Under the division of powers of the British North America Act, energy and natural resources, along with other sectors, were entrusted to the provinces and fell forever within their jurisdiction. Trade and commerce with other countries as well as international relations were obviously meant to be paramount within the purview of Ottawa. The passage of time has seen massive change both in geopolitical terms as well as in the nature of global issues. These changes were outside the realm of even the prognostications of our founding fathers.
There is one area, however, in which our forefathers demonstrated great vision as well as political courage. They recognized the nature of our relationships on a north-south axis, but they also expended great dedication to building this country and to strengthening east-west ties, beginning, of course, with the railway lines that today span this country. The coming of age of Canada between the First and Second World Wars and its subsequent maturity in the 21st century were exciting times. Some would say they were challenging times, as we faced our seemingly difficult identity issues through the lens of both the threat of Quebec sovereignty and the rise of economically vibrant regions in the West and elsewhere.
While not many of us have lived in or really know the North, our views about this vast and less-inhabited region are being modified by its great mineral and energy potential, by its fragility and by its geopolitical advantage, with the prospects of the open and ice-free Northwest Passage. Clearly our challenges are not yet over, and what lies ahead of us may be just as daunting as those events that forged the most decentralized federation on this planet.
One area where our vision needs to overcome our history is in the development, production, use and export of energy from all regions of this country. The risks we face by undertaking business as usual range from a) an inability to maximize on our resources by growing the prosperity pie and making it larger for all, to being leveraged by our clients and foreign investors and being surprised by what impact bad policy formulation to the south of us can have on our ability to fully benefit from our potential.
The present modus operandi can be summed up thus: Avoid an east-west transmission corridor in favour of gains in exports.
This may be considered harsh by some, but after 40 years of observing and in some instances being privy to efforts to build east-west links, I believe it to be accurate. The history of trade patterns on this continent flow to the south, whether you are in Newfoundland or in Alberta. The provincial markets individually and Canada as a whole provide for a small portion of the North American demand for energy. Our tendency has been, however, to develop the production and transmission or distribution capacity first, to serve our needs, and second, where surpluses exist, to ship them south to the much larger and more energy intensive American markets.
The instruments of choice for this have been a hybrid of private sector investment, public policy, financial incentives and Crown corporations. As a result of our history and our views on the competitive advantage of energy resources or potential resources, we have tended to build or develop our own systems. Much like the policy on beer manufacturers, where each province had to have a brewery in order to meet its needs, our energy infrastructure and governance models evolved from a local or provincial base. In a country such as ours this was for many reasons unavoidable, and even desirable. In this changing world, buffeted by changing demographics, technological revolutions and, increasingly, phenomena that respect no borders, we will have to rethink how we want to organize ourselves to go forward if we are to ensure our prosperity.
Derek Burney, our former ambassador to Washington, was on the right track when be said, in a speech reported in the National Post: “Power generators and transmitters are uniquely dependent upon one another. But they are only as strong as the weakest link. The electricity blackout that hit central Canada and much of the US Midwest corridor in the summer of 2003 proved dramatically — and to the surprise of many — just how integrated we are. It also pointed dramatically to the need to upgrade that grid — a challenge both governments are addressing, to some extent, with stimulus spending.”
But if we hope to exploit the potential of clean power, there are a number of challenges to overcome.
The 2008 Long-Term Reliability Assessment of the North American Electric Reliability Corporation (NERC) projected that over 260,000 megawatts of new variable power would be needed for the North American bulk power system in the next decade. That is a staggering undertaking. If we are going to accomplish major expansion, we will need:
- To deploy different types of variable power resources to take advantage of complementary patterns of production and minimize the unreliability of wind and solar power;
- To reach early agreement on common, open standards to channel research and development efforts;
- A massive investment in new transmission lines, in advanced control technologies and in new materials to limit power loss during transmission over long distances.
