Alberta exceptionalism won’t protect epicentre of Canadian oil/gas from energy system change
Two weeks ago, the Americans declared war on carbon as part of their efforts to rewrite global trading rules. The announcement was delivered in a speech by Climate Envoy John Podesta at the Columbia Global Energy Summit. Economist Chris Bataille compares it to Winston Churchill’s 1946 “iron curtain speech” that ushered in the Cold War. Yes, that’s how momentous this is.
Bataille was in the room when Podesta strode to the podium instead of sitting for his scheduled fireside chat about climate change. Speaking carefully and sticking to the prepared text, he announced a trade and emissions task force intended to promote new rules against exporting cheap products with high “embedded carbon” into the United States.
We need a” global trading system that slashes pollution, creates a fair and level playing field, protects against carbon dumping, supports good manufacturing jobs and economic opportunity, and rewards every country that’s doing the right thing,” Podesta said.
The Americans are “throwing out the old World Trade Organization rule book,” says Bataille. “If we see a second (Joe) Biden administration, you’re going to see a whole new set of trade rules emerge. They will prioritize security for key critical supplies in the US. They’re going to prioritize their workforce.”
The reason for this revolutionary American pivot? In a word, China.
Economics blogger Noah Smith explains how the “first China shock” devastated US manufacturing starting in the late 1980s. A second China shock, that will threaten traditional American strongholds like automakers, will be arriving soon. Most importantly for this Note, China has targeted clean energy technology manufacturing on both the supply side (wind, solar, batteries) and the demand side (batteries, EVs, heat pumps).
China controls the energy technology of the (very near) future. And it has no intention of relinquishing its lead as investment continues unabated.
This time, however, the US is fighting back. Treasury Secretary Janet Yellin didn’t mince words a year ago during a speech at Johns Hopkins University:
“China has long used government support to help its firms gain market share at the expense of foreign competitors. But in recent years, its industrial policy has become more ambitious and complex. China has expanded support for its state-owned enterprises and domestic private firms to dominate foreign competitors. It has done so in traditional industrial sectors as well as emerging technologies.”
Podesta’s speech is the American response to the China challenge outlined by Yellin. There is officially now a global clean energy arms race between the US, China, and Europe, with a smattering of Asian countries like Japan, South Korea, and India jockeying for position.
What does this mean for Canada?
British Columbia and Quebec will do just fine under the emerging global trade regime, says Bataille. The hydro provinces have clean power grids, climate and clean energy strategies, and citizens who (more or less) embrace the energy transition. Ontario, Canada’s most populous province and the manufacturing base of the country, is finally waking up to the challenge, embracing change in its auto manufacturing sector.
The problem is Alberta (and the much smaller Saskatchewan).
“Alberta and Saskatchewan could make hay out of the global clean industrial transition, but they’re choosing to go another path,” says Bataille. That path is to double down on the oil and gas status quo. Alberta Premier Danielle Smith is erecting a political, legal, and constitutional wall around the province to keep out the forces of change, as represented by federal climate and energy policies.
“The ultimate price will not be paid by the companies,” argues Bataille. “They will move on. Their CEOs will collect their bonuses and paychecks and move on somewhere else. But the workforce is there and the Provinces’ capacity to pay for public goods will suffer if those jurisdictions are not competitive 20 years from now.”
Making this argument in Alberta is almost impossible. Albertans identify so closely with the oil and gas industry that even pointing out global energy realities is considered an attack on their personal identities. Interest in the energy transition has picked up over the past year or two, but OPEC’s “slow transition” narrative dominates political, business, and popular culture.
Alberta and Saskatchewan believe the future will look very much like the past.
That’s a serious problem because the US (and the energy transition, driven by China) is about to blow up that past.
Canada, where “muddling” through is an art
Judging by the lack of news stories about Podesta’s speech, Canada has again failed to notice a major policy shift that affects its energy sector. This reminds me of a story that perfectly captures national complacency.
Eighteen months ago, I sat on a conference panel with Michael Wernick, former clerk of the privacy council (the top civil servant in the federal government) and an economics professor at the University of Ottawa. We got into quite a verbal dust up. He said something that I think illustrates the worst of the Canadian psyche. My paraphrase of his comment: “We’ll muddle through this change just like we’ve muddled through changes in the past.”
Infuriatingly, Wernick is probably correct. Instead of taking bold action, Canada appears quite content to muddle through this energy transition, comfortable in its status as the lagging hinterland to the American metropolis. Worse yet, Alberta resists even modest attempts to pivot toward a low-carbon future, dragging the national energy conversation into the ditch and beating it into senseless submission.
As economist Bataille notes, just how senseless the consequences will be won’t become apparent for another 20 years. By then it will be too late. Transition opportunities will have been missed and risks will not have been adequately mitigated.
Watch out for Rust Belt Alberta. It happened to the United States, especially the Midwest, and it can happen here.
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