Canada's oil and gas industry should learn a lesson from the forest products industry.
A decade ago, that industry was under assault at home and abroad for its practices. Its image was lousy: photos of clear-cuts, demonstrations at logging sites, trade threats, serious questions about reforestation commitment. For a while, the industry went into defensive mode. It claimed to be misunderstood and unappreciated. It talked about all the jobs the industry had created. It launched a public relations campaign. All to no avail.
And then, courtesy of an intellectual awakening by some industry executives and the arrival of the savvy Avrim Lazar as head of the Forest Products Association of Canada, the industry stopped playing defence.
Instead, it looked hard at itself, and decided to get ahead not just of public opinion but of government policy. To wit: It went green, sustainable and constructive. It didn't silence critics (that would be asking for the impossible), but it worked with and muted them. It saw savings in going green: recycling wood discard for energy, thus saving on costs.
The oil and gas industry, like the forest products industry of yesterday, is playing defence. It's doing everything the forest products folks tried: claiming to be misunderstood and unappreciated, reading the press clippings from climate-change deniers and skeptics, ordering up a public relations campaign (in which industry employees look like foresters!), lobbying governments to do as little as possible, talking about all the jobs created, making incremental improvements in practices.
There's a better way: Get in front of government policy and the critics. And it can be done by CEOs with the foresight to understand that the challenge of greenhouse-gas emissions isn't going to disappear. The issue will ebb and flow, but the science of climate change is so clear that no government in the world rejects it, except maybe the Saudis.
Right now, policy is about to move in a direction the oil and gas industry shouldn't want. In the United States, and thereafter in Canada, governments are going to use the blunt instrument of regulations to reduce emissions.
It might take time, but the federal government has said it will use regulations. These now apply on cars. New ones will come for heavier vehicles. And they're about to be applied against coal. Eventually, they'll hit the oil and gas industry - although knowing Stephen Harper's government, they might not hit too hard.
Regulations, like subsidies, are a very bad second and third choice to using the market to change behaviour. Thus, in its own self-interest, the oil and gas industry should find progressive people within it and, working with academics, economists and NGOs, design a sensible scheme for pricing carbon.
There are many models: a tax, a cap-and-trade system or, as Peter Silverstone has argued in his book World's Greenest Oil, vary the royalty scheme so more emissions mean higher royalties, and vice versa.
Michael Cleland, the Nexen Executive in Residence at the Canada West Foundation and a former head of the Canadian Gas Association, urged this very strategy last week. "We must price carbon: transparent, unmistakable and extending across the economy," he wrote. If the industry waits, it will get a command-and-control regulations scheme, a worse alternative.
Of course, there are still people in the industry for whom the status quo is fine. Doing little or nothing is great for the bottom line. But there are also smart people who see the general direction of the next decade. Ask them for their policy preference. Privately, most of them say: Price carbon, preferably with a tax. Both the Canadian Association of Petroleum Producers and the Canadian Council of Chief Executives nominally agree to a carbon price. Okay, develop a serious proposal.
Industry voices are afraid to go public because they might displease Ed Stelmach's government in Alberta and the Harperites in Ottawa. But think a decade ahead, as the forest products people did. If the oil and gas industry, or important elements within it, got ahead of public opinion and governments, it would mute the critics, prepare a sensible path to the future and stop the industry from playing defence.Report Typo/Error
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