The history of trade patterns on this continent flow to the south, whether you are in Newfoundland or in Alberta. The provincial markets individually and Canada as a whole provide for a small portion of the North American demand for energy. Our tendency has been, however, to develop the production and transmission or distribution capacity first, to serve our needs, and second, where surpluses exist, to ship them south to the much larger and more energy intensive American markets.
In point of fact, in the hydro power sector we are constrained not just by markets and distance but also by export capacity, or too few transportation links to the US markets. We could become a secure, reliable and long term supplier of clean hydro power if we could collaborate and offset our own requirements through enhanced east-west linkages. This is not a new idea — it was the topic of first ministers going back to attempts in my lifetime between Premier Robert Bourassa of Quebec and Prime Minister Brian Mulroney. At the provincial level it was also a possibility, as the David Petersen government and Ontario Hydro negotiated a Hydro project that would have linked Manitoba and Ontario.
More recently Quebec and New Brunswick attempted to partially join their systems through a negotiated sale of some assets. The economics, energy and consumer aspects made sense, and both parties made compromises in the original agreement to try and assuage susceptibilities. The history, third party interests, politics and the unpreparedness of the public damned the effort. Again, Derek Burney, who knew NB Power well, having been its chairman, summed up the desirability of the agreement and partnership:
“First, the deal makes energy policy sense. It will provide New Brunswick with assured supplies of low-cost hydro for the foreseeable future. The province has limited resources of existing or potential hydropower. As energy demands grow in the province and environmental concerns accelerate, a growing reliance on expensive imports and fossil fuel power generation would be unsustainable.
“Second, the deal makes economic policy sense. New Brunswick companies currently pay some of the highest electric power rates in the country. This is a serious drag on power intensive resource industries and on attracting investment and jobs to the province. Instead of a planned 16 per cent increase, rates will fall by 23 per cent for large industrial users and 15 per cent for medium-sized firms with a guarantee of no increase over the next five years. The result will be more competitive industries, increased investment and the creation of higher paid jobs in the future.
“Third, the deal makes consumer policy sense. Over the next five years, residential rates will be frozen and subsequently any increases will have to be justified before the New Brunswick Energy and Utilities Board. With 6 in 10 homes relying on electricity for basic heating, industry is by no means alone in facing increases in energy costs that, without the Quebec deal, would continue to spiral upwards.
“Fourth, the deal makes taxpayer sense. NB Power has a current debt of close to $5 billion, a substantial burden on provincial taxpayers. The $3.2 billion purchase price should be enough to retire the debt incurred by the generation assets of NB Power. The revenue generated by the transmission and distribution network, which will remain owned by New Brunswick, will provide an adequate revenue stream to serve the remaining debt.
“Fifth, the deal makes environmental sense. The assured long-term supply of clean hydro means that at least one of the heavy carbon emitting generators of electricity can be closed and the other two are on notice to close. At a time of global pressure to move rapidly to cleaner energy, increasing the sources of clean power in New Brunswick’s electric power mix has to be regarded as a plus.
The vision is simple but the execution is extremely difficult, as we argue over who owns what, and which piece of the pie should get preference. The same holds for the development of the Lower Churchill: trapped by history and long standing contracts, we cannot rise above our injuries and slights to create new partnerships that would have the effect of drawing investment, building the infrastructure and benefiting from enhanced stable exports to a preferred customer
“Sixth, the deal makes national policy sense. The exclusion of New Brunswick’s transmission lines from the deal should abate the concerns of Newfoundland/Labrador and Nova Scotia about access to the United States market. Guaranteed access for Hydro-Québec to export electric power to the U.S. over these lines is not the same as exclusive access. In any case, the US Federal Energy Regulatory Commission’s rule that domestic and foreign energy companies have to provide open access and charge non-discriminatory transmission fees to all suppliers should dispel any concern that hydro generated outside Quebec will not have access on competitive terms to New Brunswick’s transmission network.
