Canada has laid claim to being an ”œemerging clean energy superpower.” Although the expression has been used by Prime Minister Harper and his ministers and a few others since the summer of 2006, it has been subjected to very little analysis or debate. This idea is timely, given the growing importance of energy and the environmental implications of energy in interna- tional relations, but if it is to be more than a slogan it needs much more thought than it has been given to date.
Given Canada’s position in the energy world and the importance of energy to our economy, our environment and our diplomacy, it seems clear that the world of energy is hugely important to us. Whether Canada is sufficiently important to the world of energy to warrant ”œsuperpower” status is a more debatable proposition.
Anyone knowledgeable about Canada’s energy resources would readily concede that we have a lot of them by world standards. Resources are, however, a critical but by no means sufficient prerequisite for status in the world of energy. That begs the question: what are the attributes of a ”œpower” " super or otherwise, energy or otherwise?
In geopolitical terms ”œpower” means possession of control, authority or influence over other countries and having the abil- ity to affect world events. With that in mind, it would seem that a ”œpower” of any sort would have the following attributes:
a capability that gives one the potential to influence the behaviour of other countries and the course of world events;
the capacity to deploy that capability where and when it can be effective;
an articulate understanding of one’s national interest and policies that specify how the capability in question can be used to further that interest;
a will, credibly understood by others, to use the capability in question when called upon to do so.
A framework such as this allows us to test the hypothesis that Canada is a ”œpower” in energy " and if it is, whether we can credibly claim to be a superpower. It may also provide some insight into what it would it take for an ”œemerging” power to actually emerge.
The most obvious capability is the natural resource base and our established production capability, where Canada is in a distinctive position as illustrated in table 1.
By world standards in terms of reserves, production and exports we are a significant player. Equally striking is the diversity of our resources; and, being a geographically large country with extensive land, water, coastline, a largely untapped north and moving air above it all, we have the potential to grow " whether in renewable energy such as hydro and wind or hydrocar- bon resources such as oil sands and methane hydrates. It would be hard to imagine a serious world energy discus- sion without Canada at the table.
But it needs more than that. Capability needs to include human and organizational capital in the form of edu- cated professionals, visionary thinkers and reputable institutions; technological leadership; and leading corporations. Canada has some very capable people and institutions when it comes to think- ing about energy, but disproportionately fewer than our resource base would imply. Canada has technological leader- ship in a few areas such as some parts of the fuel cell industry, possibly nuclear energy and the deployment of advanced technology in resource extraction, but our position as developers, producers and exporters of energy technology is thin. In corporate terms we have several well-respected players in oil and gas, pipelines and electricity, but no big household- name national champions.
In short, we are probably in the top five worldwide in terms of natural resources, but somewhere well short of that in terms of other attributes.
Capacity to deploy means several things. Two of them are the ability to harness the resources and the ability to connect them physically to markets. In that regard we have done well, to date, if we take our production and export rankings as indicators. Our national energy infrastructure " long- distance pipelines and electricity trans- mission " is world class by any standard (distances covered, construction and upkeep in challenging geographic and climatic conditions, efficiency, safety and reliability). Just as important, that infrastructure effectively connects the resource base to almost all regions of Canada and to a huge export market. The building of energy infrastructure ranks second only to the railways as part of Canada’s national heritage.
So far so good, but deployment capacity has to be maintained and enhanced. Despite having an invest- ment climate that is open and attractive by international standards, our ability to harness resources and connect them to markets is at risk. The social consensus in favour of resource development " particularly but not only in Aboriginal communities " can’t be taken for grant- ed. That is especially true for linear infrastructure such as wires and pipes. Approval process- es are protracted and uncer- tain, adding significantly to both costs and risk. Canada’s resource capability risks becoming stranded, and a capability with no capacity to deploy is no power at all.
Capacity to deploy " in the sense of exercising power " also has to comprehend the notion of lever- age in relationships, including in eco- nomic markets. This can mean being a monopoly supplier who is prepared to hold supply hostage to other interests, being a swing producer and potential price setter, or being able to use energy supplies to advance ideological inter- ests. Alternatively, it can mean the abil- ity to deploy energy resources in support of industrial development, as many Canadian provinces have done in the past by attracting processing industries based on cheap electric power. This last point is where it starts to get complicated if we want to think of energy as a source of national power.
First, our geographic position, far from allowing us to act as a monopoly provider, in fact ties us to a monopsony buyer who also happens to be our most important economic partner overall. Second, our production, although large, in no way affords us economic power, nor is it large enough to materially affect most markets, aside from our own; we are a price-taker in international markets. We have no real ability to exercise power in a unilateral sense as do countries like Russia, Saudi Arabia or Venezuela.
And neither should we necessarily want to. For very good reasons " on which I expand below " we have over the years adopted policies that fore- close such actions, even to the extent of greatly limiting our capacity to deploy energy resources for domestic industrial policy reasons.
