March 09, 2012

Speech to the Economic Club of Canada

Danielle Smith
Ottawa, March 8, 2012
Why We Don’t Need A Canadian Energy Strategy

Good afternoon and thank you very much for the opportunity to speak in the nation’s capital.

As leader of the Wildrose Party, we’re working hard to become the next government of Alberta in an election that will be finished by the end of May. The current government has been in place since 1971…over 40 years. The record for any party governing a province is 42 years, the PC party in Ontario. At Wildrose, our objective is to ensure Ontario’s record lasts for a long, long time.

In the past year you may have heard some unusual ideas coming from Alberta, the concept of a Canadian Energy Strategy. This would be a national initiative whereby everybody would agree about something, but at Wildrose we’re not sure exactly what.

We had a similar policy 32 years ago. It was called the National Energy Program, or NEP. The NEP is widely recognized as one of the most disastrous policies ever introduced. It did not have the support of all provinces or regions, and was a massive intrusion by the federal government into areas that are clearly and constitutionally under provincial jurisdiction.

The most recent advocate of a Canadian Energy Strategy is new Alberta Premier Alison Redford. She’s what I call a classic government-centric politician. Redford not only leads a government, but she also believes that governments have solutions for just about everything. There’s nothing wrong with anything that another government policy, program, initiative or undertaking can’t solve. This is one of the fundamental differences between Wildrose and the current government of Alberta, but I’ll get to that later.

So what problems will the Canadian Energy Strategy solve? We’re not sure. Perhaps the best place to start is a view of the current national energy landscape.

Prime Minister Stephen Harper and others have described Canada as an emerging energy superpower. I agree except for the adjective “emerging”. When you look at the energy from all sources that Canada currently produces, Canada already is an energy superpower. I define superpower as a country that produces much more energy than it needs for domestic consumption and exports the rest at a handsome profit.

Canada’s domestic energy needs are significant. We live in an under-populated, large and cold country. Regardless, we are still a major net exporter of energy. What little energy we import – like crude oil in central and eastern Canada – is a matter of price and transportation.

Alberta is best known for oil, but we also produce a lot of natural gas and natural gas liquids like propane and butane. Other provinces produce oil and gas. British Columbia. Saskatchewan. Manitoba. Ontario not only produces oil and gas, but it is the birthplace of oil production in Canada. Newfoundland and Labrador produce oil, Nova Scotia produces natural gas, primarily offshore. New Brunswick has a growing shale gas business. There continues to be exploratory drilling in Prince Edward Island, and it is believed that Quebec has major deposits of shale gas. The Northwest Territories contain massive deposits of oil and gas at Norman Wells, the Mackenzie Delta and the Beaufort Sea. There have been successful exploratory wells drilled in the southern Yukon.

On a barrel of oil equivalent or BOE basis – which includes conventional oil, oilsands, heavy oil, natural gas and natural gas liquids – Canada is the fifth largest hydrocarbon producing jurisdiction in the world behind only Russia, the United States, Saudi Arabia and Iran. On a BOE basis Canada produces more hydrocarbons than countries thought to be big in this business like Mexico, Norway, Venezuela, Kuwait, Norway or even Iraq.

Hydrocarbon production and consumption is a major contributor to taxes for all governments at all levels. Including exploration rights, production royalties, property taxes, corporate taxes, payroll taxes and consumption taxes like GST, PST and direct fuel taxes on gasoline and diesel, this industry contributes in excess of $50 billion every year.

Oil and gas development is creating jobs in all four western provinces and Newfoundland and Labrador. Supporting this business helps the economy of every province. Developing oil and gas either takes place or could take place in every province and territory. In a world still recovering from recession, this industry is one of Canada’s true economic bright spots and opportunities.

Do we really need a Canadian Energy Strategy for this? How about a national advertising campaign to educate Canadians about how big a player we really are.

Hydroelectricity is also big business in Canada. We use water power to generate electricity in British Columbia, Alberta, Manitoba, Ontario, Quebec and Newfoundland and Labrador. Until recently Canada was the largest generator of hydroelectricity in the world with water powering 60 per cent of our total electricity requirements. Because of new hydro projects in China, that country has now surpassed Canada in terms of total output.

Like oil, excess hydro is available for export. Quebec exports about 12% of its hydro electricity, 95% of that to the United States. British Columbia and Manitoba also export hydro electricity.

Nuclear generated electricity also figures into the Canadian energy supply mix. Canada has 7 nuclear power plants, 5 in Ontario, 1 in Quebec and 1 in New Brunswick. Canada has pursued an aggressive strategy for developing atomic power including licencing the proprietary CANDU reactor design for installations in Argentina, India, Pakistan, Romania, South Korea, Taiwan and China. Nuclear power provides electricity for about 15% of domestic needs.

The next major component of Canada’s energy mix is coal-fired electricity which provides about 14% of domestic energy requirements. Coal is almost as significant as nuclear energy for total electricity supplies. Natural gas fired electricity generation supplies about 4% of our power, while the remaining 1% comes from a host of renewables including wind, solar and biofuels.

