New relevance for Canada on the world stage

ABSTRACT

For many years, the Canadian government has pursued energy and environmental policies that have difficulty co-existing. Ottawa has encouraged projects intended to expand the extraction and export of the country’s single biggest commodity, fossil fuel, while at the same time seeking to restrict Canada’s carbon footprint, an imperative characterized by the term “leave it in the ground.” Events have rendered that policy contradiction untenable. Russia’s invasion of Ukraine, and the Kremlin’s efforts to weaponize energy, have shown the folly of allowing complete globalization of energy production. And no country is in a better position to step up than Canada, with its abundance of resources. Canada’s reserves of natural gas rival Russia’s. And yet Canada does not have a single liquefied natural gas export facility. Similar for critical minerals processing, without which technology manufacturing cannot exist. China currently has the global market cornered, while Canada’s engineering capability and regulatory regime goes untested. In this commentary, I urge Canada to pursue energy realpolitik – to overcome the obstacles of federal-provincial jurisdiction, reconcile restrictions on carbon with the plain need for energy, and partner with the United States, while it is still possible.

RÉSUMÉ

Depuis de nombreuses années, le gouvernement canadien mène des politiques énergétiques et environnementales qui ont du mal à coexister. Ottawa a encouragé les projets destinés à développer l'extraction et l'exportation du plus important produit de base du pays, le combustible fossile, tout en cherchant à limiter l'empreinte carbone du Canada, un impératif caractérisé par l'expression « laissez-le dans le sol ». Les événements ont rendu cette contradiction politique intenable. L'invasion de l'Ukraine par la Russie et les efforts du Kremlin pour militariser l'énergie ont montré la folie qu'est celle de permettre une mondialisation complète de la production énergétique. Et aucun pays n'est mieux placé pour agir que le Canada, qui dispose d'abondantes ressources. Les réserves de gaz naturel du Canada rivalisent avec celles de la Russie. Et pourtant, le Canada ne dispose pas d'une seule installation d'exportation de gaz naturel liquéfié. Il en va de même pour le traitement des minéraux essentiels, sans lequel la fabrication de technologies ne peut exister. Actuellement, la Chine accapare le marché mondial, tandis que la capacité d'ingénierie et le régime réglementaire du Canada ne sont pas éprouvés. Dans ce commentaire, j'exhorte le Canada à poursuivre la realpolitik énergétique – à surmonter les obstacles de la compétence fédérale-provinciale, à concilier les restrictions sur le carbone avec le besoin manifeste en énergie, et à s'associer avec les États-Unis tant que cela est encore possible.

KEYWORDS:

• Energy exports
• critical minerals
• pipelines
• energy in Europe
• north American energy policy

Canada has moved beyond Sir Leonard Tilley’s famous warning, delivered 143 years ago. Canadians in 2022 are not, as the late federal finance minister and father of Confederation feared, solely hewers of wood and drawers of water, making a living by selling their abundant natural resources to other jurisdictions which in turn use them to create manufactured goods.

Canada’s abundance lies well beyond its natural resources. In 2020, it was the ninth-largest economy in the world and the 12th largest exporter of goods and services, according to the Observatory of Economic Complexity (OEC, n.d.). Canadians are valued for their expertise. Data maintained by OEC indicate that Canada exported $103 billion in services in 2019. Of the $371 billion in goods sold by Canadian companies in 2020, at least 30 per cent comprised cars, aircraft, and a range of other manufactured goods. Impressive, certainly. But not as impressive as it could be. As the OEC notes: “[d]uring the last 20 years, Canada’s economy has become relatively less complex, moving from the 12th to the 29th position in the ECI [Economic Complexity Index] rank.” The Index, according to Harvard Growth Lab (n.d.), is a measure of the relative knowledge intensity of an economy. Currently, Romania, Malaysia, Poland, Mexico, Slovakia, Hungary, and Slovenia are among the 28 nations ahead of Canada.

As we know, statistics can hide as much as they reveal. So let me repeat, with emphasis: Canada is a progressive country with credibility, expertise, transparency, rule of law, and education. It is not a stretch, nor an insult to the countries that rate higher on the ECI, to say that many of their citizens, if given the chance, would emigrate to Canada tomorrow. And the better Canada does, the better the United States does. So, for the benefit of the North American economy, allow us a few respectful observations.

Canada’s single largest export, by far, remains crude petroleum. This, in a country pursuing a policy of reducing fossil fuel consumption and production, while at the same time seeking to double-track the TransMountain pipeline. This has all become more complex in light of recent events in Eastern Europe, and the weaponization of the flow of commerce, including energy, by the Kremlin.

