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In the annex of the federal budget, there’s an analysis of a “high-impact scenario” in which the invasion of Ukraine doesn’t end quickly, and the reduction in Russian energy exports leads to an even sharper spike in global oil and gas prices. This would cause the price for North American oil, currently at just below US$100 per barrel, to hit $180 before the end of June.

This would contribute to a number of undesirable outcomes, including weaker economic activity and higher inflation. Even for Canada’s oil and natural gas industry, which would initially benefit, the high prices would lead to a collapse in demand by 2023.

But you wouldn’t know this scenario is even a possibility based on much of the budget text. The Liberal budget, released Thursday, has a before-the-war feel, particularly in addressing the now-crucial issue of energy security. The international push to avoid a reliance on Russian oil and natural gas – and the financing of death and displacement in Ukraine – is something mentioned but not addressed in any substantive way.

There is still a sharp focus on the green transition, which Finance Minister Chrystia Freeland accurately described Thursday as “essential” but also “really, really expensive.” For Canada’s oil and gas sector, key are the details of a carbon capture utilization and storage tax incentive – to be taken up by industry players in Alberta and Saskatchewan, who have the corporate heft to participate in these large-scale projects. Starting this year, it’s expected to cost Ottawa $2.6-billion over five years.

This budget also contributes to the long-stated Liberal promise to get rid of fossil fuel subsidies – what some call tax incentives – with the complete removal of the flow-through share regime for the oil, gas and coal industry. But the change, which takes effect in 2023, will actually hit smaller players more than Big Oil.

Under flow-through share regimes, resource exploration and development companies can issue shares at a premium by renouncing their tax deduction in favour of investors. Those investors then reduce their own tax burden. Flow-through share structures have been a lifeline for those small resource producers that otherwise have difficulty raising capital and, historically, have helped to build Western Canada’s scrappy energy sector.

In a time of high prices and a much-diminished cohort of junior oil and gas companies, this will matter less. But it still matters. And at the same time, the government is boosting tax incentives for companies that install clean energy equipment or that mine for minerals needed in the production of tech devices and electric vehicles.

Beyond the contrast in the tax treatment of a conventional oil well and a lithium mine laid out here, there are a whole series of conflicts that could play out between the requirement for stable, non-Russian supplies of oil and natural gas and Canada’s climate policies.

In a prebudget interview, Natural Resources Minister Jonathan Wilkinson said it’s possible to walk and chew gum at the same time – emphasizing that it would be grossly irresponsible to abandon climate change policies, even as the world roils from Russian aggression.

At the same time, he said it would be wrong for Canada to say to Europe, “We’re not going to respond to your urgent needs at a time of crisis. We’re simply going to let you, effectively, freeze in the dark.”

One chart in the budget shows how the already high price of natural gas in Europe has gone up a stunning 57 per cent since the beginning of 2022, while still being beholden to Russia for supply. Mr. Wilkinson announced last month that Canadian producers will provide a small boost of oil and natural gas to free up supplies in the U.S. and elsewhere, so those countries can, in turn, reroute fuel to Europe.

Perhaps there’s more to come. Mr. Wilkinson said he will be travelling to Germany again in a month for more talks about how Canada can contribute to Europe weaning itself off Russian oil and natural gas, without building a series of assets that eventually become stranded by climate policies.

But Thursday’s budget has little in it to suggest that Ottawa believes energy security will remain a critical issue through this year, let alone the years ahead.

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