When it comes to energy transition, writes Andrew Leach, there are lessons we should learn from the cod moratorium, including that governments do not react quickly or precisely, and that programs to transition workers out of industries or regions are challenging.PHOTO ILLUSTRATION: THE GLOBE AND MAIL. SOURCES: GETTY IMAGES
Andrew Leach is a professor of law and economics, and co-director of the Institute for Public Economics at the University of Alberta. This piece is an excerpt from Between Doom and Denial, his lecture for the 2023 McGill Max Bell Lectures series.
Climate change is the environmental, political and societal challenge of our time. But we, as Canadians, have not always responded with our best efforts or grandest ideas.
Too often, our discussions of climate change rely on half-truths, easy sound bites and other ways to avoid difficult conversations. Some of these cut against action on climate change: We tell ourselves that Canada’s a cold country, so climate change won’t affect us, or that we account for only 2 per cent of global emissions, so anything we do will not matter. We tell ourselves that the world will still use oil and gas, and perhaps even more of it in the future than today. But one of these sound bites instead gives comfort to those pushing for much more stringent policies here in Canada: the assurance that governments can provide a “just transition” away from fossil fuels, with nobody left behind.
As chair of Alberta’s Climate Leadership Panel in 2015, I was asked to provide advice to the government on a number of climate-change policy options, including a phase-out of coal-fired electricity. Part of our work included a series of open houses and, of the hundreds of conversations I had at those sessions, one stands out. One man stood in line for perhaps 45 minutes until he finally made it to the front. He walked up, shook my hand and introduced himself. “I work at the Sheerness coal mine,” he said, “and I just wanted you to know that.”
He turned around and walked away.
I thought about that miner’s words often during our work and how he, better than nearly anyone or anything else, captured the very real consequences of major energy policy shifts. Hidden within the energy models and spreadsheets that economists and engineers use to set policy are real people facing dire consequences. In today’s policy parlance, the plight of that mine worker is captured by a single phrase: the just transition. The phrase communicates a desire to design climate-change policies with people like him in mind.
I never saw that miner again, but I know what happened to the Sheerness coal mine in Southern Alberta. In early 2017, Sheerness owner Atco dropped a bombshell: The plants would be converted to gas by 2020, much earlier than previously thought. Indeed, by 2024, Alberta will have no more coal-fired power plants in operation at all.
In Ernest Hemingway’s 1926 novel The Sun Also Rises, there is an oft-quoted passage about how one goes bankrupt: “Gradually, then suddenly.” That is what has happened with coal-fired power in Alberta. With a shutdown that was much more rapid than expected, workers and their neighbours in coal towns were not going to be okay.
Contrast that story with a briefing on just-transition policies provided to Minister of Natural Resources Jonathan Wilkinson, which outlined a firm belief that “we cannot achieve the transition to a low-carbon economy without ensuring no individual or region can be left behind.” The briefing explained how the energy transition “will create significant labour market disruptions” and warned that “larger-scale transformations will take place in agriculture, energy, manufacturing, buildings, and transportation sectors.” This admission spurred outrage in Alberta, but the real controversy should have been the government’s promise to insulate everyone from harm. Promises like these hide the very real costs of climate policy from Canadians.
Promises of a just transition are going to run into two hard realities. First, the fossil-fuel energy industry, and in particular the oil and gas sector, is larger and more diverse than other industries to which Canadian governments have attempted to provide transitional support. Second, a policy-forced transition away from oil and gas is different from other economic transitions we have weathered in Canada because of the high wages earned by oil and gas workers, the significant government incomes that oil and gas extraction provides, and the very real potential for market signals to counteract government transition-planning.
