Breakdown

The Pipeline Debate and the Threat to Canada's Future

Dennis McConaghy

• Publisher: Dundurn Press
• Year: 2019
• ISBN:
  9781459745100
• Topic: Politique et relations internationales
• Subtopic: Relations de travail et relations industrielles

2019/20 The Donner Prize — Winner Is a national consensus on hydrocarbon development possible? The ongoing debate in Canada over the extraction of hydrocarbon resources and their transportation to markets exemplifies the country's political polarization. Breakdown explores these tensions through economic, environmental, and political perspectives. The Trudeau Liberals and Alberta's one-term NDP government attempted to find a compromise that satisfies the concerns of British Columbia, Canada's First Nations, and environmentalists. But they still could not break the impasse on the Trans Mountain Pipeline expansion. With new players now at the table, can Canada find a reasonable path forward?

PART ONE

The Problem

CHAPTER 1

Squaring the Circle

BEFORE DONALD TRUMP’S ELECTION to the American presidency in 2016, Canada had two remarkable election results of its own, one utterly astonishing, the other only modestly surprising. In May 2015 provincial NDP leader Rachel Notley became premier of Alberta, an entirely unprecedented achievement. Six months later, in October, the country elected federal Liberal leader Justin Trudeau prime minister of Canada. Each of these two leaders is the child of a political icon, an inheritor of a special political legacy that rejected right-of-centre priorities and empathies, and each was the beneficiary of a groundswell of support that spontaneously erupted in the course of their respective election campaigns. Trudeau championed a more diverse and tolerant Canada, one that recognized and strived to correct historic injustices while avoiding hard economic trade-offs through the magic of deficit financing. Notley wanted to guide Alberta to a more progressive political reality, less aligned with the corporatist priorities that had for so long dominated provincial politics. Similarly, she would rely on higher taxation and debt to avoid austerity. At the beginning of 2015, pollsters expected neither to win. But win they did.

Prior to her election in May 2015, Notley, despite her status as a major player in Alberta politics, was not deeply engaged in the conundrum of balancing Alberta’s hydrocarbon potential with Canada’s commitments to carbon emissions reduction as part of the United Nations climate process. Trudeau had espoused a kind of magical balance between the economy and the environment, relying on selective project approvals, a more sensitive regulatory process, and carbon pricing as a major policy instrument to achieve compliance with Canada’s international emissions reduction commitments. Neither could have wished to be defined by this conundrum. But by late 2015 Canada was about to lose KXL, its most strategic market access option for diluted bitumen (also known as “dilbit”) from the oil sands. Commodity prices for hydrocarbons had significantly declined from levels that once validated massive investment in the Canadian oil sands. American hydrocarbon production had grown, despite the Obama presidency, to the point where the United States was virtually self-sufficient in hydrocarbons for the first time in several decades. And the world was poised to embrace the aspirational goal of 2 degrees Celsius temperature containment at the Paris Climate Summit.

Trudeau and Notley would see much of their political record over the next four years defined by whether enough additional pipelines could be built to provide sufficient market access for Alberta’s oil sands resource, and whether Alberta and Canada could simultaneously achieve sufficient credibility on the world stage in terms of how they contributed to dealing with the risk of global climate change. By the end of 2016 Notley and Trudeau would face the reality of Trump’s presidency, a presidency characterized by an obsession with American self-interest, resulting in an animus towards the rest of the world, including long-standing allies such as Canada and the European Union, rationalized substantially by claiming that other countries have benefited from U.S. largesse, especially in respect of defence, while failing to provide it with sufficient compensation.

No one foresaw the possibility of a Notley majority government in Alberta until midway through the election campaign of April 2015. Her election was unimaginable until then, given the fact that previously there had been almost eighty years of conservative governments in Alberta. A unique confluence of factors led to her victory: vote splitting between the two right-wing parties, the collapse of the centrist Alberta Liberal Party, the unwillingness among middle- and lower-class Albertans to accept austerity as the policy response to lower commodity prices, accumulated resentments toward the ruling Conservative government, and fundamental changes in Alberta demography, especially in its two major cities, Calgary and Edmonton, where the populations were becoming more diverse and younger, and more receptive to progressive political alternatives.

