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Confusion reigns over energy policy

October's federal election barely changed the balance of power, but the Conservative party's energy plans face growing opposition, writes WJ Simpson

THE CONSERVATIVE party slightly strengthened its minority government in last month's federal election, but its energy policies are likely to face mounting pressure from three left-leaning opposition parties. All three minority parties favour stronger action than the Conservatives, led by prime minister Stephen Harper, on greenhouse-gas (GHG) regulations and limits on expansion of the Alberta oil sands – issues that, during a five-week campaign, were swept away by the global economic crisis and US electioneering.

Even less attention was given to Harper's surprise proposal to ban exports of raw bitumen to countries with lower GHG standards than Canada and talk, among opposition parties and by both US presidential candidates, of reopening the North American Free Trade Agreement (Nafta), with unknown consequences for more than C$100bn ($92.5bn) of annual Canadian oil and gas exports.

The Conservatives elected 143 Members of Parliament (MP), up by 19; the Liberals were left with 76 MPs, down by 27; Block Quebecois was virtually unchanged, with 50 MPs; and New Democratic Party (NDP) seats rose to 37 from 29. As a result, the Conservatives still need the backing of at least one of the minority parties to push legislation through the House of Commons.

Little appetite for a carbon tax

Harper, who promised a fiscal update by the end of the month, says he will take "whatever steps are necessary" to protect Canadians from the economic storm. This has been interpreted as a suggestion that he has no plans for imposing harsh environmental measures when his government introduces its long-delayed GHG legislation. Despite the campaign platforms of the Liberals and NDP in particular, there appears to be little appetite among politicians of any affiliation, or Canadians in general, for imposing a carbon tax at this time.

David Keith, a climate-change scientist at the University of Calgary, attributes the Liberals' bad election result at least in part to its Green Shift plan, which would have involved the immediate imposition of taxes on GHG emissions, starting at C$10 a tonne and rising to C$40/t within four years. Estimated revenues in 2012 under this plan would have been C$15bn a year, which would have been partly offset by some income and business tax cuts.

The province of British Columbia enacted North America's first comprehensive carbon tax this year and Quebec has introduced a limited version – both attracting a public backlash at a time of economic slow-down.

Gary Leach, executive director of the Small Explorers and Producers Association of Canada, says the Liberals failed to explain adequately how their strategy would reduce GHG emissions. He pointed out that even environmental activists have conceded that they can only "resonate and connect" with the majority of Canadians on GHG legislation when there is a feeling of economic security and a sense of confidence in the future.

Harper promised that a re-elected Conservative government would stick with its plan to reduce Canada's GHG emissions in absolute terms by 20% from 2006 levels by 2020. He has also vowed to work with provincial and northern territorial governments and its Nafta partners, the US and Mexico, to develop a continental cap-and-trade system for GHGs and air pollution – with the aim of introducing such a scheme between 2012 and 2025.

However, the petroleum industry and the Alberta government are confused and angry about the proposed bitumen-export ban, which Harper says is the "right thing to do for our environment and our economy [by] not allowing industry to skirt our tough environmental targets by exporting unprocessed oil."

Ultimate federal control

Alberta's deputy premier, Ron Stevens, argues that, because natural resources are owned by Canada's provinces, development of the oil sands rests with the Alberta government. Harper counters that the federal government "ultimately has significant control over resource exports and significant control over international trade". He also suggests his plan could help Alberta achieve its goal of building more upgraders in the province to turn bitumen into more valuable refinery-ready crude.

Canada's industry minister Jim Prentice says the target of Harper's strategy could be either: the US, which receives 0. 5m barrels a day (b/d) of the 1.3m b/d of bitumen produced in Alberta; or Asia, the primary target market of Enbridge and Kinder Morgan to build 0.525m b/d and 400,000 b/d pipelines, respectively, to tanker ports on Canada's Pacific coast.

Joseph Doucet, an energy-policy professor at the University of Alberta, is unsure how, or even if, Harper can carry out his plan under Nafta. The Canadian Association of Petroleum Producers says that until he provides the details it is unable to assess the effect of such a prohibition.

Meanwhile, NDP leader Jack Layton is calling for renegotiation of a clause that prevents Canada from rationing its oil and gas shipments to the US in the event of a supply disruption or global shortage, unless proportional cutbacks are imposed on Canadians, viewing that as unreasonable control over domestic policy.

Exports are about 2.47m barrels of oil equivalent a day (boe/d) of crude and gas, and 0.584m b/d of refined products, making Canada the largest external energy supplier to the US; Saudi Arabia exports 1.54m boe/d and Mexico 1.3m boe/d to the US.

Canada is also facing a growing clamour from within the US to change Nafta labour and environmental provisions – Democrat presidential candidate Barack Obama has even threatened to pull out of the free-trade agreement within six months if the changes he wants are not made. But Harper says reopening the pact would be a mistake, because "we have some things we want to talk about as well" that could undermine the progress towards an integrated North American economy.

He did not elaborate, but he has previously said Canada would like to reopen an agreement on softwood lumber exports to the US; in addition, in July, when Obama first aired his threat to opt out of Nafta, Harper said US dependence on Canadian oil and gas put Canada in a stronger bargaining position for any renegotiation of Nafta than it was 20 years ago, when free-trade talks began. Derek Burney, one of Canada's Nafta negotiators, says the US should be extremely careful in tampering with Nafta, given its reliance on Canadian energy supplies.

Another of Harper's election pledges was to reinforce Canada's claims to Arctic sovereignty at a time when Russia is sending strategic bombers on testing flights across the North Pole towards Canada and the US.

He has committed C$100m to an Arctic geo-mapping programme it hopes will generate C$0.5bn of energy exploration and C$0.72bn to a new Coast Guard icebreaker. It also plans to introduce tougher reporting rules for foreign ships entering what Canada deems to be its waters.

Harper is also anxious to see final approval of the C$16.2bn Mackenzie Gas Project to deliver 1.2bn cubic feet a day to southern markets by 2015. Confident the project is close to fruition, he says commercial development of the Mackenzie Delta and Beaufort Sea is "about opening up a region of the country and of establishing our economic reach and sovereignty in ways that have never been done before".n

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