DRILLING DEEP
The National Energy Program’s failure offers clues about why new climate-change laws will fail too.
POLITICIANS ARE SO CONVINCED OF THE RIGHTFULNESS OF THEIR ACTIONS THAT THEY ARE PUSHING CANADA TO MAKE A SHARP ECONOMIC TURN AWAY FROM FOSSIL-FUEL PRODUCTION
You have to go back to the 1980s, to the days of the National Energy Program (NEP), to find a precedent for the bold government intrusion in Canada’s energy economy that we are seeing today. Like then, political leaders are driving radical — some would say reckless — change in response to perceived global threats. Market forces are expected to adapt or get out of the way. Taxpayers, consumers and shareholders are forced to pay. Dissenting voices are dismissed.
Today, it’s all about accelerating the transition to clean energy production and use, the result of climate change climbing to the top of the agenda in Ottawa under Justin Trudeau’s Liberals, with the complicity of most provinces, especially Alberta, the most affected.
In the past version, headed by Justin’s father, Pierre, the perceived problems were induced oil shocks by the Organization of the Petroleum Exporting Countries cartel that pushed up prices and hurt Canadians despite the country’s energy abundance. The remedies were the creation of federally owned Petro-Canada, price controls, taxes and lavish incentives for oil and gas exploration. Many people were ruined, capital fled, much taxpayer funding was misspent chasing rainbows such as Arctic oil and gas that has yet to be produced. The NEP turned out to be so destructive for Western Canada — and for Alberta in particular because of its oil and gas dependence — that it was dismantled after the 1984 election of Brian Mulroney’s Conservative government.
The justifications for the NEP look highly misguided today, showing that no one, especially not politicians with short-term horizons, can predict the future. OPEC is barely hanging together. World oil supplies are abundant and prices are the same as they were three decades ago. Perennially underperforming Petro-Canada was bought by one of the Canadian companies, Suncor Energy Inc., that grew on its own steam rather than government help.
As a policy, the NEP turned into such an embarrassment that it remains a black mark on the federal Liberal and the senior Trudeau’s record and is rarely spoken about. But it should be, because it is a measure of what happens when policymakers get energy policy wrong. Instead, today’s politicians, hungry for international attention as climate-change leaders, are so convinced of the rightfulness of their actions that they are pushing Canada to make a sharp economic turn away from fossil-fuel production, despite its century of growth and experience, into clean energy, which is in its infancy and has yet to prove it is able and fit to meet Canada’s needs.
Alberta is dismantling cheap coal power and replacing it with subsidized renewable energy, introducing a hefty carbon tax in the middle of a provincial recession, putting a cap on oilsands production growth. Ontario and British Columbia are building on aggressive climate-change initiatives, no matter how expensive or economically debilitating. Ottawa is piling on with a national climate-change plan that at the very least involves toughening up reviews of energy projects to ensure they pass green tests and reforming regulators. The main tangible benefit is supposed to be new pipelines to new oil markets, though not much is being done to actually get them built.
The damage, however, has already started as investors flee due to policy uncertainty and increased costs, as shown by the collapse in long-term growth plans in the oilsands, cancelled/delayed liquefied natural gas projects and the termination of coal power contracts. More is on its way if Canada’s climate-change policies aren’t matched or rewarded by other jurisdictions; if competitors continue to jack up fossil-fuel production while Canada caps its own; if clean energy proves expensive and unrealistic in a cold climate with large distances; if government-directed diversification turns into a taxpayer-funded money pit; and if the proliferation of red tape to meet climate-change objectives sinks Canada’s attractiveness for capital investment.
Given Canada’s record with federal energy policy, the architects of today’s clean energy transition would be well served to replace hubris with caution, before the damage gets any deeper.