As for Trudeau, six months before the federal election his Liberals lagged behind both the NDP and the Conservatives in popular vote projections, but admittedly not by an overwhelming margin. NDP support collapsed over the course of the fall election campaign as leader Thomas Mulcair moved to the right of Trudeau, espousing short-term fiscal responsibility over deficit spending. Trudeau also benefited from historic electoral advantages in Quebec and Atlantic Canada. Trudeau’s majority win was surprising, but did not compare to the seismic shift in Alberta, where New Democrat support had increased from less than 10 percent to just over 40 percent of the popular vote since the last election in 2012.

Notley and Trudeau each replaced a long-tenured Conservative government committed to enabling increased hydrocarbon production. Federally, Stephen Harper had led a cautious right-of-centre government for almost a decade. Alberta had elected Progressive Conservative governments since the early 1970s. Both Notley and Trudeau offered more progressive, inclusive, sensitive governments that prioritized the interests of those segments of society historically marginalized. As distinct from Harper and the Alberta PCs, economic growth and competitiveness were not Notley’s and Trudeau’s pre-eminent priorities. Instead, these new leaders represented a more empathetic leadership; they would, they claimed, redress long-standing injustices and inequities, and they would preserve, if not expand, existing social welfare commitments, regardless of their efficacy.

As for who would pay, neither leader offered substantive answers. The answer, though, was intuitively obvious: all existing taxpayers would pay more through higher taxation, and, over time, via resort to increasing debt. Notley soon learned to recognize that she could not expand public services significantly, let alone sustain existing commitments, without an expanding hydrocarbon production sector. She had no other politically viable option to realize her policy ambitions. Ensuring improved market access for oil sands product became an inescapable imperative.

One must wonder if either Notley or Trudeau appreciated, at the time of their respective elections, how much their political legacies would be defined by how they dealt with the fundamental dilemma of rationalizing the country’s hydrocarbon potential to credible carbon policy. In any case, that reality would soon become clear to them. Less clear was what their respective responses would be. To put it bluntly: it was not at all clear whether Canada would actually build oil sands pipelines or liquefied natural gas (LNG) infrastructure on the watch of these leaders. Would creating complex carbon policy prove an end in itself, regardless of its cost to Canada and especially to Alberta?

When Canada lost the KXL option in late 2015, both Notley and Trudeau appeared essentially indifferent. Neither expressed any real indignation about how Canada had been treated; instead, Trudeau pandered to the Obama administration. Notley was unable to acknowledge publicly the great value Alberta had lost by this denial. Other projects were in the process of being squandered, most notably Enbridge’s Northern Gateway.

Prime Minister Justin Trudeau and Alberta premier Rachel Notley, Ottawa, November 2016.

At the Paris climate conference in December 2015, Canada again committed itself to a seemingly impossible-to-meet emissions reduction target — by 2030, the Liberals announced, Canada would cut its emissions by 30 percent from 2005 levels. However, the government offered no explanation for how such targets could coexist with increased hydrocarbon production enabled by additional pipeline capacity.¹ Neither leader would clarify the cost of compliance for these targets by Canadians relative to the analogous compliance costs incurred by Canada’s major trading partners.

Nevertheless, in late 2015 Notley and Trudeau struck an implicit but essential bargain that tried to square the circle of climate credibility and growth in hydrocarbon production. Alberta would impose on itself a climate policy that the Trudeau government would accept as sufficiently credible, in return for an accommodation on Alberta’s demands for market access for its growing oils sands production potential — albeit with the minimum necessary infrastructure. How this quid pro quo would jibe with the country’s Paris climate commitments remained at best uncertain, but at least the country had almost fifteen years to figure it out. This chapter lays out how Notley and Trudeau struck their bargain, how it defined so much of the following three years of Canadian climate and energy policy, and its impact on the fate of the proposed infrastructure projects required for market access.

