Commentary
Canada’s general wealth has been in a sharp decline when compared to the United States for over 10 years. In 2013, GDP per capita in the United States and Canada was nearly equal at US$53,000. Today, GPD per capita in the United States is nearing US$82,000 while Canada remains stagnant at US$53,000.
To make things worse, Canada’s federal government plans to put a punitive emissions cap on the oil and gas industry while President-elect Donald Trump is talking about imposing trade tariffs of 10-20 percent on goods coming into the United States. Canada could be heading toward an economic cliff.
Canada’s energy sector accounts for 10 percent of the national GDP with $199 billion in annual exports. The USA is a prime customer, purchasing nearly 90 percent of those energy products. If the USA increases domestic energy production while applying tariffs to incoming Canadian energy products as planned, it will strike a serious blow to the Canadian economy. Canada could find itself locked in a domestic oil and gas glut as its relatively expensive oil and gas sits unproduced and unsold. Canada must change its energy policies drastically.
To begin with, the government must back off on the planned emissions caps for oil and gas production. Canadian oil and gas is already costly to produce relative to other nations, and the cap could cause existing producers to shut in resources while cancelling planned expansion. The hostile treatment of oil and gas producers already makes it difficult for companies to secure foreign investment. Oil and gas producers invested in technology to reduce emissions in good faith and have had great success. Emissions from oil production have been reduced by 32 percent since 2000 and they continue to drop. Instead of being rewarded for their success, though, Canadian energy producers found themselves greeted with an emissions cap as the government moved the goalposts. It makes efforts to reduce emissions feel futile, and the uncertainty discourages further investment.
Canada’s reticence in allowing the construction of infrastructure to transport oil and gas has left it dependent upon importing foreign oil to the East side of the country while domestic oil and gas producers are utterly dependent upon the United States as their prime customer. The incoming Trump administration’s plans will be encouraging American oil and gas producers to keep product within their own borders, while discouraging the purchases of Canadian energy products. Canada will be hit with a double whammy.
While Canada exports $199 billion per year in energy products, it also imports over $20 billion per year in crude oil. It’s a ridiculous trade imbalance in a nation blessed with some of the world’s largest oil and gas deposits. Unless pipelines are allowed to reach the East Coast, however, that trend won’t change. The country must focus on domestic energy security for the sake of the economy as a whole, and to maintain strength in trade negotiations with the USA. With a broader export capability, Canada wouldn’t be as beholden to the U.S. as a client and wouldn’t be as vulnerable to protectionist policies from neighbours.
The completion of the Trans Mountain Pipeline expansion helped, but it’s not enough. Nor is the lone liquid natural gas (LNG) terminal about to begin exports from Kitimat in B.C. The world is hungry for Canada’s oil and gas products, but we havn’t the means to export them efficiently. From both an ethical and an environmental standpoint, increasing Canadian oil and gas production makes sense as other nations can reduce reliance upon imports from countries like Russia and Venezuela.
It will take a sea change in federal government attitude toward Canada’s oil and gas sector to take it where it must go. Years of taxes, delays, and regulations have throttled the oil and gas sector while alternative energy sources have never managed to efficiently fill the void. The result of those policies is a nation with unstable yet expensive energy supplies, regional divisions, and an economy lagging behind the developed world. The government must prioritize oil and gas development and infrastructure, and it can do so through cutting regulations. Of course, the first regulation to go must be the proposed emissions cap.
It’s time that economic pragmatism and realism overruled the environmental idealism which has dominated federal policies for nearly a decade. Canada’s top trading partner has just embraced a president who may be the most protectionist leader seen in decades. If Canada doesn’t change priorities, an already stagnant economy could decline further.
While starting an energy war between Ottawa and Alberta with an emissions cap may offer political benefits to the federal Liberals, the nation as a whole loses.
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