Will federal parties secure Canada's energy future?

by Gordon Laxer
Parkland Institute
January 6, 2006

The spike in world oil prices after Hurricane Katrina highlighted the need to plan for coming oil and natural gas shortages. The Americans are discussing how to ensure security of supply. So are politicians in many countries.

But not in Canada. We now have only 8.7 years of proven supply of natural gas. Conventional oil production is falling. Alberta’s tar sands have plenty of oil, but it comes with horrific environmental damage. During an election campaign, Canada’s main political party leaders seem oblivious to Canada’s energy security needs.

The US has a bold NEP, ‘National Energy Policy’ that stresses two things: the greater the US dependence on foreign energy, the greater the threat to American national security; and the urgency to move toward ‘energy independence’ and ‘energy self-sufficiency’.

A recent US report, Oil Shockwave, warns that oil disruptions could lead to a world shortfall of 3 million barrels, or 4% of global supply, a day. The world price would rise 177% to $161 per barrel. Gasoline would cost US $5.74 per gallon (Cdn $1.78 per litre).

Mexico, which along with Canada, exports the most oil to the US, could weather such a shock. Mexico’s independent policy ensures public ownership and first access for domestic needs.

Of the three NAFTA countries, only Canada has no plans for oil shortages even though Canada imports 1.3 million barrels per day, about half of current use. The question is this. If there are energy shortages, in which of the three NAFTA countries are citizens most likely to freeze in the dark?

Where do the political parties stand on security of supply? The Liberals are committed to the Kyoto Accord, public transit, and wind power, but don’t mention supply security. Neither do the Conservatives, who offer tax credits for transit users, funds for environmental cleanup, reviewing the Kyoto Accord.

The Bloc favours Kyoto, making polluters pay, supporting wind, and taxing oil profits. The NDP has the greenest and most comprehensive energy policy, emphasizing job creation, renewables, protecting low income families and using oil to bargain with the US on softwood lumber.

But, even the best environmental policies will not help much as long as Canada is locked into exporting 70% of its oil and 56% of its natural gas to the US. Under NAFTA’s proportionality rules, we must continue exporting at least the same proportion of energy to the US, even if we face shortages. If Canada conserves energy, as it must, we will export more of our dwindling supplies so that Americans can maintain their SUV ‘fix’. Canada, and Alberta in particular, is the continent’s environmental sacrifice zone.

To conserve energy, Canada must first regain control over energy supply and usage. Our NAFTA partners already have such powers. Mexico got an exemption from proportionality. Only Canada must export a majority of its energy in perpetuity. To remove ourselves from this clause, Canada could either demand a Mexican exemption, or abandon NAFTA on the grounds that the US ignores its rulings anyway. If one party ignores an agreement, other parties are not bound by them either. Giving six months notice to exit NAFTA, article 2205, would get Canada out of this energy encumbrance.

What might an energy security strategy for Canada look like? In contrast to the 1980 National Energy Program which Ottawa imposed unilaterally, a security strategy must be a provincial – federal partnership. What could it incude? First the Dinning principle. RJ Dinning headed an Alberta commission in 1949 and recommended that Alberta retain 50 years supply of natural gas before exporting to other provinces. Only after Canadians were taken care of, should energy be sent abroad. The Dinning principle could be extended to oil and to all producing provinces and territories.

Second, slow the frenetic pace of Alberta tar sands development. Much more can be gained by reducing energy use than through more production. Using less will prolong energy supplies. Leaving the resource in the ground, ‘banking’ it, would increase its value when it’s removed in 15 years.

Third, raise royalties greatly to Norway levels to capture the full value of nature’s non-renewable capital, for the owners, the citizens of the producing provinces. Fourth, reverse the Sarnia – Montreal pipeline and bring western oil to Quebec again. An energy security strategy should follow public opinion and include Canadian ownership and crown corporations.

Since 9-11, security has trumped trade in the US. Canadians haven’t come to terms with this. For Canada, security trumping trade means that Canada’s energy security comes first, ahead of NAFTA. What better time than during the election to debate how the parties plan to secure Canada’s energy future?

Gordon Laxer is the Director and co-founder of Parkland Institute, a public policy research centre based at the University of Alberta. Parkland Institute is developing a made-in-Alberta security strategy for Canada.

Parkland Institute