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Bill Bewick: The unjust transition: Canada’s energy sacrifice is hurting the world, not helping it

Commentary

The world needs Canadian energy more than ever, but by prioritizing our emission reduction over energy production we are leaving most of our resources in the ground—and leaving the world dependent on the likes of Russia.  

Some think this is worthwhile because it should slightly lower global emissions, and we should now focus on a “just transition” away from oil and gas. It cannot, however, be just to shift hundreds of billions in energy sales to autocratic regimes who disregard the environment and human rights. In fact, by emboldening actions like the invasion of Ukraine, this premature transition away from supplying the world’s energy needs isn’t just naïve, it is actually unjust.

Russia’s invasion should make it clear to most fair-minded Canadians that energy insecurity is a massive global threat. Without its energy hegemony over Europe, it is hard to imagine a Russia with the political or economic power to slog through an invasion of Ukraine.  

Canada does not have a large military or a large population from which to influence the world. It does, however, have the third-largest petroleum reserves. Standing next to candidates like Saudi Arabia, Venezuela, Iran, and Russia should make Canada the belle of the energy investment ball. But our failure to build pipelines and our obsession with emission taxes and regulations led Canada’s share of global investment to fall 30 percent from 2010 to 2018.  

Canada’s loss is the world’s gain, right? Wrong. Oil production kept growing, and a look at the top ten oil-producing countriesWhat countries are the top producers and consumers of oil? https://www.eia.gov/tools/faqs/faq.php?id=709&t=6 reveals a gallery of rogues all too happy to profit from Canada’s hand-wringing.  

Graphic credit: Janice Nelson

Russia’s share of global oil and gas investment rose 30 percent over the same time Canada’s dropped 30 percent. The United States has also been a major beneficiary. Not only have companies shifted capital (see rig counts), but entire headquarters have relocated south. Also, while Canada stalled or even strangled various Liquid Natural Gas (LNG) proposals, America went from nowhere to number one over the last five years in meeting a booming global LNG demand. 

The rationale for this great “transition” is to reduce emissions and thereby protect the world, but it accomplishes neither. Canadian LNG is a much lower emission fuel than alternatives, especially Asian coal. While LNG is on the rise in Asia, there isn’t enough: in 2020 China announced plans for 43 new coal plants and 18 blast furnaces that would emit an additional 150MT of CO2.China’s power & steel firms continue to invest in coal even as emissions surge cools down https://energyandcleanair.org/wp/wp-content/uploads/2021/08/China-Q2-briefing-coal-steel-CO2.pdf For perspective, that increase is double the CO2 emitted by the entire oilsands. 

If abundant LNG were on offer from the relatively close port of Prince Rupert, China and the rest of Asia could choose a cleaner option with less than half the emissions. That’s saving the equivalent of the entire oilsands in the case of China’s 2020 announcement of 150MT of new coal emissions.“Oil sands operations currently emit roughly 70 Megatonnes (Mt) per year.” https://www.alberta.ca/climate-oilsands-emissions.aspx#:~:text=Alberta%20today,-The%20oil%20sands&text=Oil%20sands%20operations%20currently%20emit,by%20facility%20or%20industry%2Dwide. Whatever this lofty green “transition” is, if it means less export of LNG it is failing to reduce emissions by displacing coal.

If you actually were committed to helping the world, though, think about what substantial LNG and oil export off the east coast could be doing for a Europe under siege. Have projects like the LNG terminal in Saguenay been cancelled to protect the world? Stand at the Ukraine-Poland border and see if those 80 million people on either side agree with you. Whether it is environmental, social, and governance (ESG) metrics“ESG stands for Environmental, Social, and Governance. Investors are increasingly applying these non-financial factors as part of their analysis process to identify material risks and growth opportunities. ESG metrics are not commonly part of mandatory financial reporting, though companies are increasingly making disclosures in their annual report or in a standalone sustainability report.” https://www.cfainstitute.org/en/research/esg-investing#:~:text=ESG%20stands%20for%20Environmental%2C%20Social,material%20risks%20and%20growth%20opportunities. or our own moral barometer, it is wrong to focus on emissions alone and ignore energy security and the enrichment of unjust regimes.

If Canada’s policies do not shift to promote development and export of the energy the world needs, when Russia opens back up we will watch helplessly as capital pours into our boreal neighbour to the west. It will not help the environment; it will simply make Canada poorer and Russia stronger.

Compromising the prosperity of future generations of Canadians to enrich and empower autocratic leaders is not just. If an ESG barometer tells you it is, it is clearly broken. Those pushing to move past oil and gas prematurely are really only burying Canadian wealth—and in favour of what? In favour of oil and gas produced with little respect for the environment or anyone’s rights, while benefitting many awful leaders—some of whom would wage war against us and our allies.  

