In regulatory policy, there’s a fine line twixt carrot and stick. Modern perspectives place a higher emphasis on the carrot, referring to incentive-based regulation, while perhaps more antiquated perspectives focus on the “stick” of punishment. Navigating this tricky balance is a matter of the public sector making sure human beings and economic interests are protected without stifling growth, or exchange of goods or information. With regard specifically to energy and environment, the Trump Administration spent four reckless years eviscerating the federal government of its “stick” abilities– but simultaneously failed to develop good incentives on the “carrot” end. While the rest of the world cheers, far west in the land of the rising maple, conservatives in the land of Alberta are fuming over the ascending Biden presidency because the incoming Democrat is likely to change that– specifically around an obscure, little-known resource called oil. This article is about why the Keystone XL pipeline is a terrible idea to move forward with, and what the Biden Administration– and Alberta Premier Jason Kenney’s own administration- should be moving forward with instead.
What IS A Lberta, anyway?
To the uninitiated, Alberta is a weird place. It’s sort of like if Texas and Colorado had a maple-flavoured love child. It’s got oil, cowboys, and mountains. It’s rife with contradictions. It’s got basically the Canadian versions of MAGA people. There’s a cowboy-heavy Canadian version of a Midwestern state fair. There was even, for a time, basically a Canadian version of the US Tea Party. It gets weirder. There are no rats in Alberta, one of the only places on the entire earth that can boast such a dubious honor. Like Michigan and many deep red territories in the US, they also have crazy right-wingers who make threats against progressive women in office. Interestingly, contrasting with the backward-looking conservatism, Calgary also boasts perhaps the only non-white mayor of a sizable Canadian city in Naheed Nenshi.
“Where the trucks are big and the minds are small,” mused a dear friend from Calgary.
The Decline of the Once-Great Oil Economy
The province’s economy was defined for a long time by its oil production. Stan Rogers sang about it in a 1981 song about the legacy of industrial decline in eastern Canada combined with the oil boom of the Great West. Its distinctly “bootstraps libertarianism” politics echo in the verses: “Oh I miss the green and the woods and streams / And I don’t like cowboy clothes / But I like being free and that makes me / An idiot, I suppose.” So, when the oil bubble burst after riding the highs that accompanied the global derivatives and housing bubble of 2006-2008, this took a profound toll on the province’s economy, whose energy sector alone accounted for several percentage points of Canada’s total GDP.
To give you an idea of how bad it has been: A June 2008 high of $167 per barrel plunged to around $55 by the end of that year. Oil would recover to over $110 per barrel over the next six years. But in 2014, a glut of global oil supply and a slowdown in economic activity would begin a volatile period that would see the commodity ultimately plunging to under $20 per barrel. This price was a pittance– and would have been unthinkable even a few years ago. COVID19 provided a spark, but the oil economy has been in decline for decades as fuel economy standards have improved, even with higher rates of car ownership among the growing middle classes in places like China and India.
Reassessing the Public Sector’s Relationship With Oil
Over this period, the province’s economy didn’t diversify. It did, however, substantially increase its debt load, both as percentage of provincial GDP, and in overall dollar amounts. A province that prided itself on generating public revenues from taxes on the energy sector to offset taxes on businesses and individuals was suddenly not collecting from the moribund oil industry. And historically low public debt from “fiscally conservative management” suddenly gave way to larger deficits. The solution of Jason Kenney’s administration? “Build the Keystone XL pipeline!”
This afternoon, I spoke with Prime Minister Trudeau on the #KeystoneXL pipeline.— Jason Kenney (@jkenney) January 20, 2021
I urge the fed govt to do everything possible to convey a clear message to President-elect Biden that rescinding the #KXL border crossing permit would damage the Canada-US bilateral relationship. pic.twitter.com/VIOrDUCBlh
It was a campaign promise of his when he defeated NDP incumbent Rachel Notley in 2017. Premier Notley had been stuck between the rock and the hard place of trying to save Alberta’s oil-dependent economy and joining an overall progressive agenda of her party’s left-of-center platform. But it’s a terrible value proposition. Sticking with it seems mostly indicative of how stuck some conservatives are in thinking about fossil fuels– digging in just because they can’t envision anything different.
The Persistence– and Obstinance- of Oil
Back in the United States, our new president seems genuinely interested in putting the kibosh on fossil fuel subsidies. An end to oil and gas leases on federal land. And, of course, the end of the Keystone XL pipeline (probably). An interest in actually investing in electric vehicles for the federal fleet (woah). This doesn’t mean that oil is going to go away. The persistent reliance on plastics means that oil and gas extraction will continue for quite some time. The proliferation of natural gas and CHP as variable load power generation and microgrid options is also, well, a thing. We can’t wean ourselves off oil entirely until we come up with a complete renovation of the North American power grid. (And, you know, stop driving).
A dear friend and colleague of mine once said: “It’s not enough for us to say no. We have to provide alternatives.” So, here are some ideas for Mr. Kenney. There’s oodles of research that shows that a lot of investment in energy efficiency pays off handily. This can come in so many forms that the efficiency economy could well become its own sector. It’s a frigid climate. It’s perfect for energy efficiency investment. Some things that could be considered:
- Energy retrofits for buildings. Alberta has 1.5 million dwelling units. 61.9% of these are single-family detached homes. More envelope equals less efficiency! That’s fine (really, it’s not, I’m judging), but it also provides opportunities for more in the way of savings.
- Incentives for the manufacture of performance construction materials.
- Incentives for high-performance new construction. The proto passive house was invented in 1977 in neighboring Saskatchewan. Let’s get it done! But still, the province is a bit behind– with the first PHI-certified house only being finished in 2018.
- Industrial waste heat capture technology and implementation.
- Residential energy efficiency technology and implementation.
- Solar, wind, and geothermal power and thermal generation systems.
If the Biden Administration is going to say ‘no’ to one thing, it may as well try and say ‘yes’ to this, instead. A cross-border development loan program? Trade incentives? It’s not exactly the same as “foreign aid” if it’s investment that gets paid back. This would at least be a way to create ROI; such is not the case on subsidies for oil, in which case money is quite literally going up in smoke. The Keystone XL is a bad value proposition all-around; let the sun shine in and let’s think toward the future.