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Canada-U.S. energy and climate dialogue is about much more than Keystone XL: Erica Alini

It's about not repeating the Keystone mess

On August 26, Canadian pollster Nik Nanos published a paper (hat tip to the WSJ’s Paul Vieira) that would look extraordinarily prescient only a few days later. Given the level of integration of the Canadian and U.S. energy markets and the fact that public opinion polls indicate both countries value environmental protection, Nanos argued, it would make sense to start working on a North American framework on both energy and carbon policy.

(Other very smart people in Washington have said similar things, but Nanos’ paper is the most engaging manifesto for this I’ve seen.)

The energy part of the proposition has been part of the Harper government’s rhetoric on the Keystone XL pipelines and the oilsands for a while now. Ottawa—and Alberta, too—have long been pushing the concept of North American energy security, which is predicated on some sort of NAFTA-like integration between the two national energy markets.

Now the Harper government, it seems, has finally embraced the environment part of the Nanos proposal too: The prime minister reportedly wrote to President Obama in late August offering collaboration on carbon emission curbs. Canada’s Natural Resources Minister Joe Oliver was in D.C. yesterday for what appeared to be step two in Ottawa’s effort to get those discussions going.

A number of Canadian press reports (see here and here) have portrayed Harper’s move as an effort to offer Obama “political cover” for giving the nod to Keystone. But the goal of greater energy and climate policy coordination across the border should be about much more than the approval of a single energy project. This is not about Keystone: it’s about never again getting into a Keystone-like mess.

The Nanos paper made two other observations that seem very wise:

1.  North America’s energy market is de-facto very integrated, but public policy is often fragmented and disjointed.

2.  Smart carbon policy creates the incentive for the private sector to reduce emissions, it doesn’t tell business how to get there: “the government should not pick energy winners and losers but focus on encouraging competition among energy sources within a common environmental standard.”

The Keystone controversy is a perfect example of how number 1 can lead to the opposite of number 2, leading to undesirable—“suboptimal” economists would say—results on both the energy and climate front.

Choppy rules, after all, created the conditions for the current brouhaha on a Canadian pipeline crossing over into America. The U.S. State Department has the authority to approve or reject cross-border oil pipelines based on a rather discretionary national interest determination. But such case-by-case reviews, which lack a coherent vision of the government’s ultimate objectives, create uncertainty and are prone to politicization. In Canada, we’ve seen this with BHP-Potash and the whole foreign takeovers saga. In the U.S., we’ve been witnessing it for years with Keystone.

The need for an ad-hoc presidential permit has made the pipeline a perfect target for environmental activists. It offered green groups the opportunity to zero in, laser-like, on a single political decision which is easier than taking on the ins and outs of complex of environmental legislation. But it also allowed them to take aim at a foreign project, which is, again, more appealing than shooting at a domestic industry.

If the objective isn’t to get Keystone rejected but to use it as a bargaining chip for greater political action on climate change, this tactic is genius. If killing the Keystone is the ultimate objective, as a strategy, it would amount to the government picking not just energy winners and loser but energy transportation winners and losers.

Should such strategy succeed, the result would likely be less Canadian oil overall flowing south to the U.S. refineries equipped to turn it into gasoline and more of that very oil being transported by trains, which are more polluting, and possibly more dangerous, than a pipeline. It would be a fail on both energy and climate.

Erica Alini is a reporter based in Cambridge, Mass., and a regular contributor to CanadianBusiness.com, where she covers the U.S. economy.
Follow @ealini