By: Jose Luis Caceres
The current context
The ‘Albertan advantage’ is a motto that was coined over the years owed to the solid expansion of the oil & gas industry. Despite the fossil-fuel richness of the province, the current economic circumstances owed to the low prices of these commodities might make one wonder if that advantage is still there. Well, I think that yes, the resourcefulness of its inhabitants probably accounts for the first advantage, but the vast amount of natural resources and energy potential possibilities different than fossil fuels adds greatly to the list of opportunities and advantages.
During its modern history, Alberta has relied -and continue to do so- greatly on its oil & gas wealth and this over-dependence is in turn the main reason of the deeply felt effects of the current oil industry downturn, which are perceived by the economy of the province and consequently by its inhabitants.
Acting constructively towards forging a resilient and sustainable economy, requires first the acknowledgement by Albertans that the current economic woes of the province are not a product of a political mismanagement but they are owed to the confluence of various factors which are far beyond the scope of the provincial or even federal governance. The oil industry downturn is mainly owed to the significant oil-price drop as a result of a global surge in supply due to technological advances which allowed shale oil production at a massive scale in addition to geopolitical intricacies and maneuvers by the international oil cartels and a seemingly low growth in demand. It is in this context that implementing climate action measures are not in place to aggravate things but they appear as an opportunity to address a major threat and at the same time reverse the economic problems of the province by creating new opportunities.
a) The Climate Leadership Plan:
The threat of climate change is real and tackling its causes (GHG emissions) certainly poses pressure on the oil industry. Finding a sustainable equilibrium in which the emissions caused by the industry are counterbalanced with other initiatives, like phasing out coal and replacing it with renewable energy is well captured in the Climate Leadership Plan of Alberta. Coexisting with oil and yet aiming for a 2-degree C global emissions policy is possible.
But here is the dilemma, assembling a plan that is consistent with a ‘2-degree global emission policy’ in a fossil-fuel rich, high greenhouse gas emitter jurisdiction such as Alberta represent a monumental challenge, and that is why the Alberta’s Climate Leadership plan constitutes an effort that is not devoid of criticism especially given the current economic circumstances of the province and the often contentious positions of the many stake-holders engaged in putting this plan into action.
Transition to a greener, more resilient and sustainable economy should be successfully balanced if the oil and natural gas industry continue producing its products, and meeting current Canadian demands and also supporting the US and emerging Asian and global market demands. Whether we like it or not oil is ‘still’ very important for the economy of Canada and moreover their revenues are necessary if we aim on diversifying the economic and energy matrix of the country.
b) The Carbon Levy and Rebates:
It is hard to imagine a more critical conundrum for our province. It is easy to believe that a measure such as the carbon levy would only be detrimental if you only see the surface and specially in a context of so many people hurting economically. But the reality is that deeper under the surface, this levy will signify the investment seeds that will help the economy to rebound, and not because of higher oil prices but because they will help to pave the road for a more diversified, resilient and sustainable economy, one that doesn’t rely entirely on fossil fuels but in other sources of wealth entirely devoid of carbon.
Alberta’s new carbon levy (price on carbon) is an important opportunity to build clean and renewable energy capacity, achieve greater social acceptance for our oil and gas outside of Alberta, reduce carbon emissions and Alberta’s carbon liability, and improve Alberta’s economic well-being.
The purpose of the Carbon Levy in Alberta is to redirect all the collected money towards energy efficiency and minimizing GHG emissions from personal and industrial activities in our province.
The carbon levy will have an impact on the price of major fuels, basically we will pay more for gasoline, diesel and natural gas.
Things get a bit ugly when one discusses if the timing is right for implementing a levy (also referred as tax) under the current circumstances of high unemployment rates and economic fragility. Although I admit that the timing is not ideal, people should realize that lower and middle income Albertans will offset their ‘carbon levy expenditure’ as it will be returned to them in the form of rebates. It is expected that 60% of Alberta households will receive a rebate that would cover the typical cost of the levy.
Having said the above, although in a way I sympathize with those that oppose the implementation of the carbon levy whilst the economy is so fragile and specially with those that are enduring difficulties to make ends meet, I also acknowledge that the purpose of the levy is worth the sacrifice.
c) The oil industry outlook and the global energy trends:
A sustained increase in oil prices regardless of the OPEC and non-OPEC cartels moves doesn’t seem likely. My projection is that in 2017 a scenario of 60$/barrel of crude seems to be in the optimistic side, and this would only occur if the country members of the oil cartels don’t cheat, and before US shale oil production -in which the producers are not aligned with any oil cartel- fills the gap and brings prices down… again.
In this ‘tag-of-war’, no one -not even the Saudis- can afford to continue for very long. It should also be noted that the world economies are not able to carry high oil prices for very long either. High prices for very long would only act as the precursors that would erode its own demand, and ultimately serve as a catalyst for massive investments in renewable energy and adoption of electric vehicles. The past decade of high oil prices has already led to a trend of decreasing oil demand within the OECD countries which has not reversed in spite the return of record-low oil prices. What we are seeing already is a deacceleration on oil demand growth and what it would come next will be the peak of this demand. According to the consulting firm McKinsey, oil demand would peak on 2030.
d) Oil, Pipelines, Renewable Energy and Trump:
We shouldn’t scape to the contentious reality that whether you believe in climate change or not and whether you think Trump is a good fit for being president of the US, the preponderance of fossil fuels as the most prevalent source of energy is losing vigor. Anchoring our reality to the fictitious scenario in which Trump will resuscitate oil is putting it in a polite way, myopia and disdain.
