FRESH IDEAS ON PIPELINES, TRADE
Harper, Dodge speak out on controversies that are undermining Canada’s potential
Calgary was buzzing with stimulating conversation and ideas Wednesday.
Within a span of two hours, those fortunate enough to hear ex-Bank of Canada governor David Dodge or former prime minister Stephen Harper — or both — speak at separate events were left with plenty to ponder. And there was more. Between the Inventure$ conference, where Harper addressed the Canadian Venture Capital Association, and the University of Calgary’s School of Public Policy, which hosted Dodge and a number of other big thinkers to discuss Canada’s infrastructure challenge, there was much on offer.
Few economists have the ability to translate complex problems to an audience less familiar in the study of the dismal science. Dodge is among them.
In 30 minutes, he linked economic, policy and societal analysis, offering a fresh and relevant take on the challenge of squaring the circle of energy development and greenhouse gas emissions.
Dodge said it’s understood carbon emissions must be managed for future generations, with the related costs incurred today. At the same time, it must be done in a way that does not compromise the economic well-being of the country or individual Canadians. Not an easy problem to solve. Unless you are David Dodge and can draw on the years of economic policy and stewardship to arrive at a solution that’s about ensuring economic prosperity while addressing the climate and environmental issues.
Did he advocate for carbon pricing? Absolutely. For reasons everyone has heard many times — it is a market-based mechanism that’s efficient, transparent, easier to implement and less costly compared with a cap-andtrade option.
It was clear from his remarks that regulation is not the answer. Nor is the subsidization of nonfossil fuel options, although both options play a role in the de-carbonization of the economy.
How does this support, rather than stifle, infrastructure development?
Dodge’s solution is both simple and compelling.
What needs to happen, he said, is that national incomes are raised to offset the higher costs associated with the tools — such as a carbon tax — put in place to decrease emissions.
“We need to sell our hydrocarbons, which we produce, to foreigners at the highest possible market price,” he said. “It is very important to combine carbon pricing policies with policies that gain the highest possible economic rent on the sale of our hydrocarbon products ... including the sale of bitumen from the oilsands, while demand for oil is robust and still growing.”
The way to do that is to build pipelines that allow for Canadian oil production to be sold at market prices, rather than leaving $10 or $15 per barrel on the table, as happens now.
The economic rent that would be captured from accessing world markets and prices could offset the higher cost of a carbon tax to both producers and consumers.
The impact of not doing that — due to the lack of access to tidewater — is costing Canada’s gross domestic product one half to one per cent.
Those are big dollars. Income realized by selling oil and bitumen on world markets can pay for the higher cost of consumption, if not reduce it.
And it’s consumption, Dodge reminded his audience, that causes carbon emissions, not production or transmission.
That means, he said, those who are opposed to the development of pipelines — because it’s not realistic the world will get off oil or natural gas any time soon — are harming Canadians.
“In resisting the construction of pipelines, green activists are actually making the cost of carbon reducing policies harder to bear for all Canadians and hence reducing the support for policies aimed at reducing GHGs,” said Dodge.
Where Dodge offered an elegant solution to the challenge of carbon emissions and the need for pipeline infrastructure, Harper’s focus was on trade, the rise of populism around the world, and a comment or two on the pipeline situation.
Harper voiced concern over the lack of progress made to get oil production to tidewater, pointing out three pipelines were progressing under his government, but now there is only one.
That might be true, but he omitted the Federal Court of Appeal ruling that overturned his government’s approval of Northern Gateway on the grounds the Crown had failed in its duty to consult.
He did, perhaps surprisingly, support the retaliatory measures instituted by the current federal government regarding its decision last week to impose tariffs and trade-restrictive countermeasures valued as much as $16.6 billion.
Harper also said he was not a fan of the U.S. demands for the inclusion of a sunset clause in the NAFTA agreement now being renegotiated.
“We have to stand up for ourselves. There are some things we cannot accept ... such as the sunset clause, which defeats the purpose of the agreement,” he said.
“We cannot accept that.” The challenge, playing out in real time, is the fact Canada is the smaller player in the trade relationship and unlikely to come out on top in a trade war, he said.
It boils down to this: Canada is a trading nation. We need to be outward looking and ensure we can trade what we produce — goods, services and natural resources — and capture the economic rent that generates growth and maintains a high standard of living.
This means fixing the internal variables preventing the country from moving forward economically, which is effectively what Dodge suggested, and seeking constructive solutions to the external trade challenges, the take-way from Harper’s comments.