Regionally, the energy supply mix is diverse. Quebec and Ontario generate about 60 per cent of the nation’s electricity. With the exception of oil and gas from the east coast, western Canada produces the lion’s share of Canada’s hydrocarbon energy. Coal fired electricity is most prevalent in Alberta and Saskatchewan where coal is close, plentiful and inexpensive.

Regardless of where it comes from, energy in Canada has provided us with a huge competitive advantage in the global economy. Industry has grown and prospered because of cheap and virtually unlimited sources of energy. Industry following cheap energy probably started with natural gas in southeast Alberta at the turn of the last century. It has been a competitive advantage in Quebec for years. Even if Canadians pay the world price for energy, the cash never leaves the country giving us a competitive advantage in our balance of trade calculations. When we buy our energy from domestic sources, we export nothing and retain jobs and investment in our country.

Since the crippling recession of late 2008, Canada has enjoyed the best economic performance among its western nation peers. While there’s always a politician or political party ready to step forward and take credit, we would be delinquent in not giving some of the credit to our energy wealth and expanding energy development.

What is noteworthy about Canada’s massive and diverse energy sources, our lucrative energy exports, our domestic energy advantage and out nation’s relative financial strength is that none of the credit should go to a pan-provincial, multi-jurisdictional, comprehensive Canadian Energy Strategy. We got a long way without it.

This is not to say governments weren’t involved. The Quebec government got behind Hydro-Quebec. Our nuclear power was entirely a government initiative. The federal government helped get the first pipelines from Alberta to eastern Canada built. Governments supported the Syncrude oilsands plant and the Hibernia offshore project helping to pioneer bitumen recovery and the east coast offshore. All occurred at different times over a 60 year period and for different reasons. Today they all contribute to our massive, diverse and enviable energy mix and the wealth of our nation.

Now I want to pause for a moment and ask if you’ve found a problem yet. What is wrong with our vast energy production, resources and supplies that would require us to drop everything and develop a new Canadian Energy Strategy? If there’s a problem, it’s not about energy. It’s about something else.

In the past decade, the biggest challenge and potential change to our energy future to emerge is environmental. They say Canadians are the largest per-capita energy consumers in the world. Living in a large, cold, industrialized country, I’m not ashamed of that. It’s as much about geography and climate as lifestyle. The issue goes back to the environmental impact of energy development and consumption. What can we do about that? What should we do about that? What can we afford to do about that?

This issue is not unique to Canada. But response by our governments has been chaotic, confusing and expensive. Prime Minister Jean Chretien signed the Kyoto Protocol in 1997. Carbon emissions have increased steadily ever since. Ontario joined many European countries in subsidizing costly renewable wind and solar power. The promised jobs never materialized anywhere, and globally many are wondering if expensive, periodic electricity supplies are a solution to anything. In Alberta we committed two billion dollars to carbon capture and storage. The American government subsidized electric cars that are expensive, have limited range, and don’t sell. At the Copenhagen Climate Change conference in 2009 Ontario and Quebec publicly criticized Alberta’s oilsands, hardly a memorable moment in cooperative federalism or national unity.

All energy sources have an environmental cost. Nuclear power is still plagued by the safe storage or disposal of spent fuel. Quebec’s James Bay hydro project flooded nineteen times the amount of boreal forest cleared for oilsands mining. Burning coal creates emissions. Natural gas, although cleaner than oil, increasingly requires development in populated regions, pipelines, infrastructure and hydraulic fracturing.

Even wind farms aren’t popular. As promising as wind power may be, nobody wants these giant turbines anywhere near their homes. I note the latest opponent is Anne Murray in Nova Scotia.

Despite years of public debate and mountains of well-intentioned and expensive government policy, the only major carbon emission reductions in North America have come not from governments, but from the greater economy and the private sector.

High oil prices and the recession have dramatically reduced transportation fuel consumption in the U.S., the first measurable decline in hydrocarbon fuel emissions. Daily oil consumption is down 2 million barrels a day or nearly 10% from pre-recession levels. But ordinary people are looking to governments not for programs to further reduce emissions, but to stimulate the economy to get people working so they can afford to drive their cars again.

The other major drop in carbon emissions is coming from private sector ingenuity…shale gas. The combination of horizontal drilling and multi-stage hydraulic fracturing have unlocked enormous amounts of natural gas and collapsed the cost of this fuel in North America. Some 35 per cent of the coal fired power generating plants in the U.S. have now switched to natural gas, resulting in a decline in carbon emissions and a major reduction in airborne particulates. This is real progress, and I remind you it came from industrial technology and the profit motive, not enlightened government legislation. There’s a message here.

Managing the environmental protection file is surely the most daunting public policy challenge in history. We want our energy close, we want it now, we want it clean, and we don’t want to pay one cent more than we have to. That this is impossible, and that none of our politicians have the courage to say so, is a glaring failure of the political process. Politicians refuse to admit there is no simple solution. They earnestly campaign on hope because it gets votes. Then they do nothing because it costs votes.