Adding it up, Canada has been very successful at developing its ener- gy resources and connecting them to domestic and US markets, which has had a hugely positive impact on our economic well-being. But this capacity is at risk. Moreover, if the topic is power as normally defined, Canada’s ability to exercise power through uni- lateral deployment of our energy resources is at best modest.
Neither our interests with respect to energy nor our policies are explicitly expressed. We do have an implicit poli- cy expressed largely through interna- tional treaties such as our membership in the World Trade Organization (WTO) the International Energy Agency (IEA) and the North American Free Trade Agreement (NAFTA) and in our open investment regime. Through these instruments, although we seem reluc- tant to say it at home, Canada expresses its belief to our international partners that our interests are best served by comprehensive systems of internation- al collaboration.
In our bilateral relationship with the US, Canada benefits from the fact that agreements such as NAFTA are a two- way street that affords protection for both buyers and sellers of energy. Along that two-way street, Canada receives pro- tection in many ways. For example:
Over 340 billion cubic feet annually of natural gas (2006) transits through the US into Ontario and Quebec " equivalent to over 30 percent of the gas used in those provinces.
A total of 103 million barrels annually (2006) of refined petrole- um products are supplied from US refineries " equivalent to 20 per- cent of total Canadian refined petroleum product consumption.
We import 19.3 terawatt-hours of electricity (2005 figure), which is equivalent to about half of our exports and 4 percent of our domes- tic consumption in the same year.
Canada also benefits from increas- ing degrees of cooperation in pipeline and power line regulation, including provisions " unique in the world " for shared regulation of elec- tricity reliability.
In a multilateral sense, Canada has one of the most open economies in the world, which means that our economic prosperity, and by extension our energy security, is tightly linked to that of all of our economic partners. Cooperation through the IEA affords member coun- tries the relative luxury of managing energy crises like those in 1979 and 1990 while avoiding the beggar-thy-neigh- bour policies called for by protectionists in many countries, including Canada.
Our economy is heavily dependent on international capital flows as well as trade, and those flows have under- pinned our resource and infrastructure development. One of the ironies of the debate in Canada at the time of NAFTA ratification was that Mexico was per- ceived to have ”œwon,” while Canada ”œlost,” because Mexico protected its industry from foreign intrusion. Since NAFTA was ratified in 1994 Canada has increased its oil production by over 30 percent and its gas production by over 25 percent and earned many billions of dollars in foreign exchange. Mexico chose a different path for its own rea- sons, but it is a growing importer of nat- ural gas despite its enormous resources, because it is unable to mobilize the cap- ital to develop those resources.
Our implicit policy and the associated treaties limit our ability to use ener- gy to subsidize industrial development, but that is a policy approach that is obsolete and works largely to our disadvantage in any event. To take an example, subsidizing Canadian hydro power for Canadian con- sumers " as several provinces do " has a triply perverse effect of creating an incen- tive to waste energy, reducing the econom- ic advantage to the province and reducing the environmental benefit of hydro, which would otherwise be exported and displace fossil-powered electricity generation in the US. Sometimes the national interest is bet- ter served when governments are constrained in what they can do.
The policy also limits what little unilateral leverage we might have had to use our energy to directly influ- ence the actions of others. What is important, though, and what the Prime Minister appears to be saying in statements like his September 2007 speech to the Council on Foreign Relations in New York, is that we can exercise power through ”œconcerted effort among capa- ble, committed, like-minded nations” where middle powers can ”œstep up to the plate to do their part.” In short, something more like soft power than super power, but perhaps more in keeping with the role Canadians would want Canada to play in the world.
All of this would make a great deal of sense were it not for the fact that several parts of the policy are missing, and what there is, is a well-kept secret.
What is missing? Above all what is missing is a plausible reconcilia- tion between the energy policy described above and the demands of environmental sustainability, including cleaner energy, energy efficiency and reduced greenhouse gas (GHG) emis- sions. Canada in many respects has a one-legged energy policy and a one- legged environmental policy, and both are unnecessarily hobbled as a result.
In addition, it is important that Canada stop thinking about capability as only a matter of resource endow- ment. If capability is expanded to include human and institutional capa- bility, as suggested above, then this raises many questions for policy. Most important among these: What is the role of government in investing in skills, technology, institutions and information, and is our tax system the best to support strong corporate capa- bilities? It is not clear what Canadian policy has to say on these matters.
As to Canada’s energy policy being a well-kept secret, does that matter? Yes, it does, if we want to be an energy power, because the last attribute of power is the credibly understood will to act.
The will to act in a democracy depends above all on developing and sus- taining the public consensus to do so. Since the mid-1980s (the time of deregu- lation and the Canada-US Free Trade Agreement), this public consensus has roughly existed, at least by default. Going forward, that no longer appears to be true. Several examples illustrate this point.
The National Energy Program (NEP) is now almost 25 years in the grave, but it haunts us still. The idea of energy policy at the national level is paralyzed by the mythology of the NEP.
