Not Green enough for the Reds

Paul Stanway
July 24, 2017
Alberta NDP Premier Rachel Notley has little hope of winning the next provincial election unless voters buy her counterintuitive argument that her government’s onerous carbon taxes and emission regulations are creating a more sustainable petroleum industry. It’s a very hard sell amid collapsing capital investment, rising public deficits and debt, high unemployment, and empty Calgary office towers. To prove her point, Notley desperately needs the Kinder Morgan oilsands pipeline expansion to proceed. But it’s opposed by her old comrade John Horgan, now Premier of British Columbia’s minority NDP-Green coalition government. It is between this rock and hard place, writes Paul Stanway, that Notley is likely to be entombed.

Not Green enough for the Reds

Paul Stanway
July 24, 2017
Alberta NDP Premier Rachel Notley has little hope of winning the next provincial election unless voters buy her counterintuitive argument that her government’s onerous carbon taxes and emission regulations are creating a more sustainable petroleum industry. It’s a very hard sell amid collapsing capital investment, rising public deficits and debt, high unemployment, and empty Calgary office towers. To prove her point, Notley desperately needs the Kinder Morgan oilsands pipeline expansion to proceed. But it’s opposed by her old comrade John Horgan, now Premier of British Columbia’s minority NDP-Green coalition government. It is between this rock and hard place, writes Paul Stanway, that Notley is likely to be entombed.
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The election of an NDP government in Alberta in May 2015 was discombobulating enough. But if you had suggested then that it would lead to a fight between two NDP premiers over the future of an oil export pipeline to the Pacific, almost everyone – no, make that absolutely everyone – would have suggested you had taken leave of your senses.

But here we are, with Alberta Premier Rachel Notley an unlikely advocate for the $7.4 billion expansion of the Kinder Morgan Trans Mountain pipeline which transports oilsands bitumen from Edmonton to Burnaby, while in British Columbia her old friend and ideological compatriot Premier John Horgan leads an NDP-Green coalition vowing to use “every tool in the toolbox” to ensure that she fails.

Two decades ago Notley and Horgan both worked as political staffers for the B.C. NDP government of Mike Harcourt. Both are stalwart New Democrats who have demonstrated a lifelong commitment to the party and its ideology. When Notley surprised even herself by ending the long tenure of Alberta’s Progressive Conservatives, Horgan was one of the first people she turned to for experienced staff to help her govern.

Presumably something of that personal relationship remains, but it’s not apparent from their recent public statements. Take for example Notley’s July 11 speech to the Stampede Investment Forum, a gathering of international and local investors in Calgary during Stampede week:

“Some say that to fight climate change, we have to leave our energy industry – and those working people who live in it – behind. To them, I say any climate plan that ignores our energy needs and the working people associated with it is not a plan.”

“Them” of course would be Horgan and his Green Party allies, who have become the major impediment to Notley proving that a greener, more accommodating Alberta can win over its environmental critics and gain the ever-elusive “social licence” to build the pipeline(s) it needs to secure its future as a major oil exporter…and in the process secure the re-election of the Notley government in the spring of 2019.

Some political observers wondered if Notley might use the Stampede speech to cool things off a little. Instead she upped the ante: “Our climate leadership plan is the most forward-looking and aggressive and fulsome anywhere in North America,” she enthused. “We’re reducing methane. We’re phasing out harmful coal emissions. And we’ve capped oilsands emissions, which means – and this is really important – it means the twinning of the Trans Mountain pipeline will not lead to higher oilsands emissions.”

Then Notley took direct aim at Horgan and B.C. Green Party leader Andrew Weaver and their vow to use “every tool in the toolbox” to block the pipeline’s expansion. “If there were such tools,” she scoffed, “Canada would be less a country and more a combination of individual fiefdoms fighting with each other for advantage.”

Trans Mountain insults

The rhetoric has been escalating ever since Weaver delivered a condescending lecture to Notley at a May 31 news conference in Victoria. “For Ms. Notley to tell British Columbia that somehow chasing the 20th century is the way for our future is not a good sign for her and her economy in Alberta,” he said, with Horgan standing mutely at his side. “Frankly, I think she should get with the program and embrace the 21st century as well.”

Evidently the tail will be wagging the dog within the new B.C. government on pipeline politics, and it’s not difficult to see why. Horgan’s ability to govern is entirely dependent on the support of Weaver’s three MLAs, and opposition to Trans Mountain would appear to be non-negotiable if the coalition is to survive.

