail.

• The new agency should have a policy function, one where its

operational experience can feed back lessons learned in real time;

And of course, the policy function would still rely on the government of

the day for general scoping and direction and final approval.

• The Agency should have a role in science innovation, development, and mandate to do outreach in areas like energy efficiency;I’m struggling on how to deal with the regulatory function. I favour separating the health, safety and environmental protection from
  from the development review function.

• I believe the new agency should be headquartered in Ottawa and

with operational divisions in three locations; West, Central &

East, perhaps sharing some space with the offshore boards in Nova Scotia or Newfoundland and Labrador.

• Permanent Board Members, if that is the model adopted, should

reside in one of the three regional office cities and/or Ottawa.

• AS for public engagement, clearly the changes that locked down

public hearing processes ought to be reversed and ongoing

engagement with first nations should be strengthened.

-30-

As another crude oil pipeline spill unfolded in Saskatchewan, this time settling 250,000 litres into the North Saskatchewan River, pipeline proponents might be forgiven for wondering if achieving social license for oil sands pipelines, like Energy East, is becoming an impossible dream.

Adding to the government’s pipeline dilemma was a recent news report that National Energy Board panel members and staff met in private with former Quebec Premier Jean Charest who has acted as a pipeline consultant. The NEB at first denied that any discussion of Energy East had taken place, but backtracked when documents revealed that it had been on the agenda, a procedural no-no for panelists presiding over a quasi-judicial tribunal and one that has the potential to taint the Energy East review process.

These events dealt a real blow to the Trudeau Government’s attempts to rehabilitate a development review process that was left in tatters by the previous government. With the industry’s continuing track record showing little sign of improvement it’s hard to see pipelines meeting Trudeau’s stated precondition of securing Social License before new ones are approved. 

In Saskatchewan more than 8,000 oil spills have been reported since 2006. Many, but not all, were contained and removed. However, as we’ve seen with the Burnaby BC spill in 2007, the Kalamazoo River spill of dilbit in Michigan in 2012, and are now seeing with the latest Saskatchewan incident, pipeline spills occur with regularity throughout North America and their impacts can be devastating. It is no wonder then that social license has been and will be hard to achieve.

Social license is simply shorthand for earned public support for development. Mining companies have long understood that community support for their business must be earned, and earned continuously.

Social license is almost certainly more attainable with an unblemished health, safety, and environmental record. But it is also gained by engaging the public openly with a conversation that addresses both the risks like spills as well as benefits like jobs profits and taxes. It is quickly lost by performing badly. The latest oil spill is a real-world case on point.

Public sentiment toward oil sands development and the pipelines that enable it may be strongest in Alberta but declines sharply further away from oil country. Analysis has shown that public appetite for assuming risk is proportional to perception of the rewards gained.

In other words, “what’s in it for me?” is a question that industry would rather address than, “what is the cost of development?”. It is not surprising that Energy East has been sold on  jobs and tax revenue with little discussion of risk.

Here in New Brunswick where desperation drives public interest in promised jobs, public support for development should not be taken as a lack of concern about the environment.

As pipeline risks are exposed through real world events and as additional evidence is placed before the National Energy board, pipeline proponents may regret not addressing the downside of pipelines in its ongoing media campaign. Politicians who have become cheerleaders instead of unbiased keepers of the public interest may also find themselves off side with voters.

The former Harper Government set aside more than $30 million for a PR campaign to promote pipeline development. It focussed more on economic arguments, including those put forward by industry, and less on the environmental risks raised by scientists and by opponents, leaving many questioning whether this created a conflict, with government’s responsibility to regulate development. I believe it clearly did and I don’t believe this represents the best tradition of the public service, my former calling.

With the Saskatchewan oil spill now reaching hundreds of kilometres down river we are reminded that the direct risks posed by pipelines are borne by landowners and communities all along their rights of way and too many communities are paying a hefty price.

The reality is that those who reap the lion’s share of benefits do not shoulder all the risks. Increasingly this is seen as a lopsided bargain forced on an unwilling public through a politicised process that seems to be more about approving development than holding it to account.

The industry track record is reason enough that governments should not sanction new pipelines without the full support of those living and working along the route and not without pushing industry to raise the bar to make pipelines safer than their recent performance demonstrates.