Canada would benefit from stronger province-to-province coordina- tion, because the provinces have the pri- mary jurisdiction with respect to most aspects of energy production and use.
It would be beneficia if there were a clearer sense of how the federal govern- ment sees the national interest in energy, and how it proposes to act within its own jurisdiction. Absent such clarity, the fed- eral instinct is to shrink from its respon- sibilities, and the provincial instinct is to assume that some malevolent design is being contemplated in Ottawa.
Second, Canada would benefit from a broader public understanding of how and why the multilateral and mar- ket-based policy described above serves the interests of a country like Canada and is wholly consistent with the aspi- rations of Canadians to be responsible world citizens. Canada is almost unique in the world in consistently championing such an approach, but the domestic consensus in favour of it is always fragile, and we should be sus- taining it not by stealth but by a broad- ly understood national consensus.
Third, we have a growing gap between public expectations (nothing in my back yard) and energy realities.
Canada’s ability to develop and deploy its resources faces a potentially fatal erosion of public and community support, and without this support Canada will fast become a fading energy superpower long before we ever emerge as one. This is not as simple as educating and informing, since there is often a real asymmetry of interests here; for example, that between local costs and societal benefits and, arguably a deeper societal problem, a pre- occupation with entitlement that makes any intrusion on the ”œrights” of a given group or individual simply unacceptable.
Finally, if we want to become a ”œclean” energy superpower we have to begin to address the massive gap between expectations with respect to Kyoto-like emission reductions and the simple facts about Canada as both a producer and a consumer of energy. The fact that we are a big, efficient and clean energy producer is an advantage to Canada and the world, and our environmental commitments should reflect that fact. Even aside from the large amount of energy used to gen- erate exports, however, Canadians are among the largest users of energy in the world, and improving our energy effi- ciency by tweaking the system with the odd program will not address this reality.
Prime Minister Harper repeatedly refers to Canada as an ”œemerging” clean energy superpower. This idea is timely but Canada has a way to go to realize such aspirations, and the very timeliness of the issue creates a sense of urgency. What would it take for Canada to emerge?
Presumably it would entail more than further development of the oil sands " even with carbon capture and seques- tration " since even exports of several million barrels of oil a day would not make us a power, far less a superpower, for reasons I have already discussed. On the other hand, there are some broad areas of policy that, if carefully attended to, might well move us along the path toward being at least a clean energy middle power.
To conclude, working with the four-part framework with which I began, we need to do the following.
We need to diversify our capabili- ty. That doesn’t mean more diverse commodity production, since Canada’s energy commodity mix may already be the most diverse in the world. It does mean building our strengths in the other factors that underlie energy service delivery: knowl- edge, skills, technology and organiza- tional excellence. Over time, the mix of factors of production in the energy services package will increasingly shift toward capital, technology and expert- ise, and away from commodities. Canada’s governments " all of them " have a large role to play here in terms of making their corporate tax regimes more competitive, strengthening edu- cational and skills development, invest- ing in technology, and becoming more sophisticated consumers of the prod- ucts of universities and think-tanks.
We need to protect and extend our capacity to deploy. The previous point notwithstanding, Canada will contin- ue to derive a great deal of its energy strength from developing commodi- ties, transforming them and moving them to markets efficiently and clean- ly. That capacity is at risk if we do not significantly change the trend of the past decade. Canada’s governments need to become much more serious about the deep challenges that have to be met in order to mobilize the support of the communities affected and to improve regulatory approval processes.
We need to more clearly articulate both our interests and the policies through which they are advanced. The Prime Minister’s recent comments in New York and Sydney are a helpful start, by making clear Canada’s strong com- mitment to market-based energy policies and to a North American partnership in a broader international context.
The last point cannot be over- stressed. Some energy commentators suggest that we should focus solely on the North American partnership, but the interests of Canada and the US lie in a strengthened commitment to free energy markets worldwide, and much of Canada’s power derives from our ability to frame and advance that mes- sage together with our US friends.
But that isn’t enough. We need to articulate our interest in developing our capability in the ”œsmart” part of the ener- gy service delivery process, and we need much-enhanced policies to drive in that direction. Just as important, we need to integrate our thinking on energy and climate change. Any energy power worthy of the name must have a frame- work to address the energy/climate change conundrum in order to meet aggressive GHG reduction aspirations for 2020 and 2050 while sustaining the affordability, reliabil- ity and security of its energy system. Such a balancing act is not out of the question, but it entails a policy commitment that is massive in its implications. Canada’s efforts over the years since Kyoto are triv- ial relative to the scale of the challenge.
Finally, we need to sustain the will to act. In order to do so we need to engage Canadians and put in place the resources that will allow them to become better informed: about the important roles of all governments but also about the limits to government; about the merits of support for a mar- ket-based international energy system; about the challenges of sustaining and extending our capacity to move resources to markets; and about the real challenges of meeting our aspira- tions in a post-Kyoto world.
Put simply, Canada needs an ener- gy policy. No energy superpower should leave home without one.