Oil and gas is already an industry in transition. And the clean-energy transition will create new job opportunities. But there is no guarantee for those who bear the costs of displacement. Smaller communities that are heavily exposed to carbon-intensive industries will endure substantial economic costs from the transition, and there is no reason to expect that they will attract offsetting clean-energy investment. As Rachel Samson of the Institute for Research on Public Policy writes: “Canada will need to find new sources of economic growth, exports, jobs and government revenue to fill a growing hole,” as traditional fossil-fuel sectors decline.
Canada has endured significant labour-market transitions in the past. This leads some to argue that the coming energy transition is not unique, and appropriate government planning can mitigate potential negative consequences.
I disagree.
The looming Canadian energy transition and the way it is discussed by progressive activists and politicians is uncharted territory. It will be more challenging than previous transitions in part because fossil-fuel workers earn far more than most, and these jobs comprise more than one-third of total employment in certain regions. It will be more challenging because the fossil-fuel sector is a huge government revenue generator. If, as is highly plausible, domestic policy forces both employment and revenue to drop in these industries before global markets dictate such a change, there will be regional tension as we have seldom, if ever, seen before in this country. We have never experienced a policy-forced transition of this sort in Canada, and I do not think we have ever seen politicians and pundits talk so readily about phasing out high-paying jobs.
On July 2, 1992, the Canadian government announced a two-year moratorium on cod fishing in the North Atlantic, putting 19,000 workers in immediate need of financial assistance. There are lessons we should learn from the cod moratorium, including that governments are bad at planning for future downturns, that governments do not react quickly or precisely, and that programs to transition workers out of industries or regions are challenging.
These lessons are useful, to a point. But the oil and gas industry of today is not the cod fishery of the 1990s. It is easy to imagine governments unwilling to concede that the oil and gas industry is in trouble and lacking a plan to manage a crisis, but that is about as far as any comparison should go. In the 1990s we had exhausted our cod stocks, but we are not currently running out of oil and gas, and the industry is not in financial peril as the cod fishery was 30 years ago. On the contrary, Canada’s oil and gas industry is in the midst of its most profitable years ever and government revenues from the oil and gas sector are at an all-time high.
Fishing was a dangerous and low-paying profession and earnings relied heavily on government support well before the collapse. The average fisher earned a third less net income than the average Newfoundland worker and more than one-third of fishers’ incomes came from unemployment insurance. The average Alberta oil and gas worker earned almost three times the average Canadian worker’s earnings in 2022. All else being equal, an average Canadian job would have been a financial windfall for a Newfoundland fisher in the 1990s. Today, an average Canadian job would mean a substantial pay cut for the average oil and gas worker.
The aftermath of the cod moratorium offers little to inform our response to the energy transition – a markedly different challenge.
The Alberta and Ontario coal phase-outs are frequently cited in discussions of just-transition policies. Alberta’s government worked to solidify the type of plan recommended by advocates: one that would provide certainty for workers and communities. The plan was obsolete shortly after its first contact with market forces. The province is on pace to phase out coal completely in 2023, only eight years after the commitment was announced, as plants have either retired or converted to natural gas much earlier than expected. The government could force plants to shut down but had not considered the need to ensure that plants remained open long enough for workers and communities to adapt. And governments were not prepared.
The end of coal in Ontario was different in some ways from that in Alberta, but similarly has little in common with today’s talk of an oil and gas industry transition. The size of the Ontario coal power industry was similar to that in Alberta, in that fewer than 2,000 workers were directly employed in coal power before the phase-out began, although these were almost all employed by the same Crown corporation, which was not the case in Alberta. The similarities end there. Ontario’s five coal plants were relatively old and inefficient and most of the coal was imported, so there were fewer jobs tied to coal power generation than was the case because of on-site mining in Alberta. Health concerns meant there was pan-partisan and technocratic support for a phase-out, which was also not the case in Alberta.