Nor is it difficult to see why Notley is talking like a proverbial blue-eyed sheik. Making good on her promise to boost energy exports by greening them with taxes and regulation is critical to the NDP’s hopes for a second term in office. In a province so heavily dependent on fossil fuel production for economic growth, jobs and prosperity, the only way for her government to justify an unpopular carbon tax and a damaging hard cap on oilsands emissions was to claim it would actually make pipeline projects less contentious and boost the industry that powers the Alberta economy.

For a party congenitally hostile to energy development and reflexively supportive of all manner of environmental activism, this required some truly spectacular ideological contortions. Albertans were encouraged to believe their new NDP government had a much more sophisticated understanding of energy issues than previous administrations. And far from being a hindrance to the industry, the NDP’s carbon policies were actually vital building blocks to future success!

Despite the cognitive dissonance, at first the strategy seemed to be working: major oil producers and environmental groups came together in an unlikely alliance to support the carbon tax and emissions cap, the previously anti-bitumen B.C. Liberals signed off on expansion of the Trans Mountain pipeline – almost tripling its capacity – and the new Trudeau government gave the same project the thumbs up, specifically citing Alberta’s new carbon policies in its reasoning. Even oil prices seemed to be on the way back to US$50-plus levels.

But the Kumbaya moment was all too brief, as economic and political reality kicked in.

Last fall the major international energy companies that had played such a big part in oilsands expansion began an historic withdrawal. They were careful not to be too critical on the way out, citing oil prices, internal restructuring and the evolving international energy landscape as major reasons for their departure, and only in passing mentioning unfavourable government interventions (a recent report by the Canadian Association of Petroleum Producers estimates the cumulative cost to energy companies of new carbon taxes and regulations – about 50 of them in total – at around half a billion dollars annually).

It’s difficult to overstate the impact of this cooling of enthusiasm for oilsands development. According to Alberta’s finance ministry, this year capital investment in the oilsands will be less than half the $24 billion spent just two years ago. Some of that is due to increased efficiency within the industry, but with the government’s effective cap on oilsands production, most of that dramatic cutback represents jobs, prosperity and government revenue that won’t be coming back any time soon.

The Notley government’s budgeting depends on oil averaging US$55 a barrel to rein in a deficit officially running at $11 billion annually. With oil actually averaging about US$10 a barrel below that target, credit rating agency DBRS recently estimated Alberta’s deficit may be north of $13 billion this year and downgraded the province’s fiscal outlook from “stable” to “negative.”

Low oil prices, no pipeline, rising debt

By the time Albertans head to the polls in 2019 the province is set to have the highest per-capita deficit in the country, shelling out around $2 billion annually just to service debt. And that’s without factoring in the impact of rising interest rates. This summer, citing an increasingly “robust” Canadian economy, the Bank of Canada raised its trend-setting rate for the first time in seven years.

That move – with further rate increases expected – was more bad news for beleaguered Alberta Finance Minister Joe Ceci, who moaned that he would have “appreciated a little more time” before the BoC began to hike rates. Higher rates also drive up the Canadian dollar, which is a double whammy for Ceci because the government’s energy revenues are calculated in US dollars and every one cent increase in the loonie costs the province $215 million.

Still, as difficult as the economic outlook has become for the Notley government, it’s the change of government in Victoria that really complicates things.

With an 890,000 barrel-per-day pipeline to the Pacific under construction, Notley could legitimately claim her government was in the process of ending Alberta’s position as a “price-taker” in the over-supplied U.S. energy market. She could take credit for achieving access to global markets and world prices for a significant chunk of the province’s 2.5 million barrels-per day oilsands production (about half of the government’s non-renewable resource revenue).

Without that pipeline, Notley’s argument that the carbon tax, cap on oilsands emissions and other green initiatives would ease opposition to Alberta’s major industry begins to look very hollow: A lot of pain for no apparent gain.

You can be sure Alberta’s new United Conservative Party will remind voters of that. Following the July 22 ratification of the merger agreement to create the UCP by members of the Progressive Conservative and Wildrose parties, Notley now faces a revitalized and formidable opposition.

Ultimately her fate may rest in the hands of the Liberal government in Ottawa. Trans Mountain, like all pipelines, falls under federal jurisdiction. The National Energy Board (which regulates pipelines) and the Trudeau cabinet have already ruled the project in the national interest and approved its construction.