JUSTIN TRUDEAU ON CLIMATE AND PIPELINES UP TO DECEMBER 2015: “NOT HARPER”

Justin Trudeau was born in 1971, when his father, Pierre Elliott Trudeau, was prime minister of Canada. Unquestionably, Pierre Trudeau was one of the most influential and divisive of Canadian political leaders — a French Canadian who bluntly scolded Quebec that its identity was stronger within an officially bilingual Canada than as a separate country. He was willing to enforce Canadian unity even if that meant suspending civil liberties, which he did in 1970. He repatriated the Canadian constitution, imposing official bilingualism and a charter of rights and freedoms without any direct referendum on either, regardless of how profoundly they would change Canada.

For much of his tenure in office, Pierre Trudeau presided over a Canadian economy struggling with high inflation and inadequate economic growth (both of which he tried to solve through resort to wage and price controls); labour unrest, especially in the public sector; and the impact of two oil price shocks. After ruling Canada throughout the 1970s, Trudeau was defeated by Joe Clark’s Progressive Conservatives in 1979. That government fell after a short time, however, and Trudeau returned to power early in 1980, continuing as PM until 1984. His traditional policy preferences would stand in contrast to those adopted in the early 1980s, most notably in the United States and United Kingdom, that led to the long period of global economic expansion typified by greater reliance on market forces, lower taxation, and monetary policy focused on containing inflation relative to other policy considerations.

Most notably, in the context of this book, Trudeau was the architect of the great bête noire of Alberta economic ambitions, the National Energy Program. Proclaimed in 1980, it was the culmination of his protracted interventions relating to the allocation of increased revenues from rising world crude oil prices between the federal government, Alberta, and the private sector. With grim determination, he asserted the primacy of federal power.

The government of Trudeau père would always be defined by its determination to promote national unity and its insistence on the paramountcy of the national interest. Ironically, these same issues now test his son. Almost fifty years later, those issues are still being discussed, but in the context of hydrocarbons, pipelines, and climate change. Vis-à-vis Alberta, Trudeau père dealt with how to distribute the wealth from hydrocarbon production, not whether hydrocarbon production and its resulting economic value should be realized in the first place. Fils deals with a more existential issue — can Canadian hydrocarbon production, let alone its growth, be justified in a world presumably seriously committed to dealing with the risk of global climate change?

Justin Trudeau, the eldest of Pierre’s three sons, graduated with degrees from both McGill University, in his father’s hometown of Montreal, and the University of British Columbia, in his mother’s hometown of Vancouver, in literature and education, respectively. He formed strong personal connections to Ottawa, Montreal, lower Vancouver, and the north coast of British Columbia — areas that would come into play significantly in the context of the issues discussed in this book. Trudeau pursued a brief teaching career and followed that with a meandering pursuit of uncompleted degrees in environmental science and engineering over the early 2000s, as well as taking a leadership position with the non-profit youth volunteer service program Katimavik. In 2006 he began his political career in the Liberal Party of Canada — hardly a surprise. Significantly, he spent no part of his career in the private sector, and his income was essentially derived from a trust fund established by his father. In 2008 Trudeau was elected the Liberal MP for the east-end Montreal constituency of Papineau, and he was elected leader of the Liberal Party in the spring of 2013. Within three years he was prime minister.

Harper’s Conservatives expected to convince Canadians that Trudeau was too callow and inexperienced, too insubstantial to serve as prime minister. That characterization made perfect sense given his resumé outside of politics, but ultimately, enough Canadians did not seem to care. Trudeau may not have been a typical Canadian with his unique privilege, lineage, and effortless bilingualism, but he was a near-perfect embodiment of the centre-left sensibility that a majority of Canadians have traditionally preferred politically. He would have no reservations over deficit spending or higher taxes. Moreover, he promised to reverse various Harper social policy priorities while supporting Indigenous reconciliation, gender equality, greater tolerance for all forms of diversity, and less alignment with American foreign policy.