The second biggest challenge facing energy development in Canada comes from the regulatory review and approval process. Canada can and should be proud of the regulatory oversight it has developed in past years to ensure that major projects that affect multiple stakeholders are fully explained, discussed and understood. Historically, this process has been largely technical. What. Where. When. Why. Is it safe? Is it in the national interest? Will it create wealth, jobs and economic opportunity?

But increasingly the regulatory approval process has become a forum for purely political discussions. A few years back a developer tried to put a gas fired electricity generating plant near Oakville. The opposition was fierce but it was all based on quality of life and an irrational level of risk assessment. (Remember, the most dangerous activity you can do today is drive your car, but nobody quits driving. There’s no votes to be had for politicians saving your life by banning cars.) In the oil and gas business, the regulatory process now involves pipelines. Canada may hold the world record for the longest and most expensive regulatory review in history. It took 44 years and a billion dollars from conception to approval to get the green light to build the Mackenzie Valley natural gas pipeline. Now it is no longer economic.

When Canada tried to build the Keystone pipeline to the Gulf of Mexico to sell oilsands surplus to Canadian needs and create wealth and jobs, the opposition was based not principally on the technical aspects of the pipeline or its route, but whether or not Americans should use oil as a transportation fuel. A single energy source – Canada’s oilsands – was depicted as the end of civilization, therefore the pipeline should be blocked. This is complete nonsense, but that’s what happened.

The current hearings into the Northern Gateway pipeline from Alberta to the west coast to export oilsands production to Asia is another example of a regulatory review process completely off the rails. How did it end up that Enbridge…a private sector pipeline company…is on the front lines of a review process that will ultimately involve aboriginal land claims, the legitimacy of oilsands development, the use of gasoline as a transportation fuel, the safety of pipelines and tankers to transport oil, and the future of mankind?

Like environmental protection, these are political issues, not regulatory issues. Pipeline hearings were intended to deal with the width of the right-of-way, the depth at which the pipe will be buried, the thickness of the steel, the distance to communities, schools and churches, and the economic benefits. It should not be up to the National Energy Board and Enbridge to enter into a process in which the technical issues for which the process was designed take a back seat to intervenors who want to use the hearings to change the direction of the entire economy.

Remember, these are regulatory hearings, not referendums. There are 4,000 intervenors, many from outside Canada, that are using the Northern Gateway hearing process to direct the future of our country. I applaud Prime Minister Stephen Harper and Energy Minister Joe Oliver for speaking up about how a regulatory approval process involving unelected participants has replaced the House of Commons and provincial legislatures for setting provincial and national energy and economic policy.

So what is a Canadian Energy Strategy really about? It is an admission that our current crop of politicians have lost control of the public agenda and have no idea how to develop a go-forward environmental policy that works and that voters will accept. It is an admission that our current regulatory review process can no longer approve the development of energy projects that make sense, make money, put people to work, and maintain Canada’s enormous built-in energy advantage.

Well I don’t believe that failure by our governments on two major policy files can or should be rectified by another government policy, program or initiative. The Canadian Energy Strategy is just another layer of bafflegab and administration on top of a system that already has too many layers. The Canadian Energy Strategy proves some of our leaders cannot lead, and their only solution is more government.

But I have the solution. Why can’t Canada just be a country again. Just like it was when some of the great national energy projects that have shaped our future came into being, like the TransCanada Pipeline, like Syncrude, like Hibernia.

As we look to move our oilsands to market in the face of resistance to the south and west coast, an all-Canadian solution is looking increasingly attractive. Shell has examined plans to upgrade bitumen to synthetic crude at its refinery in Sarnia. Suncor has examined the same strategy for its refinery in Montreal. With pipelines in place all the way to Montreal, the next step would be to a build a pipeline to the deepwater port in Saint John, New Brunswick, that currently imports crude. Let’s upgrade more oilsands in Canada using retrofitted existing facilities across the country. This would increase the use of domestically produced crude, eliminate imports, then export the remainder into new markets using an Atlantic marine route.

Surely I don’t have to produce statistical evidence that what is good for the Maritimes is good for Canada. That what is good for Alberta and the oilsands is good for Canada. That what is good for Quebec and Ontario is good for Canada. That being a diversified energy superpower is good for Canada.

We’re so rich in energy and resources I fear we take this for granted. We do so at our peril.

What our country needs is to communicate, not legislate or pontificate. What our country must understand is that sometimes the best way for governments to help is to do less, not more. What our country needs is politicians who have confidence in the private sector and the bottomless ingenuity of our businesspeople and entrepreneurs to solve the problems of the day.

I’m here to open a dialogue with my fellow Canadians, not convene another policy conference. I’m here to talk about how blessed we are to be Canadian, not to promote another government-sponsored program like a Canadian Energy Strategy to repair the failings of past governments. If I become Premier of Alberta, I’m going to talk about our strengths as a country, not seek bandaids for our weaknesses.

I welcome your questions.


Get Wildrose Party Updates