Ramping up oil production in a context of already low prices will only add-up to the supply glut, even in a scenario of reduced output from the oil cartels due to OPEC maneuvers to control the price. Such possibility which is very likely under Trump’s administration only means less demand for imported Canadian oil. The Keystone XL pipeline has a long way to go once the economics of its construction and implementation be once again scrutinized in the new administration. I wonder if investors will buy the idea that it is a good long term investment. Personally, and despite my pro-climate action rhetoric I would like to see that the oil produced in Alberta can be sold in the global markets, I would like to see a healthy oil industry, since ultimately and even if sounding ironic, but at present, the economy of the province depends greatly from the revenues of the sale of the oil products.
Now, despite the uncertainty with the pipelines construction, what I believe should be beyond question, is the impending need to diversify the economy and here is where the mitigation efforts on climate action, which embraces the substantial use of renewable energy and the scaling-up efforts to create sustainable and energy efficient cities and communities brings with it significant opportunities.
It doesn’t matter if Trump believes on Climate Change or not, or if he believes that the Earth is flat, the Renewable Energy revolution has enough momentum to keep going without him endorsing it.
In these circumstances of gloomy outlook for the oil industry, our federal government should be reminded that Alberta has been for many years the breadbasket of the country and funding the seeds of prosperity in the province could yield fruits sooner if financial help and government funded investments were granted. These could be amortized accordingly over a time period. Think of what the plan Marshall did for Germany after WWII, well this is not even close to the scale of such atrocious war, but an economic stimulus to address the financial difficulties of the province, while pursuing economic diversification should be taken into consideration.
Let’s pave the way forward, the way of the future.
Let’s also ask ourselves the question, do we want to save the planet and leave it for the next generations to enjoy? Why we don’t do this, while also reaping the benefits of doing the right thing for us, the environment and our children and grandchildren.
Alberta is much more than oil, cattle… and Banff… In addition to be rich on all sort of natural resources, we have some of the best educated and hard-working people in the country. We might not have direct access to tidewater but we are part of a vast country, the only one that has access to 3 oceans. The landlocked situation of Alberta shouldn’t be considered as a reason that impedes economic growth or a significant disadvantage. Although geographical situation represents a hurdle in the context of building trans-continental pipelines (as we are seeing these days), it is not significantly relevant in other aspects.
With all the natural resources, including energy in all its forms, plus the human resource and in the context of being part of perhaps the ‘greatest country on Earth’, engineering a prosperous and sustainable future is a given fact and achieving it, is certainly feasible. A future in which fossil fuels are an important source of economic wealth, but not the only one. A future in which Alberta becomes a clean technology industrial hub, a technological and IT hub, and ultimately a global leader. The opportunities are limitless and the time is right.
In the quest of energy and economic diversification and in order to align efforts aimed to meet the Paris agreement on Climate Change, clean – renewable energy should be noted as a wise investment, it is great for the economy and great for the environment. Once the renewable electric capacity is in place, the benefits are everlasting, including long-last reduced health-related costs to society.
The time is right for planting the seeds of economic diversification, and for our governments, both federal and provincial to align plans to help and support startups. Diversifying the economy is what Alberta needs to become sustainable, resilient and decoupled from market volatility that we are unable to control.
How can we achieve these?
· Investing in research, development and deployment of clean energy: Solar, Wind, Geothermal, Biomass, Co-generation, Nuclear, Hydrogen, etc.
· Investing in research, development and deployment of Carbon Capture and Storage (CCS) and Carbon Capture and Conversion (CCC).
· Investing in long-term green investment infrastructure: Plug-in stations, electric rail / trains, energy efficient public transportation, energy efficient buildings and retrofits.
· Massive electrification, tied to the implementation of renewable energy production (coupled with natural gas) and coal phase-out
· Take advantage of the low prices in real estate in the Albertan cities and the low parity rate of the Canadian $ as well as the abundance of unemployed and sub-employed personnel ready to go back to work.
· Use of renewable electricity in the industrial processes of the oil & gas industry whilst leaving more oil available for export.
· Incentives for solar rooftops at residential and commercial scale.
· Support of initiatives that create jobs by retraining former oil & gas workers, such as Iron&Earth.
Insight and Conclusions
We are commencing a new era in the history of Alberta. The transition to a new, greener and more diversified economy. The economic turmoil we are currently facing should be taken as the catalyst for innovation. Evolution is inevitable, moving along with the global economic and energy trends and that is, adopting a greener economy not only is the right thing to do, but is something essential for our own well-being and that of the generations coming after us. This is especially relevant when forecasting the potential scenarios ahead of us if we fail to change or adapt. In the long run, greening and diversifying the economy, will make us more resilient to the volatility inherent to the oil & gas industry.
Though I envision a future in which there won’t be need for fossil fuels to be burnt, I also acknowledge that fossil fuels are still so ingrained in our societies that -and this goes ‘literally’ for oil and natural gas- we cannot go in our everyday lives without them. Personally, I am very grateful to the oil industry for what it gave me. I believe humanity in general should acknowledge that the oil & gas industry made and continues to make our lives easier. For us, Albertans, the oil & gas industry is much more than what it constitutes to the average global citizen. The oil & gas industry in Alberta is what provided us, Albertans, with high standards of living and made us prosperous, a prosperity that we shared (and we still do) with the rest of Canada.
Whilst Alberta continues strengthening the amalgamation among energy development, economic diversification and climate action, we are arriving to a point of no return, a starting point of a long journey ahead.