“Seventh, the deal contributes to a stronger Canada-US relationship and a stronger Canada in managing that relationship. Energy is a key component of our vitally important trade relationship. Canada is one of a handful of reliable energy suppliers to the US. The deal solidifies Canada’s role as a major player in the US energy mix.”
But the deal cratered under political pressure in New Brunswick, and from critics such as Premier Danny Williams of Newfoundland and Labrador. It became an opportunity missed on two fronts — first, the strategic building of part of an energy autoroute that would have used our geography to enhance our eventual energy exports to the United States, and second, bringing capacity and investment to the east-west corridor. The vision is simple but the execution is extremely difficult, as we argue over who owns what, and which piece of the pie should get preference. The same holds for the development of the Lower Churchill: trapped by history and long standing contracts, we cannot rise above our injuries and slights to create new partnerships that would have the effect of drawing investment, building the infrastructure and benefiting from enhanced stable exports to a preferred customer.
Are we so naive to believe that our American friends will stand by and wait for us to reach maturity on energy before bringing in their own solutions? There are always other options. Our priority should be to seize the opportunity by mobilizing our resources to give meaning to Prime Minister Stephen Harper’s slogan for Canada to become a clean energy superpower.
A 2009 report by the International Energy Agency (IEA) World Energy Outlook makes for fascinating reading, not only because of its scenarios, but also because it reflects the changing geopolitical situation in a global overview that has the US and China in differing measures and profiles imposing their own realities. China has rapidly growing energy consumption, while the US remains flat on primary energy demand, even if Canada continues to feed the largest energy market.
The report’s implications for Canada are not as straight forward as implied (the thesis points to increased interest by both the US and China in the oil sands in order to reduce dependency on Persian Gulf oil, “providing the current economic and environmental challenges can be overcome”). These scenarios and the reality, as Erik Haites points out in a paper recently presented at the Banff Centre, highlight the fact that Canada’s oil and gas exports are relatively high cost and are tied to declining markets, at least in the US. Haites was one of the contributors to the IEA report, and he eloquently makes the point that Canada’s infrastructure is not well suited to serving markets in China and India, both of which are expected to import more as they increasingly influence global markets. In addition, their energy security concerns will drive energy efficiency and geographic diversification of supply.
All of this suggests that the status quo scenarios will not afford us a lasting sense of comfort or security. If the standards on energy efficiency and the production of many energy-centric products are dominated by China and India, how would Canada react? Can we afford to be complacent and not research different scenarios, if for no other reason than to be able to react swiftly and even pre-emptively in the pursuit of our own interests?
The IEA estimates on the growth of demand and the investments needed to 2030 (some $12 trillion in the business-as-usual scenario and another $10 trillion in the alternative, more climate-responsible option, whose target is to attain 450ppms in terms of atmospheric concentrations of GHGs) should at least sensitize us to carefully consider how we view foreign investment in our energy resources. I am certain that experts and policy gurus in the public and private sectors are aware of the supply side, but have also considered the important role that the demand side can play in conserving energy and reducing waste. If this statement is correct, then why are energy policy, energy R&D and energy efficiency initiatives so low on the radars of our political leaders? Is it too difficult, or are there more important and more politically rewarding pursuits more in-line with public concerns? Are we cowed by federal-provincial realities? Or traumatized by those grey heads who lived through the National Energy Program and who have no taste for a return to try and deal with divisive, regionally differentiated but highly profitable and or costly energy realities?
There is another possibility. We should not assume that the best brains in the energy sector (private, in civil society or in the public sector) are unaware or uncaring. Canadians on the whole are living with an out dated and inaccurate picture of our energy reality today. Their extension into the energy world of tomorrow is therefore just as likely to be radically incorrect. Some see this as apathy, others see it as ignorance. I see it as a failure of leadership in this country to educate and to clarify the present reality and, more importantly, what we should be doing now to secure our energy future and our economic and environmental prosperity.