Canada’s position on the international stage would without question be more relevant, and more prominent, if it were to reconcile its ability (and necessity) to export fossil fuels with its cast-iron commitment to reduce the country’s carbon footprint. Right now, Ottawa and the various subnational governments in the Canadian confederation are pumping the accelerator while keeping the other foot jammed on the brake.

But I would argue that square can be circled, with some political will and collaboration, both within Canada and with the United States. It in fact must be. Very few countries are positioned to provide the energy the world needs so badly (particularly now), and to do it in a world-class, environmentally sustainable manner. Canada is, if it would just allow itself to do so.

To reiterate, Canada is a country with a spectacular wealth of resources in and beneath its soil. Quebec has sufficient hydroelectric power to light up New York – which, by the way, it is in the process of doing (CBC News, 2021). Canada is the third largest generator of hydroelectric power on Earth (Myers, 2015). Its electricity grid is one of the cleanest in the world: 82 per cent of its power is from renewable or non-emitting sources, meaning free of greenhouse gas emissions (Environment and Climate Change Canada, 2022).

Canada possesses vast natural gas fields. And as Prime Minister Trudeau has noted, Canada’s wealth of the so-called “critical minerals” crucial to the production of electric vehicle batteries and modern technologies (think smartphone screens) rivals that of China (Gratton & Marshall, 2022). Further, Canada has the open spaces, engineering expertise, infrastructure, and access to relatively affordable electricity needed to mine and refine them. And of course, Canada has some of the largest reserves on Earth of high-grade uranium.

And yet.

China utterly dominates the market on processing rare earths and other critical minerals. Canada’s virtue, evidently, imprisons its potential for success. (Ottawa blames Canada’s more stringent environmental and labor standards for the sector’s relatively slow development (Gratton & Marshall, 2022).)

By contrast, Europe, forced to deal with the consequences of Russia’s aggression towards Ukraine and its energy security implications, is desperate for natural gas. Canada has it, in remarkable abundance. But, as noted recently by the Fraser Institute, despite producing 16.1 billion cubic feet of natural gas every day – five per cent of the world’s total – Canada does not have any liquefied natural gas (LNG) export facilities (Aliakbari & Yunis, 2022).

That’s not for lack of enthusiasm in the energy sector. According to Natural Resources Canada (2020), 18 LNG export facilities have been proposed since 2011. Yet there is exactly one currently under construction, in British Columbia. Many of the others have been withdrawn by the companies that proposed them, in the face of stringent regulatory hurdles. The one facility that is plodding ahead, has been stalled by environmental activists and intra-Indigenous politics (some First Nations support the project, while some traditional Indigenous leaders, enthusiastically backed by environmentalists, oppose it. In early 2020, opponents of the project actually managed to shut down Canadian National’s entire rail network for several days, inflicting remarkable collateral damage on the economy (Reuters, 2020).)

The federal government, it should be noted, remains almost wistfully optimistic. Natural Resources Canada’s website talks about working with the provinces to “create conditions to support the development of an LNG industry in Canada,” (Natural Resources Canada, 2020) noting a Conference Board of Canada study predicting the industry’s potential contribution of $7.4 billion annually to the Canadian economy over the next 30 years, raising employment by 65,000 jobs (Natural Resources Canada, 2020). Actually, optimistic is perhaps the wrong word. Aspirational might be more apt, considering context.

In Alberta, though, the right adjective is angry. That province’s energy sector has taken an exhausting beating in recent years, and it is keen to get its petroleum to tidewater and new markets. Yet the TransMountain expansion, Alberta’s westward hope, has proceeded only sporadically, with the federal government as its reluctant new owner. And Energy East, the pipeline proposal to carry diluted Alberta bitumen to refineries in New Brunswick and Quebec, is dead. As is Enbridge’s Northern Gateway proposal, killed by legal challenges, and then abandoned by the federal government in early 2016.

The stalling and stoppage respectively of the TransMountain expansion, the Energy East project, and the Northern Gateway proposal pre-dated the complex politics around the US refusal to grant the Presidential permit required for the expansion of the Keystone XL pipeline. Imagine what North America’s response to current world events would be today had each of these projects proceeded in recent years.

Now, it is true that nimble, sensible, adaptive energy policymaking would be far easier if Canada were a unitary state. The fact is, as Geoffrey Hale wrote three years ago, “constitutional guarantees of provincial ownership of natural resources, reinforced by … memories of federal-provincial conflict, strictly limited federal ambitions to develop national energy policies … ” (Hale, 2019, p. 169) for many years.