But that approval is being challenged in federal court by 16 groups, environmental activists and First Nations, who are claiming the process was flawed. All of those challenges will be heard in a single court hearing in October. A similar challenge against the Northern Gateway pipeline was successful, so for Trans Mountain his government provided an additional level of consultation which it hopes will satisfy the court.

Even a positive legal outcome does not guarantee the project will proceed, however. The new government in B.C. could insist on its own environmental assessment, which could drag out for years. The province’s previous Liberal administration agreed to forego a provincial assessment and abide by the National Energy Board process, and if challenged it’s likely that decision would stand – but the Horgan government could demand a court ruling.

And then there’s the real nitty-gritty. The $7.4 billion project requires all manner of provincial and municipal permits for access roads, power, water etc. to facilitate construction. Refusing these permits would presumably be some of the “tools” Horgan and Weaver have talked about.

Can Alberta count on Trudeau?

The federal government has the constitutional power to order provincial and municipal authorities to issue the necessary permits for a project it deems in the national interest, and during an appearance at the Calgary Stampede Trudeau reiterated his government’s support for Trans Mountain: “The decision we made to support [the pipeline], to move forward in terms of getting our oil resources to new markets was not based on politics. It was based on facts, on evidence, on what is in the best interests of the country. A change in government doesn’t change the facts.”

It doesn’t, but the real question is whether the prime minister would be willing to spend some political capital, and maybe risk some federal Liberal seats in B.C., in support of Alberta’s energy industry? And how far would he go to enforce the law, in the face of almost certain protests and probable civil disobedience by environmental and aboriginal activists? The fact that he forgot to mention the province in his Canada Day 150 speech suggests Alberta is not exactly top-of-mind for him.

As Albertans well know, nothing unites a province as quickly as “outside interference” from Ottawa. So, apart from strengthening Premier Horgan’s hand politically – and maybe giving him an issue he could call an election on – invoking federal constitutional power would certainly mean another court challenge, and yet more delay.

Notley’s options are decidedly limited. Her government has intervenor status in the federal court challenge and will make its case at the hearings in October. She may have some influence with Trudeau, having supported his imposition of a national carbon policy, and other provincial leaders may prove sympathetic to the argument that allowing one province to “hold hostage” the economy of another could have dire consequences for all. (Although none of them said as much at last week’s Council of the Federation gathering in Edmonton.)

Ujjal Dosanjh, the former B.C. premier and one-time federal cabinet minister, also believes Notley may still be able to influence her old colleague Horgan. “I think in his heart, (Horgan) may realize that Kinder Morgan can’t be prevented,” he said in a recent interview. “Without the Greens it may have been an easier relationship and issue to deal with.”

This seems wishful thinking. Without the Greens there is no NDP government in B.C. and no Premier Horgan.

Turn off the taps?

Some Albertans believe Notley should consider reprising Peter Lougheed’s aggressive response to the National Energy Program four decades ago. Then-Premier Lougheed ordered the reduction of oil shipments to Central Canada, which immediately got the attention of manufacturing industries and the Ontario government.

Could Notley use the same tactic on B.C.? Vancouver and the Lower Mainland are almost entirely dependent on gasoline either shipped through Trans Mountain or refined from oil flowing down the same pipeline to Burnaby. But as Lougheed explained in later years, his government was careful to not trigger a shortage of supply at gas pumps, which could have precipitated a damaging public and political backlash from Central Canada.

It’s also unlikely that Trans Mountain’s owner, Houston-based Kinder Morgan, would welcome being drawn into an inter-provincial spat that involved forcing it to either shut down or restrict deliveries to the Lower Mainland. Sources within the company say their focus is to try to build public support in B.C. in hope of beginning work on the project this fall.

So far, B.C.’s powerful environmental lobby seems unmoved. The fate of Trans Mountain has an all-too familiar feel: continuing political, environmental and First Nations’ opposition, time-consuming court challenges, delay, delay, delay.

This, of course, has long been the strategy of opponents to energy development in Alberta, and over the past decade it’s been pretty successful: no new pipelines to either coast or Central Canada, the curtailment of international investment in the oilsands, tens of thousands of layoffs in the oil patch, and the imposition of carbon policies which have placed a very large question mark over future energy development in Alberta.

Rachel Notley promised Albertans that by adopting tough carbon policies she could change all of that. So far it’s not looking so good.

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