As we move into the coming three decades, the economic imperatives will likely take on new dimensions as well as new terminology. Already the concepts underlying years of debate over climate issues have spawned the search for clean or cleaner energy. At one end of the scale are those who want an immediate transition to clean renewable, solar, wind, tide and hydro. Nuclear is — because of fear of its waste disposal issues, cost and perceived safety issues — relegated to a class apart.
The reality of our present versus our future energy pictures is much more complex. Renewables are important and are increasing, but they are far from being able to replace hydro-carbons and coal as a base load. It is clear that we are in a transition that will last decades. Those decades will be marked by investments in research and technology to render our existing hydrocarbon and coal use into “cleaner” energy. Both China and the US, write Philip Gass and John Drexhage of the International Institute for Sustainable Development, have developed a focus “on clean energy development as an investment decision that stimulates jobs and competitiveness, enhances security while addressing clean air/climate issues.”
And these are far from political slogans or empty phrases. In the year just past, the Chinese invested US$221 billion in “green” initiatives and an overall $440 billion in clean energy. This compares with the over $100 billion committed by the US. The trend is obvious and certainly anything but innocent. Looking forward, whether you are in China, India, the US or Canada, the game will be to get to cleaner energy mixes, eliminate wasteful subsidies and aggressively work on conservation to maximize the efficiency of every unit of energy produced and delivered, whether it comes from oil, natural gas, hydro-generation, coal or renewables. Peter Tertzakian, in his book The End of Energy Obesity: Breaking Today’s Energy Addiction for a Prosperous and Secure Tomorrow, makes the point eloquently. His path forward looks at how to lower energy consumption without, in his words, “jeopardizing GDP and quality of life.”
In point of fact, Tertzakian argues conclusively that “there is no leverage, that is no multiplicative benefit to merely adding more supply to the front end of what sustains our society…There’s been real resistance to appreciating how the real leverage lies at the consuming end.” In my experience, this is an area where governments at all levels, and especially the federal government, can provide leadership by working on standards, policies and regulations to aggressively promote conservation. The energy producers in this country would join in such an approach, if only for the simple reason that the more we consume as Canadians, the more energy they have available for their clients and markets.
Clean energy investments, research and development and the commercialization of new technologies are all areas where the Canadian government has the ability to use its convening power and leadership to forge a more coherent framework than we presently enjoy in this country. As for those who worry about our ability to return to balanced budgets and the lack of dollars to invest in these new initiatives, I would remind them that there is a cost to doing nothing, and much to gain in longer-term benefits.
Ottawa has already taken a leadership position in helping to fund carbon capture and storage, and it has demonstrated its ability to invest in technology by founding and funding the Sustainable Development Technology Council, which has successfully leveraged billions in investments aimed at commercializing technologies. Can it do more? Should it do more?
As Roger Gibbins notes elsewhere in these pages, we have instances in our recent history where governments coming together have been able to develop Canadian examples of excellence (the Canada Health Act was one of those moments, and it should be a prototype for the energy sector ).
It is clear to me that we are seeing the innovation of Canadians coming to the fore in every province, region, and in many municipalites. Provincial premiers are leading by taking initiatives in BC with carbon pricing, investing in incenting the renewable energy sector in Ontario, working to diminish the carbon intensity of oil sands extraction in Alberta, investing massively in new hydro generation in Manitoba and Quebec, and looking at meeting the potential of additional energy infrastructure in the Maritimes and Newfoundland and Labrador.
I have no doubt we will get there. The issue is whether we can minimize the risk and maximize the synergies by moving together more coherently and comprehensively. In a federal system such as Canada, this is always a more difficult path. But this country was formed by leaders who overcame too much geography and who found the means to make things happen. We are the perfect example of a country that rises to the maxim of being much greater than the sum of our parts when it behooves us to do so.
For Canada, the energy deal is about nation building. If we can achieve a Canadian framework that builds on our strengths and regional realities, we can prosper and bring the country closer together, economically and competitively.