Rating: High school and post-secondary
Summary: Markham interviews Todd Hirsch, chief economist of the Alberta Treasury Branch and an influential voice in the Alberta energy conversation. The topic of discussion was an Oct. 21 column Todd wrote about how change may be scary at first but once we commit to managing it, often turns out to be not nearly as bad as we imagined. A fitting metaphor for Alberta’s energy sector and political leadership.
Related links:
We are amazingly adaptable when we need to be – by Todd Hirsch
This interview has been lightly edited.
Markham Hislop: I’ve been arguing for a long time that Alberta needs to adapt more quickly to the energy transition and climate policy, which is being strengthened around the world by global governments. And that message isn’t always well-received in Alberta, the home of the Canadian oil and gas industry. Todd Hirsch, the chief economist of ATB Financial in Alberta, has written a very interesting column about the need for the Alberta economy to adapt to the new economic reality. And so we’re going to talk to him about that.
Markham Hislop: Why don’t you give our viewers an overview of the argument you made in your column today?
Todd Hirsch: When I was in Australia about a year ago, I was actually really nervous about driving on the left side of the road. I thought I could not wrap my head around how this was going to be possible. I tried mentally in my head ahead of time to visualize this, but what actually happened is when I got to Australia and eventually had to take the wheel, adapting to the new system was not nearly as difficult as I thought it was going to be.
The bigger challenge, or the bigger fear, was really the anticipation of changing – it wasn’t changing itself. So I thought there are some parallels to where we’re at here in Alberta.
I know there is a lot of nostalgia for getting back to the good old days, getting back on track, a lot of that sort of language, but I can’t help but feel as long as we’re trapped in that language of getting back to where we used to be, evolving and moving forward is going to be impossible. What we have to do is yield to the fact that the world is changing on us and in some positive ways, I mean notwithstanding COVID, and embrace those changes and that will help us evolve.
Markham Hislop: I have a pet theory that I want to run past you to see what you think of it. I argue that far too many Albertans and many of the folks in the oil and gas industry leadership, as well as political leadership, believe that the changes that we’re seeing today are really cyclical and not structural. They don’t get the point of how quickly clean energy technologies like wind, solar, battery storage, and electric vehicles will represent an existential threat to the hydrocarbon sector because they think that it’s just another one of these boom-bust cycles. What do you make of that argument?
Todd Hirsch: I get where those Albertans are coming from, but I don’t agree with them.
I mean I’ve been my entire life in Alberta. I’ve been an economist for 30 years. I understand what cycles are. And I also understand what fundamental change is about, and I’m convinced that what we’re seeing around the global economy is a fundamental change in appetite and demand for how we’re getting energy.
This has been ongoing since the Kyoto accord, which was in the nineties. This isn’t a flash in the pan. And I think if there are any climate change deniers out there, their arguments are becoming weaker and weaker. We have to do something.
But the good news for Alberta is I don’t think it needs to be either hydrocarbons or renewables. I believe strongly that it needs to be both, but that Alberta, we can leverage all of these really exciting things happening around the world to become a leader in a lot of those clean energy and renewable energy technologies that the world is looking for. This is a great opportunity for us, less than a threat or more opportunity than a threat.
Markham Hislop: I couldn’t agree more, Todd, and I argue often that when we look at the energy transition, it’s both risk mitigation and seizing opportunities. And before we chat with you about that, one other point that I’d like to get your take on something. In 2014 and 2015, we saw global oil prices tank because of a one and a half to 2 million barrels per day oversupply.
And I think that COVID-19 has shown that it doesn’t take much disruption in markets to create a very significant impact on economies like Alberta. And if we’re talking demand destruction for, in the short-term, oil we don’t need to take 20, 30, 40 million barrels a day of demand out of the, 2 million will have a significant impact – 5 million or 10 million will have a huge impact on Alberta.
What’s your take on that?
Todd Hirsch: You raise a really good point. I should, first of all, make it clear that I’m not an energy analyst or an energy economist. But I do understand when markets are very, very tight, it does not take a huge increase in supply or drop in demand to swing those prices or that balance quite wildly.
And that is what we’re seeing and where oil prices are today. We’re in the middle or maybe even the early stages of the COVID-19 pandemic. We’ve seen a lot of global oil demand being weakened, but we’re also seeing supply constraints. There hasn’t been a lot of investment in new hydrocarbon projects around the world. So my guess is we’re going to remain in that price environment where we’re at, but it could swing up or down. And that leaves Alberta always in that precarious situation, we’re always at the mercy of what’s happening in those global oil markets.
And it’s time to both embrace the fact that we’re a hydrocarbon producer but also do what we can to get off this rollercoaster.
Markham Hislop: That’s a very good point, Todd, because there’s been a lot of attention paid recently – and I think this is really the direction we need to go – about Bitumen Beyond Combustion. So using bitumen as feedstock for production materials, like carbon fibre and using natural gas to make hydrogen, which is the, I think going to be the biofuel of the future.
And while we’re doing it, I would argue that we need to do it much, much more quickly than we are, because we don’t have a lot of time. The window of opportunity is closing here.
What’s your take on that?
Todd Hirsch: Yeah. Especially when you look at hydrogen, other countries around the world – which is ironic because Alberta was maybe one of the early leaders in hydrogen – but other countries around the world have leap-frogged ahead of us. So we are playing catch up. And maybe to your point, we don’t have the luxury of saying, “let’s take our time and over the next 10 years develop frameworks.”
And 10 years in the 21st century is one year, maybe in the 20th century. So we need to be moving very, very quickly on this, if we are going to be competitive. And if we’re going to be at the global table at all,
Markham Hislop: Todd, this will be the last question. You are an influencer in Alberta, you talk to industry leaders, government leaders, and so on all the time. Based on that experience, Alberta’s leadership waking up to the threat that this poses as well as the opportunities?
Todd Hirsch: I want to remain hopeful on all of this and I don’t take aim at any political party or any government. This is sort of broadly for all of them. I think they’re getting it, but I actually am more confident that the business community has been the one leading the parade. And in many cases, our political leaders are catching up.
That said, I’m very encouraged by what I’ve heard from Alberta’s government lately around investments, in hydrocarbons, in geothermal, which for years I’ve been advocating Alberta to become a leader in geothermal. So I’m seeing things in positive directions, moving in positive directions. But I think all of us, what we need to do is encourage an even more rapid transition and our governments will follow if Albertans want that. That’s the direction we’ll go.
Markham Hislop: One, one final short question, because you are a chief economist for a leading financial institution in Alberta and it seems to me that the financial community and investors really get this. And are you seeing that reflected in your own employer and within the financial community more generally?
Todd Hirsch: When we look at investors, especially global investors, there is a lot of caution right now for obvious reasons, especially when we’re talking about investing in traditional or even oil sands, traditional hydrocarbons, conventional energy. But I think what Alberta’s advantage is, is that this province was built on very improbable, sectors. Agriculture wasn’t supposed to work here, but we made it work a hundred years ago. The oil sands, that’s the definition of a marginal resource, but we were able to take technology and smart people and risk-takers and make it work.
And now in the 21st century, in 2020, I think Alberta is still brimming with people who are bright, they’re innovative. I think that is ultimately what will draw that investment. But right now, I mean, it’s, as we’re moving through, COVID, it’s a tough environment, but I do think it will come back.
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