There are lessons to be learned from the coal transitions in Alberta and Ontario, but, as with the cod fishery, many do not readily apply to the transition facing the oil and gas sector. The size, scope and scale of oil and gas differ from the Alberta or Ontario coal sectors. Furthermore, almost all the workers in the coal-fired power sector in both provinces were union members. This provided the opportunity for engagement and planning that does not exist at the same scale in the oil and gas industry. As Gil McGowan, president of the Alberta Federation of Labour, told the House of Commons standing committee on natural resources, “We cannot simply cut and paste what we did in the coal-fired power industry and apply it to oil and gas.”
What about the coal phase-out in Germany? The German coal transition is not a story of a prosperous industry facing a new threat from climate policy. The German coal transition, if one can call a 60-year industrial history a transition, is a story of an economically unviable sector, undermined by global competition, but kept afloat at great expense through state intervention. The German coal transition allows the government to reduce the economic drain on its coffers and to direct resources to workers rather than cycling money through a subsidized mining industry. Canadian governments will have to contemplate the replacement of revenues, wages, taxes and royalties from a profitable industry in the event of a transition away from oil and gas. There is no comparison to be had.
Finally, I’d like to highlight a segment from the CBC’s What On Earth radio program, which explored Denmark’s oil and gas phase-out and its transition to wind turbines. This transition offers powerful symbolism and a terrible comparison to Canada’s oil and gas sector. Denmark’s oil and gas sector has long been in decline and is a fraction of the size of Canada’s. In Canada, oil and gas production continues to break records. A Canadian Climate Institute study estimated that the Danish oil and gas phase-out policy would cost $2.5-billion in forgone government revenue between 2020 and 2050. By comparison, royalties from oil and gas extraction to the Alberta government add up to $2.5-billion every two months or so, to say nothing of tax revenues for provincial and federal governments. We owe it to ourselves to compare industries in similar circumstances, rather than looking for easy answers and powerful symbols.
The just-transition narrative flows from a specific set of circumstances: an industry in secular decline; public ownership or substantial public involvement; a small, concentrated, highly unionized and easily identifiable labour force; and limited forgone revenues from the transition or, in some cases, savings to government coffers. None of these is present in the Canadian oil and gas sector today.
We are told that the government, to enable a just transition, needs a clear plan for phasing out the industry, a plan to transition the workers toward retirement and a solid social safety net to cushion the fall for younger workers. It is hard to imagine what such a plan might look like in the Canadian oil and gas sector. The truth is that in such a decentralized sector, there is not going to be a planned, orderly transition. And, like the Alberta coal phase-out, any attempts to plan one will not survive contact with market forces.
So what can we do? The energy transition will likely look most like the economic evolution seen in Ontario manufacturing in the early 2000s, when a comparative advantage was lost and new subsidies were not forthcoming from the government. It is going to be bumpy and unpredictable. Transition job losses will be difficult to differentiate from the usual churn of the economy. Our governments cannot expect to sustain large industries solely through domestic trade or price controls. Through subsidies, governments can pick winners and losers, but they would be unable to create a comparative advantage that attracts the waves of foreign and domestic investment that we have seen in the oil and gas sector.
When Ontario’s manufacturing sector was shrinking, the government did provide substantial support to two automobile manufacturers, but there was no plan to do so on a broader scale. There was no hubris that governments could save the sector and all of its workers from the pain of a transition, and no promises of an orderly shutdown with no one left behind. Most of the transition in Ontario was buffered by growth in other sectors, both within the province and across the country. And, where it was needed, we relied on our social safety nets to support those workers who did lose their jobs. We will do so again. That will be unsatisfying to many, but the oil and gas industry does not lend itself to a planned phase-out. To promise such an orderly and painless transition is a false guarantee.
I often think of the miner that I met at our climate panel open house and wonder what has happened to him since his coal mine closed. I also think of all the other Albertans who, because of the oil price downturn or policy changes, found themselves out of work long before the Sheerness mine closure. I expect we will see many more worker transitions for which we cannot plan than those for which we can engineer an orderly phase-out. Let us make sure we have a system that works for those people, and not pretend that we can do things we cannot.