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Canada at a crossroads

Regional election in the country’s largest oil producing province will have lingering impacts on national energy policy for years to come

In western Canada, the winds of change are called Chinooks—gusts of warm air that blast over the Rocky Mountain and herald the spring thaw. Snow melts, puddles form and the oilfields sink under a deluge of mud and muck known by locals as 'break-up'.

Now the winds of change are blowing in Alberta, home to 80pc of Canada's oil production. The province's government has called a snap election that has broader implications for the country's national energy policy—or lack thereof—post 16 April.

Given uncertainty over future development of pipelines and environmental issues surrounding the world's third-largest oil reserves, it promises to be a rancorous fight that could call into question Canada's international commitments to reducing emissions, while opening new markets for Alberta's copious, yet landlocked, reserves of tar-soaked oil and bitumen.

Public opinion polls have suggested that energy issues are top of mind. Some 49pc of Albertans have identified carbon taxes, mandated emissions caps and federal policies toward building new pipelines to both of the country's east and west coasts, as well as the US Gulf of Mexico, as the leading issues in the debate, well ahead of health care, education and access to social services.

Those are typically the bread-and-butter issues in any election, yet energy issues have dominated against the backdrop of a divisive national debate on climate change and, specifically, the role of oil sands in securing both Alberta's and Canada's broader economic future. And although both sides agree on a vague final outcome, the choice on how to achieve it could not be clearer. It is either fight or flight.

The only certainty in this battle of wills is that Albertans do not want to take what they see as blatant interference in their future prosperity due to the perceived incompetence on the part of Prime Minister Justin Trudeau and his federal Liberal Party.

The contenders

In one corner is incumbent premier Rachel Notley, head of the New Democrats who unexpectedly toppled a 45-year Tory dynasty in 2015 at least in part on claims that it had turned Alberta into an Arabesque petro-state, replete with disregard for social and environmental protections.

This in turn portrayed Canada as a laggard and a pariah, particularly with regards to its international commitments under the Paris Accord. Notley was initially an ally of national leader Justin Trudeau on environmental issues, but that relationship has soured as approvals for the proposed Trans Mountain Expansion pipeline have stalled. The C$10 bn ($7.5 bn) conduit to the west coast of British Columbia would triple capacity on the existing line to a much needed 1mn bl/d and open new markets for Canadian crude in Asia.

Notley has staked her political future on approval of the line, which has been held up by bureaucratic red tape and legal challenges. In a recent speech, she said Trudeau would not want to be stranded with her on a deserted island.

That said, it was Notley who introduced an extremely unpopular carbon tax as a means of gaining 'social licence' for future oil sands development and curry favour with the federal government.

Rarely does anyone cast a vote for new taxes, a point which has been ruthlessly exploited by her political opponent, Jason Kenney. Kenney was previously a long-time federal cabinet minister under former Conservative prime minister Stephen Harper, who infamously vowed to transform Canada into a "global energy superpower".

It did not happen under Harper. It is not happening now, either. Canadian oil remains severely discounted to international and US benchmarks.

Canadian crude is sold in Canadian dollars, but priced in US greenbacks. But even after exchange rate gyrations, the differential between the Canadian and international benchmark prices can be as much as 50pc. This discount has left a gaping hole in the public accounts and the province is on track to post a C$71bn (c.$53bn) debt by 2020, which is also an election issue.

Notley herself has declared the situation a "crisis". And her present government has been one of the most unabashedly interventionist in recent memory.

It has unveiled an unprecedented set of incentives and royalty credits—billions of taxpayer dollars—aimed at spurring increased value for resources. These are basically infrastructure projects, paid for with public royalty dollars.

In a speech to the Edmonton industrial heartland association on 17 January—well before the election was called—Notley said she hopes to leverage C$4bn ($3bn) of royalty credits into tens of billions in capital investments, mainly for partial heavy oil upgrading and petrochemicals, to increase realized prices for domestic resources. She submitted a deadline of 8 February for proposals to build a new refinery in Alberta, which would be the first in Canada in more than three decades.

Mandatory production curtailments have also been introduced to try to boost prices, along with another C$3.7bn ($2.75bn) of investments in rail cars to transport Alberta crude in the absence of pipelines. On 10 January Notley identified Calgary-based Interpipeline's C$3.5bn ($2.6bn) Heartland petrochemical complex near Ft. Saskatchewan as one of the first projects to receive assistance from her government's petrochemicals diversification programme.

But Kenney has vowed to rip up all of the existing energy poilcies, starting with the carbon tax, potentially setting up a confrontation with Ottawa that openly—some say brazenly—risks sparking a constitutional crisis due to the threat to the future of Canada's climate change policies. He has also vowed to shred Notley's incentive programmes, which would, in turn, throw billions of dollars in new investments into doubt.

Electoral maths

So far, Kenney appears to be winning. Despite some personal unpopularity as a populist leader in the mould of US president Donald Trump, national polling organisations such as Angus Reid and the Canadian Broadcasting Corporation (CBC) have given him an almost 99pc chance of forming a majority government after 16 April due to the distribution of seats in the provincial legislature.

Out of a total of 79 ridings, he has a virtual lock on 35 of them in the mainly rural areas where the oil industry is strongest. This means he only has to pick up nine seats in the major population centres of Edmonton and Calgary to claim a majority—a virtual certainty barring a major electoral miracle or meltdown.

Precisely what that means for broader national energy policy is unclear. But there is little doubt it marks a more confrontational stand that threatens the country's fragile national unity.

Canadian energy policies have always been divisive, pitting one region of the country against the other. Kenney has consistently invoked the legacy of Justin Trudeau's father, Pierre, in this regard. The legacy of the senior Trudeau is one of antagonism to Alberta in general and the oil industry in particular.

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