And frankly, the Gordian policy knot in the United States needs slicing, as well. At the intersection of Executive, Congressional, constitutional, and NGO priorities, and of course states’ rights, there is often a default setting of inaction. (Never mind the staggering cleavage between explicit US goals of reducing the carbon footprint and growing the zero-emissions vehicle (ZEV) fleet, and the belief of a huge swath of voters that American citizenship comes with the right to consume unlimited amounts of cheap energy.)

None of that, though, detracts from the plain fact that we need Canada and the United States to find a way to lead both on environmental sustainability and responsible resource development for the world. Furthermore, Canada must find a way to be relevant in these global conversations.

The opportunity presented by critical minerals and rare earths is Canada’s ticket to treatment as more of an equal partner in Washington. Imagine if, for example, the United States was wholly reliant on energetic factories in Canada for the batteries in the electric vehicles it wants to prioritize, I guarantee Canada would not be pleading with Congress to give it an exemption from the Buy-American electric-vehicle tax rules.

If Europe was able to turn to Canada to replace the natural gas that Russia is tacitly threatening to cut off, take my word for it, Canada’s counsel and view would be prized on Capitol Hill and north of the Ellipse, never mind Berlin and Brussels. If Canada firmly embraced nuclear power, particularly small modular nuclear reactors, pursuing a strategy of not just selling them to its own underpowered rural communities, but worldwide, that would matter. Combined, these things would probably matter as much as fulfilling defence spending commitments required of NATO members.

If Canada would only lean into its natural resources, rather than just selling them, it would rise, both on the ECI and in international esteem. And if any nation can manage to do these things in an environmentally responsible way, it is Canada. Just look at Alberta’s leadership in establishing carbon hubs, facilities where carbon dioxide is safely and permanently sequestered underground, after being captured at an emitting facility and compressed into a “supercritical” liquid-like state. Three members of the Canadian American Business Council have made successful proposals to operate hubs in the province (Alberta, 2022; Pierce, 2022) which together would represent the world’s largest industrial carbon capture and storage efforts (Enbridge, 2022).

We’ve all heard the warning to policymakers about how difficult it is to build a bicycle while you ride it. I would argue that Canada, with its competing national objectives of exporting energy while trying to keep more of it in the ground, has actually been attempting to dismantle the bicycle while riding it.

I will not presume to be prescriptive; Canada’s combined governments have an impressive array of expertise at their call. (The public service has credentialed energy experts, and the federal Minister of the Environment and Climate Change is a former Greenpeace activist.) Given that sort of experience and knowledge well, surely a collaborative, coherent and sensible melding of energy and environmental goals can emerge. But I would point out a few things.

First, we have in recent years allowed a push-me-pull-me coexistence of two energy policy thrusts. On one side, environmental activists have found sympathy in the current administrations in both Ottawa and Washington for the notion of “leaving it in the ground,” and focusing instead on an array of initiatives to restrict our collective carbon footprint. At the same time, and to a certain extent because of the leave-it-in-the-ground imperative, policymakers and legislators have been content to allow further globalization of energy production. Now, suddenly, most of the Western world wants to curb Russian militarism, and Europe is struggling with the difficulty of sanctioning and containing their most important source of natural gas.

Effectively, Russia’s invasion of Ukraine is forcing Western governments to reconcile the push-me-pull-me policies with which we have dawdled. The plain fact is that they cannot continue to coexist.

I would submit it is entirely possible to accelerate the carbon transition everyone desires and at the same time responsibly dive into developing big energy projects. It can be done. What it will take is political will, a fresh approach to federal-provincial cooperation, and collaboration with partners in the United States. The outcome would be a most valuable prize: we would decouple from foreign adversaries and, at the same time, strengthen and guarantee our energy independence.

The same blueprint, incidentally, applies to critical minerals. China’s dominance of supply is a national security issue if there ever was one. An abundance of raw materials exists in North American soil. If Canada cannot bring itself to begin extracting and processing them, the United States will instead partner with Japan or Australia or both.

There are obvious political difficulties in what I am suggesting. But surely, surely, becoming masters of our own house with respect to vital sectors like energy and the minerals necessary for the massive technological revolution we are right now in the middle of is a self-evident necessity.

Certainly, Sir Leonard would approve.

Disclosure statement

The author leads a consultancy which counts among its clients: The Canadian American Business Council, the Province of Alberta, Teck Resources, Capital Power, and the Pathways to Netzero Alliance.

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Maryscott Greenwood

Maryscott Greenwood is the CEO of the Canadian American Business Council and a partner of Crestview Strategy US. The commentary here reflects Greenwood’s own opinion and analysis.