Why must we read that “world class spill response” is unable to contain a 250,000 litre spill without endangering the water supply of towns along the way and why should hours or days pass before spills are identified and a response is triggered? Why is it acceptable to leave spilled bitumen in the natural environment because there are no practical means to clean it up?

Imagine if a serious leak in the proposed Energy East pipeline were to go unresolved for 18 hours as happened in Michigan or even 14 hours as apparently happened in Saskatchewan. If just 10% of the crude flowing in the pipeline were to leak for those 14 hours, as much as 10 million litres could end up in a river, lake, or stream before the pipeline was shut down.  With this industry’s spill record, this is not an acceptable risk under any circumstance and more so if your drinking water happens to be downstream of the event.

When a pipeline fails in New Brunswick will we expect communities along the route to provide the first responders, many of whom are volunteers? Will we ask them to risk their health and safety to deal with a crisis?

The annual cost of having first responders available, as well as equipping and training them throughout the pipeline’s life should be borne entirely by the pipeline company, not by the local communities nor by taxpayers. That should have been the starting point for those bargaining on our behalf. New Brunswickers will have to wonder as it, like other pipeline cost issues, are unlikely to be addressed by our political leaders.

With the Saskatchewan diluted bitumen spill now reported to have reached a distance equal to the entire length of the Saint John River Valley, those of us who rely on the Saint John River watershed have a right to ask, when are pipelines going to be equipped with fail-safe systems that effectively eliminate the risk of spills, especially near water or wetlands? Why must it be a trade-off with profit frequently trumping public interest?

Surely the best response should be to eliminate the spill potential before it happens. In Saskatchewan the upgrade project behind their spill was not subjected to an environmental review before the pipeline was recommissioned. Apparently in that province it is to have development without effective public oversight. The public might keep this in mind the next time Saskatchewan Premier Wall makes a visit east to tell us about the “safe” business of his pipelines.

In coming weeks, those behind Energy East will have to reassure communities along their route that the Saskatchewan spill or the Michigan spill cannot happen to them. Changing the channel with, “Pipelines are safer than rail” doesn’t qualify as a responsible answer when the source of drinking water for so many here is potentially at risk and when so many existing jobs in agriculture, forestry and tourism require a clean and healthy environment.

Pipeline advocates have focussed their media campaigns almost entirely on fuzzy promises of temporary jobs while ignoring the very real long term risks to existing ones. In ignoring Energy East’s very real downside risks, they have been outflanked by events like the Saskatchewan River spill.

The National Energy Board will have to do a much better job of demonstrating that its review process is rigorous and it’s staff and Panel members are without conflict. That should happen before the Energy East hearings move out of New Brunswick and into the more hostile territory of Quebec and Ontario.

It’s also time Premier Gallant clearly spelled out his expectations for environmental protection, because just as Premier Brad Wall has been forced to do, Mr. Gallant will be the one explaining why the risk-taking was necessary and why he failed to protect our interests. That is if things go as wrong here as they have in Wall’s Saskatchewan.

Last December Prime Minister Trudeau agreed, on behalf of Canada, (and the provinces), to reduce this country’s greenhouse gas emissions to a level 25% below our emissions of eleven years ago.

In Vancouver, we have been told, the Prime Minister wanted to talk about pricing carbon as the principal mechanism for achieving Canada’s GHG reduction target.

The problem is that carbon pricing by itself is a one-size-fits-all solution to a complex set of challenges. The provinces think they may have other options or simply don’t want to play second fiddle to Ottawa, or just don’t want to play on the climate file at all.

Whatever the reason, one thing is clear, we have missed vital first steps in classical problem solving. That is properly defining the problem and giving ownership of and accountability for that problem to each and every player at the table.

It is not clear at all if each Premier knows how their province fits in the big picture, what is expected of his or her province. How will the burden of GHG reductions be shared across Canada? This question has been ignored, in my opinion, because the answer forces political leaders into a corner with limited options. They realize someone’s ox is going to be gored as long as the owners pursue certain energy intensive activity.