The world will move past oil and gas one day, but until then Canada should be maximizing its production and developing excellent export routes in all directions because it is the safest, most reliable, and yes, most just producer to meet the world’s needs.  

Fight the unjust transition—support Canadian energy. 

Matthew Lau: COVID-style deficits are no longer necessary

Commentary

What year is this? The calendar says 2022, but judging from the fiscal balances in the federal and provincial government budgets over the past two months, some politicians apparently think we’re still in 2020.

Sizable budget deficits, of course, made some sense two years ago—the pandemic made necessary some extraordinary public health expenditures including compensation for business owners and other lockdown victims. Moreover, the recession reduced revenues and made some programs (employment insurance, for example) more expensive. To be sure, there’s a good case to be made that governments overspent in 2020 and that the deficits were too large. Nevertheless, the idea that governments should run deficits during a pandemic was completely reasonable.

But it’s now—to repeat—the year 2022. The pandemic is largely behind us, the recession is over, and government deficits are now not so reasonable.Do Budget Deficits Matter? Essays on the Implications of Government Deficits and Debt https://www.fraserinstitute.org/studies/do-budget-deficits-matter-essays-on-the-implications-of-government-deficits-and-debt To their credit, the New Brunswick and Alberta governments tabled balanced budgets this year. The federal and other provincial governments, alas, are less responsible.High spending and more borrowing common theme across Canada https://www.fraserinstitute.org/blogs/high-spending-and-more-borrowing-common-theme-across-canada The federal budget calls for a $52.8 billion deficit this year, driven by continued elevated spending levels, and no balanced budgets in its five-year plan. The Ontario government plans a $19.9 billion deficit this year and continued deficits until 2027-28, the British Columbia government a $5.5 billion deficit this year and no balanced budgets in its three-year plan, and the other provinces’ ongoing deficits of varying sizes, in some cases with no timeline to reach budget balance.

In selling their ambitious spending programs to the public, politicians like to use the word “invest” a lot. Government doesn’t spend our money, it only “invests” it. The Trudeau government’s budget, for example, has a section titled “Investing in a Green Transition That Will Support Jobs and Growth,” followed by a section on “Investing in Our Economic Capacity and Security” and then “Investing in an Inclusive Workforce.”

But the word “investing” shouldn’t fool anyone.

This is consumption spending, not investment. And to the extent that any real investment is taking place, it bears little responsibility for this year’s deficit. When governments invest in capital assets, such as physical infrastructure, the cost of the asset is capitalized and amortized over the life of the asset, and only the amortization expense is reflected in the annual deficit.

Politicians also often attempt to justify spending by claiming it stimulates the economy. The phrase “stimulus spending” does not actually appear in the latest federal budget but it appeared in the 2021 budget, to the tune of $100 billion and even referenced a “fiscal multiplier,” which is a measure of how much stimulus spending actually stimulates the economy. A multiplier above 1.0 suggests the spending stimulates private-sector activity; a multiplier below 1.0 suggests it crowds out private activity. Much of the debate about multipliers took place in 2009-10 as governments around the world enacted significant stimulus programs, with the preponderance of the evidence contradicting the theory that such spending is beneficial.

“The fiscal stimulus package,” Harvard economist Robert Barro wrote of a possible U.S. stimulus package in 2010 to follow the one already implemented in 2009, “is a way to get an extra $600 billion of public spending at the cost of $900 billion in private expenditure. That is a bad deal.” While some economists claimed the government spending multiplier was 1.57, other economists objected to their “highly questionable” assumptions, and using newer models, concluded that “the multipliers are less than one as consumption and investment are crowded out. The impact in the first year is very small” and in later years “the multipliers turn negative.” International Monetary Fund economists similarly estimatedThe Administration and the IMF on the Multiplier https://www.hoover.org/research/administration-and-imf-multiplier a multiplier that begins at 0.7 and fades over time to around 0.1, and later studies also found multipliers well below one.Government Spending Multipliers in Good Times and in Bad: Evidence from US Historical Data https://econweb.ucsd.edu/~vramey/research/Ramey_Zubairy_JPE_published.pdf

Government spends other people’s money less wisely than people spend their own money, and today’s deficit-spending discourages productive economic activity. Canadian governments that continue to spend and run deficits, in consequence, are doing economic harm. Deficits, though perhaps not of the magnitude that many governments incurred, made some sense in 2020. This year, however, deficits are unjustified and the federal plan, in particular, to continue with indefinite deficits appears reckless.