This agenda, leaving aside the question of its economic sustainability, contrasted fundamentally with the priorities and basic affinities of Harper’s Conservative governments. Trudeau was about as “un-Harper” as one could be, generationally, emotionally, and ideologically. He hoped to rally Canadians to their historic preference for progressive values, finding compromise between diverse national interests. But like all Liberal governments, he held out the implicit promise to ultimately accept economic reality and apply the appropriate policy when no other practical political alternative was available, just as Chrétien and Martin dealt with the Canadian deficit over the 1990s.

Notably, he had at this point no real connection to or affinity for Alberta. To his credit, however, Trudeau was forthright about his basic principles on energy, carbon, and the environment, even before his election as prime minister. He was committed to a position of balance. Of course, it remained to be seen how that would translate into specific policy and action. Essentially, he would not be Stephen Harper on climate change, environmental stewardship, or hydrocarbon boosterism, but he would strive not to alienate Alberta by explicitly rejecting growth in Canadian hydrocarbons. So, Trudeau’s position on climate policy was a reaction to Harper’s. The question was: What, substantially, was he reacting to — what was he so adamant to redress?

In the federal election campaign of 2006, fought between Harper and Paul Martin, climate change was not a prominent issue. Canada had, however, signed the Kyoto Protocol and committed to significant carbon emissions reductions, specifically a 6 percent total reduction by 2012 compared with 1990 levels, or roughly 460 megatonnes (MT). Canadian emissions had already grown by roughly 24 percent from the 1990 base year amount by the time of the election, and no one expected that a Harper government would impose carbon emissions reductions on the scale required to even approach Kyoto compliance. Harper held that meeting Canada’s Kyoto commitments was simply “impossible.”²

Still, that first Harper government accepted the political imperative for carbon policy, driven partly by its minority status in Parliament. In fact, Harper publicly acknowledged climate change as “perhaps the biggest threat to confront the future of humanity today,” and “the defining issue for my generation.” As a long-time critic of Canada’s participation in Kyoto, he pledged an alternative “made-in-Canada solution.” Harper’s first effort was the Clean Air Act, Bill C-30, initially led by Environment Minister Rona Ambrose, an Alberta member of Parliament. The bill tried to shift the national focus to air pollution, not carbon emissions. It was introduced, debated, and significantly amended as the Clean Air and Climate Change Act, but never enacted. By early 2007, after intense negative reaction, Ambrose was replaced by Ontarian John Baird.

Soon after his appointment, Baird released the seminal discussion paper “Turning the Corner,”³ which laid out how under Harper Canada would try to effect specific carbon emissions reductions, ultimately to be entrenched in new federal legislation. “Turning the Corner” detailed a regulatory framework based on improvements to various industrial sectors in carbon emission intensity — emissions per unit of output — not absolute emissions reductions. This formulation was compatible with an expanding Canadian hydrocarbon sector, especially considering that the technologies for extracting oil sands would likely improve over time. It included various compliance mechanisms in addition to physical emissions reductions, such as emissions trading options, lower non-Kyoto national emissions reduction targets, acquisition of domestic offsets, reliance on as yet unproven carbon-capture-and-sequestration technology and, to a limited extent, a $15 per tonne price on emitted carbon, which would go to a technology development fund. Aggregately, Baird’s formulations ignored Canada’s Kyoto Protocol commitment to reduce its annual emissions to 6 percent below 1990 levels by 2012, and created a new national target of 20 percent below the 2006 level (equivalent to 3 percent below the 1990 level) by 2020, or roughly 330 MT per year. For key industrial sectors, the cost of compliance remained ill defined, since i...