Key to sharing the burden is a formula that fairly distributes the load and a performance measure that captures results. While Canada can be judged by any number, per capita emissions is the standard most often used and could be the one Ottawa might default to if there isn’t agreement on a more nuanced one that applies the 25% reduction formula on each province’s 2005 base emissions. Certainly critics will point out that the per capita emissions measure has allowed some developing nations to grow their emissions unreasonably. Others believe it is the most equitable way to share responsibility. Again choosing the right formula is contentious and a discussion that should have been concluded before Vancouver. 

Without this step, however, the entire process is in danger of derailment. We’ve skipped to a solution before the players have accepted responsibility and accountability for the problem. 

Perhaps we should reorder things:

Mr. Trudeau should quantify and distribute the burden among provinces. He needs agreement on a formula that ensures, at a minimum, all Canadians are treated fairly and that the result sums to our national reduction target. No one should expect a free ride. But there also needs to be some recognition that some provinces have a higher hill to climb to meet their share of responsibility.

If premiers want control over how they meet their obligations then give them leeway but hold them accountable for performance. Each province must be given time to plan and demonstrate that their obligations can be met (through whatever means they choose including pricing carbon and/or a Canadian emissions trading scheme, or energy efficiency, or, or).

Finally, If there is no agreement or if there are persistent free-riders, only then should Ottawa impose a solution. In the meantime, Canadians could be told what their province’s share of Canada’s emissions reduction plan amounts to.

Informed public opinion has a way of letting more of the sunshine in…

“I look forward to working with the Premiers on combatting climate change and moving toward a greener, more sustainable Canadian economy better positioned to compete globally in the areas of clean knowledge and technologies.” – Rt. Hon. Justin Trudeau, Prime Minister of Canada.

So it begins.

The Prime Minister will sit down with Premiers to talk climate change in Vancouver on March 3rd, 2016, fulfilling a commitment he made when the December 2015 CoP21 meeting concluded in Paris.

The Prime Minister has stated his intention to move an agenda forward consisting of; “reducing greenhouse gas emissions, including through carbon pricing”; creating  “a climate resilient economy”,  and making “investments in public transit, green infrastructure and clean technologies”.

The biggest challenge for the leaders meeting in Vancouver, however, is Canada’s commitment to reduce GHG emissions by 30% from 2005 levels. In achieving this, Mr. Trudeau faces the ghost of Kyoto past, Mr. Chretien’s commitment to reduce Canada’s GHG emissions by 6% from 1990 levels by 2012. – We never came close.

Canada now must emit 30% fewer GHGs than we were producing 11 years ago. But, given our reputation as an environmental truant in the years since 1997, we have a lot of work to do. We failed to meet the Kyoto target. Our emissions actually increased by more than 24% before the Harper Government took us out of Kyoto. By 2012, Canadian emissions had increased in every province except Quebec.

If public utterances are any indication, Mr. Trudeau is facing an uphill battle in Vancouver – a veritable brick Wall.

The Saskatchewan Premier will test Mr. Trudeau’s skills of diplomacy by swimming against even the  limited current of commitment from other provinces to meet Canada’s international GHG reduction obligations.

Mr. Wall isn’t the only problem premier. Alberta’s Premier Notley has done a brilliant job of wearing sheep’s clothing while inserting a policy placeholder allowing for substantial increases in its emission profile to accommodate expansion of its oil sands. It remains to be seen whether Alberta’s announced move away from coal will result in a net reduction of that province’s GHG emissions. If it doesn’t, something has to give…

The Paris agreement means that provinces that have emissions-rich development, like Alberta and Saskatchewan will have to either scale back that development; adopt expensive emissions mitigation like Carbon Capture; or participate in an emissions trading scheme, buying credit from provinces who have successfully reduced their carbon footprint and have spare credit to offset the poor performers.

…Or they can do what Brad Wall seems to be doing, a lot of howling aimed at changing the channel.

By contrast the less antagonistic approach of Premier Notley of Alberta holds some promise that Wall’s destructive intransigence will not prevail and if we can’t solve the puzzle we will at least continue to meet…and talk… and eventually solve this thing.

That is if Notley doesn’t get sucked into Wall’s phoney pipeline war that threatens to sideline the climate discussion permanently.

One thing is clear. We can no longer paper over the contradiction of some provinces making a halfway reasonable effort to deal with climate change and others who are resolutely marching in the opposite direction.

