Rate cut mirrors oil decline

Conservatives insist economy not compromised

There was no better indication of the impact the drop in oil prices has had on the Canadian economy than the decision Wednesday by the Bank of Canada to drop rates by 25 basis points.

Coincidentally, the National Energy Board released its latest Canadian Energy Overview that also underscored the importance of energy to Canada’s economic well- being. The NEB says the energy sector contributed 9.8 per cent to Canada’s gross domestic product last year, as it accounted for almost a quarter of export revenues — at $ 128.7 billion.

That’s hardly chump change but it should be noted that those numbers were realized with oil trading at an average price of US$ 93.26 per barrel last year, rather than the $ 60 average since May.

“The downward revision reflects further downgrades of business investment plans in the energy sector as well as weaker- than- expected exports of non- energy commodities and non- commodities,” the central bank said in a statement.

The bank now expects a 40 per cent decline in energy- related investments — its previous estimate was 30 per cent — which reflects the long- term uncertainty with the current pricing environment.

And while the world cheers the nuclear deal with Iran, this only adds more uncertainty to oil prices and could further constrain investment decisions in Alberta.

If anything, the Bank of Canada’s report, which showed a 25 per cent increase in employment insurance claims in energy- producing jurisdictions, cast the federal government in a questionable spotlight as it continues to insist that the country’s economy is not as compromised as the numbers indicate.

Prime Minister Stephen Harper can blame the downturn on factors such as slower growth in China and a weaker than expected growth in the U. S., but the numbers are clearly telling a different story.

The reality is without export access anyone with the highest cost product at the furthest end of a pipe is at a distinct disadvantage.

And that disadvantage affects all Canadians, not just Albertans. The bank noted the weaker energy investment landscape will affect the energy- linked industries that exist across the country. It’s another reference point that energy isn’t just about Alberta.

All this puts a different sort of pressure on the premiers as they gather in Newfoundland and Labrador on Thursday and Friday.

In the absence of credible federal action, it now behooves Canada’s premiers to untangle the Gordian Knot that is both market access and carbon policy.

Whether that can be achieved with the energy document the premiers are set to sign, however, is a good question.

Alberta Premier Rachel Notley is in an awkward position.

She wasn’t part of the work or the conversations that led to its development and must think very carefully about being a signatory. Is it in Alberta’s best interests to sign if it doesn’t reflect the direction the province may take after the report from its climate change panel, without commitments to gaining market access?

Notley should only be too aware — as was pointed out by the Bank of Nova Scotia’s Adam Waterous in an op- ed piece published in Wednesday’s Globe and Mail — that the lack of market access costs energy companies $ 14 billion annually.

Corporate tax increases or a possible hike in royalties will never offset that number and the lost revenues have a direct impact on job creation and investment — in a negative direction.

Notley needs to show the rest of the country there is a new sheriff in town, which means two things: being forthright that Alberta should not bear the sins of Canada’s carbon- based economy while making the point that it is a shared responsibility. ( See Bank of Canada above.)

She also has to show goodwill with her fellow premiers and demonstrate that her new government is looking at Alberta’s role differently than did her predecessors — moving forward with a tougher carbon policy but not to the degree that it permanently compromises investment in the energy sector.

There are ways to protect trade- exposed industries, as was illustrated in a paper published Monday by the Canada West Foundation, and Notley should not shy away from laying claim to that approach. Other provinces take that approach with their key industries.

Energy has taken centre stage from coast to coast this week.

Whether it is the premiers’ meetings in Newfoundland, the interest rate cut by the Bank of Canada that reflects the weakness in the economy that in many ways is linked to the drop in oil prices and related investment, or B. C.’ s legislature debating a bill to encourage future investment in that industry — there is no doubting the importance of energy to Canada’s current and future economic health.

Notley comes to these meetings without the baggage of 44 years of prior Alberta governments. Hers can be a new perspective at the discussions that will take place over the next two days that can emphasize both the importance of the country’s largest energy- producing jurisdiction and her plan to up Alberta’s game in the context of carbon policy.

She is justified to tie Alberta’s coming shift on carbon policy to market access — and to play hardball; this isn’t just about Alberta, it’s about the country and the opportunity cost to Canadians in the absence of access to tidewater on either the east or west coasts.