Canada is blessed with an abundance of oil and gas, the jobs that go with it, and the potential for hundreds of billions of dollars in investment to extract, upgrade and move these resources. But Canada is also committed to dramatically lowering its greenhouse-gas output, and its use of carbon-based fuels like oil and gas, as part of the fight against global warming. Figuring out how to strike a balance between the two, so as to achieve the greatest environmental improvement at the lowest possible economic cost, is the most important, complex and politically fraught issue on Ottawa's plate.
And in its first big moves on the file, the Trudeau government appears to be moving in the right direction – and aiming to tackle the issue armed with the right principles.
This week, Ottawa gave the green light to the $36-billion Pacific Northwest liquefied natural gas project in British Columbia. At the same time, Environment Minister Catherine McKenna has been laying the groundwork for a pan-Canadian carbon price, designed to lower consumption of carbon-based fuels by putting a tax on it.
With the LNG announcement, the government appears to be setting the stage for approval of other, more contentious pipelines, like the expansion of Kinder Morgan's Trans Mountain line to Burnaby, B.C. And by pushing every province to tax carbon, or else seeing the feds do it for them, the Liberals are setting the stage for meaningful action on climate change and reducing the use of fossil fuels, using the most economically logical tool available.
This approach is not going to please everyone. But consider the alternatives.
On the left, many believe the only way forward is to say no to any and all new pipelines. But that approach has huge economic costs – and when it comes to greenhouse-gas reduction, limited environmental benefits.
Think lowering Canada's oil production will lower Canadian oil use? Not unless you build a wall around the country and ban oil imports it won't. Even if not one drop of oil were produced in Canada, this country's millions of cars would still be on the road, their tanks filled with fuel from the Middle East, Venezuela or the United States.
Choking off the supply of Canadian oil – which the lack of pipeline capacity has been doing for years – won't reduce Canadians' demand for oil, nor will it lower global demand. It will simply mean that our country will buy more of its oil from overseas.
The goal of any sane environmental policy should be the largest reduction in carbon use at the least economic cost – the biggest bang for the buck. Blocking all new pipeline projects is the opposite: It means big economic costs, with few greenhouse-gas reduction benefits. Environmentally speaking, it's small bang, big bucks.
The Harper government, in contrast, was always eager to say yes to pipeline projects, and to wax eloquent about the economic benefits of Canada's oil and gas industry. But when it came to talking about paying the environmental costs of carbon use, the cat had the Harper government's tongue. In the post-Harper era, most Conservatives remain tongue-tied when asked to address the environmental half of the ledger.
In fact, it is possible to come up with a policy that allows the economy to grow, the oil and gas industry to expand, the free market to function, and the environment to benefit from Canada meeting its commitment to significantly lower greenhouse-gas emissions. Not only is it possible, but the Liberals appear to be laying the groundwork for it.
Here's what a logical and effective policy would look like.
First principle: Curtail demand, not supply. The goal should be reducing demand for carbon fuels, not artificially and ineffectually trying to strangle Canada's production of carbon fuels.
Second principle: Reduce demand by putting a price on carbon.
The Trudeau government has said it will insist that every province have some kind of carbon levy, that it must be high enough to meet a national standard – and that it must be increased over time. In principle, that's exactly the way to go. In practice, it will be challenging. Particularly the part about regularly raising carbon taxes, which is necessary for the policy to work.
In a few years, carbon taxes and cap-and-trade will be taking in billions of dollars a year across 10 provinces. This will create both political opportunities and arguments. Should these carbon revenues be used to fund new government spending, as Ontario is proposing? Or to fund lower income and business taxes, as B.C. has long done? Either way, taxing something we want less of – carbon emissions – is the most economically efficient way of reducing demand for it.
Third principle: When it comes to pipelines, government should be the referee, not a cheerleader. The federal government has a ways to go in this area.
Ottawa will never be able to create a regulatory process that can please everyone. But if it has a legitimate, science-based review board in place, the government can stand back and let it do its job. It shouldn't be left to politicians to cherry-pick which oil and gas projects get built. That should be a matter for clear environmental rules overseen by independent regulators.
That doesn't mean saying yes to every pipeline proposal. There must be extremely stringent conditions to prevent spills and to force the private developers behind any pipeline to fully bear all environmental costs. But if those conditions are met, the regulator – the National Energy Board, or other bodies – should be able to deliver an impartial, science-based, thumbs-up to at least some projects.
How well the government will follow through on all this remains to be seen. These are early days; if this were a baseball game, we'd still be in the first inning. But so far, Team Trudeau's approach looks promising.