©Fairweather Hill, February 14th, 2016

While the petroleum industry in Canada’s west is coming to grips with the reality that the lowest oil prices in a decade may be more than a temporary blip, western Canadian political leaders haven’t yet acknowledged that it might be time to rethink their approach to growth.

In the west, oil has been an economic driver since the late forties and while boom times have been followed by notable busts, the oil habit is hard to break.

Saskatchewan Premier Brad Wall doesn’t want voters questioning the wisdom of his government’s strategy for economic growth so close to an election. So he’s seized on a diversion – a phony pipeline war. It’s clearly easier than admitting that without fail, bust follows boom. It’s the inevitability never talked about by politicians. It’s buried in the fine print on the bill of goods sold to western voters. Unfortunately for Wall this bust looks like it’ll be around well beyond the next provincial election.

While analysts are not in agreement on how long low prices will persist, there is growing acknowledgement that oil supply,  (from unconventional oil and gas development and the return of conventional supplies like those from Iraq and now Iran), has taken over as the key market influence for the mid term.

The reality of growing oversupply has displaced earlier optimistic chatter that demand from emerging markets will rescue beleaguered oil producers. Of course, that also means the case for new pipelines, to get more western Canadian oil to those new markets, lies seemingly in tatters.

We have been unable to outrun the market forces which caused the House of Commons Standing Committee on Natural Resources to argue for market diversification in 2013.

As it turned out, Committee members were unwilling to accept that predicted demand growth from emerging markets was overly optimistic and that it would not offset the declining demand from the world’s mature markets. They were wrong.  World demand for oil did not grow at the rate needed to absorb surging production. MPs were not alone in missing this. Most analysts in 2013 failed to predict the events of 2015/16.

Political leaders like Wall made unconventional oil a key element underpinning their economic development strategies. Western politicians have spent so much political capital selling the merits of oil and gas development and fighting emotional pipeline battles, it’s easy to see why they ignored signs of impending change in the marketplace.

Their solution to a global oil glut has been to push for more pipelines to ship more of our expensive Canadian oil to a world market already over-supplied with cheaper conventional oil, a world where no one except a few blinkered ideologues are concerned about a fiction called “ethical oil”.  As a winning strategy, this is counterintuitive to most market watchers outside Canada.

With the challenges facing the oil sector, attacking pipeline opponents looks very much like an attempt to change the political channel – scapegoating.  It might appeal to the political base, but delays the inevitable positioning for what’s next.

It is clear that Montreal Mayor, Denis Coderre, isn’t going to stop oil sands development, but market economics might. So If leaders want to nation-build, they should roll up their sleeves, now, and start working on a plan B.

Western provinces ought to ramp up efforts to further diversify their economies in the event oil prices don’t rebound. If in future, the world is willing to take more Canadian oil sands production then the west’s resource base will be a bonus. That is if it can be developed sustainably and competitively.

As for pipelines, Trans Canada Pipelines announced it was pushing back its Energy East project by two years to 2020. That was last spring and far from improving, the market for Energy East’s oil is still over-supplied with cheaper oil from the Atlantic basin and beyond. These weak oil markets give us time to get the national vision thing properly sorted out once and for all. It also gives us time do some public policy development to help move along that needed national consensus on our future.

In the meantime, maybe a collective deep breath is in order… sighhh…

 

This post appeared as an op ed in Saint John Telegraph Journal on November 6th, 2015.

Prime Minister Trudeau will have many pressing challenges facing his new administration, among them will be rehabilitating Canada’s reputation on climate change without alienating any of Canada’s regional interests.  How effectively he does that will be an early test of his leadership.

Trudeau must walk a fine line between the many economic spinoffs that come from producing fossil-fuel-based energy and the very real need to develop a sustainable economy (including one powered by more renewable energy) while repairing Canada’s damaged environmental reputation.

Canada’s position going into the 2015 United Nations Climate Change Conference in Paris next month has been developed by the outgoing Harper government. Trudeau will have little time to place his new government’s imprint on an updated Canadian stance. It is unlikely, however, that the new government will over-promise given our experience with the overly optimistic goals of Kyoto in 1992.

In any event, improving on Canada’s reputation will not be difficult given the very low bar set by Mr. Harper. The outgoing Conservative government’s approach to climate and energy policy was to do as little as possible.

Under the Harper government, Canada’s public interest has been ill-defined, but was more or less synonymous with the commercial interests of the oil and gas sector. The federal election results demonstrated a growing impatience with this at least outside Canada’s oil producing regions.

With Mr. Trudeau’s landslide, Canada can now emerge from a decade where federal environmental oversight and regulation were diminished and in the eyes of the public, the lines between public and corporate interest were blurred. This has been corrosive to the social license developers should strive for and without which projects can bog down in protest and litigation. It’s not surprising, then, that during Mr. Harper’s tenure not a single new Canadian interprovincial pipeline has been built while Canada’s reputation suffered at home and abroad.

Canada’s position in Paris will likely signal a new way of doing business here. Energy infrastructure projects like Energy East, that have received enthusiastic political support well before regulatory approval, have turned the federal review process upside down and undermined public confidence in the government’s ability to effectively regulate development. The election of a majority government with a broad electoral base can change this dynamic.

The oil and gas sector will understand that the road to public support for their industry is through strengthened regulation, oversight, and environmental performance. Industry would be well advised to focus on the overlap between their near term commercial interests and Canada’s long term public interest when preparing to bring their case to the new government.

The dysfunction of the Harper years needs urgent attention and the first agenda item, a climate deal, will set the stage for renewed domestic energy policy development. The Liberal Party’s election platform committed to:

“attending the Paris climate conference, and within 90 days, holding a First Ministers meeting to work together on a framework for combatting climate change. Central to this would be the creation of national emissions reduction targets.”

Candidate Trudeau has created an interesting challenge for Prime Minister Trudeau. He has acknowledged that national emissions targets will be necessary. On the other hand he has created a Gordian knot with a commitment that those targets will be achieved by “working together” with the provinces.

Provincial Premiers responsible for managing their economic development understand all too well that growth traditionally means more emissions. That is particularly true when development is in energy intensive industries like Canada’s oil sands.

Responsibility for regulating oil and gas production and resource development in Canada generally rests with the provinces. The responsibility for establishing national goals and meeting international commitments rests with the Prime Minister of Canada and his government.

While resolving those sometimes conflicting interests is a test of leadership, the process can be helped considerably if it builds upon a well thought out national energy policy. Unfortunately few politicians in Canada have the courage to revisit a national energy policy, which is a pity.

Perhaps Mr. Trudeau will be the exception and while avoiding the pitfalls of his father’s National Energy Program, he can also avoid the train wreck that is bound to occur if the provinces are left without effective federal leadership to sort out Canada’s climate change commitments and their impact on the economic, social, and environmental wellbeing of our country.

There are many models of collaboration. One of the most productive was developed here in Atlantic Canada. That was the Atlantic Energy Roundtable. Mr. Trudeau’s government should take a close look at what it achieved and begin the process of getting us to permanent solutions.

With the US/China Joint Announcement on Climate Change of a few days ago, I was reminded of a presentation I gave in Ottawa to the House of Commons Standing Committee on Natural Resources in May of 2013.

The US and China had just announced the formation of a working group to advance their bilateral efforts to address climate change. It appears their efforts have paid off. Their agreement will have far-reaching impacts, none the least of which will be  reduced growth in China’s appetite for fossil fuels as the energy intensity of its expanding economy declines.

In May of 2013, I warned MP’s that Canadian producers might not be able to outrun the trends in the US energy market by diversifying into China and India.

With China, Canada’s best bet for a new fossil fuel market, now adopting a commitment to meet 20% of its needs with clean energy, it seems my prediction may be playing out. Canada’s potential for market diversification will be reduced unless Canadian producers can deal with their emissions and, given the slide in prices, their costs.

Here is the presentation I delivered to the standing Committee, two years ago. I think it’s still relevant:

May 9th, 2013

House of Commons Standing Committee on Natural Resources

Thank you Mr. Chair and committee members for giving me the opportunity to speak to you this afternoon.

For much of the last two and a half decades I have provided advice to governments and industry on Atlantic Canadian energy and natural resources issues…

I appear here today as an individual. The opinions I express are my own.

Time permitting I will outline:

• My perspective on the Canadian situation;
• I will identify some threats to our position as an energy exporter;

• Offer some advice on how we should use the benefits that come from export diversification; and
• Identify some things we need to do to facilitate the integration of our domestic markets and to increase exports.

Stranded resources are not a new problem

In the fall of 1957 Premier Ernest Manning came to Ottawa to enlist the help of Prime Minister Diefenbaker to solve Alberta’s over-supply of oil. He faced essentially the same problem we are facing today. Existing transportation infrastructure had been overwhelmed by new production from LeDuc and, even then, the East was a net importer of foreign oil.

56 years ago Canada might have developed a national vision that included energy corridors from coast to coast to coast. These could have supported market integration for all forms of energy.

Instead, we traded an integrated domestic market for a series of export driven projects that, with the exception of the trans-Canada natural gas pipeline, created infrastructure running north to south. These served important projects and some producing areas. But did little to create a national domestic market.

Threats are global

Canada’s energy developments have been largely driven by and have benefited from demand from the largest single energy market in the world.

But US market fundamentals are changing and Canada is paying the price. According to a report commissioned by the US Government, US Transportation bottlenecks will cost Alberta producers as much as $65 billion/year by 2030 if they aren’t addressed.

However, new technologies, which have enabled the production that has created the bottlenecks, as well as climate policies that are reducing demand, are not unique to the US.

They’re a part of a global trend that we may not be able to outrun by simply changing our market focus. Even if that new focus includes the rapidly growing economies of China and India.

Climate Change Mitigation is the Policy Risk that Can reduce Demand (Just as additional Supplies are becoming  viable with new technology.)

While many still see the economy as a key preoccupation, others see climate change returning as a top of mind issue. The heads of the IEA, IMF and the World Bank have all stated recently that renewed action is needed to curb the growth of emissions.

Just last month, the US & China struck a working group to foster low-carbon economic growth. In its latest 5 year plan, China has also stated its intention to peak its use of coal.

And of course, this week Minister Oliver is back in Brussels fighting the Europeans’ plan for a Low Carbon Fuel Standard.

While policy risk is all around us, the technology revolution opens up new supplies world wide. The U.S. Energy Information Administration has estimated that with new technology, China’s recoverable shale gas resources could be 50 percent bigger than those in the United States.

If China can deal with its internal inertia, it will have substantial gas supplies of its own to compete with imports from countries like Canada, though it will become the world’s largest oil importer by 2030.

According to the IEA, new sources of supply, coupled with a slowdown in Emerging Markets and generally lower demand growth, “raises the prospect of a more comfortable supply/demand balance in the medium term”. This is not a recipe for higher prices.

How can we remain competitive if the upper end of our cost of production for new oil sands derived crude, overlaps the low side forecasts of the world price, especially when new supplies and policy risks are factored in.

Market diversification MAY buy us Time

Market diversification is part of the solution in the near term as it can buy us time to address high cost structure and environmental challenges. But we must also position ourselves with a counter-balance of supply sources. – Oil sands yes, but also by investing in our offshore frontier.

Newfoundland and Labrador production can compete with the best in the world but we must encourage higher rates of exploration to replace declining reserves.

The federal government; as an owner and co-manager of our offshore areas needs to step up and match provincial efforts just as it should lead a national debate on energy.

National Energy Corridors

A National Energy Corridor would facilitate the integration of our domestic markets while aiding diversification of our export markets.

Domestic markets can provide new customers for western crude as well as electricity from renewable sources across Canada. This can only occur with the support and cooperation of the provinces and a willingness by industry to invest in the required infrastructure.

We need a national energy corridor, one that can link our multiple domestic markets into a stronger whole, providing security of supply through diversification of sources; A corridor that allows Alberta Bitumen to reach tide water and allows Canadians to take advantage of renewables that are currently stranded away from major centers of demand.

Investors need certainty of regulatory process. They want to know what is required and when, with predictable outcomes. But, we mustn’t discourage involvement of ordinary Canadians and civil society. Energy projects must be sustainable and have a social license.

All this would be helped by a national consensus on energy, one that insures we are competitive, both as an exporter of energy and as an exporter of manufactured goods that are competitive because we have a domestic supply of affordable and sustainable energy.

We really need to get this right now and not wait another 56 years.

Thank you!