In defence of Alberta, Decarbonisation and an Intelligent Transition to a Different Future

Many good-willed environmentalists have made the argument that Alberta would be better if it left all of its bitumen in the ground. One of them replied to my last post. His name is Bill Malcolm. When it came to my notion that politicians should try to provide the most benefit to the most people, he said: “Really. Then stop digging bitumen because that’ll benefit billions.” (May 2, 2019 at 4:29 pm, reply by Bill Malcolm on 52ideas.ca)

 

While, I respect that point of view, I would give Mr. Malcolm a piece of advice my mother gave me: “one must be careful about change because not all change is good change”.  If you want proof just look at Germany and their Energiewende policy. Energiewende is the German word for energy transition and their transition to renewable energy has recently gone off of the rails. It started off well, in the early 2000s. The plan was simple transition off of carbon based power using a combination of nuclear and renewables.

 

It was going well. The Government and people of Germany provided huge subsidies to the German industry; and in return, the electrical grid would be “greened-up”. According to a 2017 article in the New York Times, Germany had “spent an estimated 189 billion euros, or about $222 billion, since 2000 on renewable energy subsidies”. (New York Times.com, by Stanley Reed, Oct 8, 2017). And then Fukushima happened.

 

A nuclear plant in Fukushima, Japan, suffered an unanticipated event: a large earthquake followed by a large tsunami. The combination of the two caused safety systems to fail and the largest nuclear disaster since Chernobyl took place. For many Greens in Germany, this was an opportunity that they had been waiting for: the opportunity to put the nail in the German Nuclear Industry’s coffin. So instead of the steady state compromise that had been achieved (i.e. keeping the existing nuclear plants), German Greens and Environmentalists pushed for their politically perfect scenario: no nuclear plants in Germany at all.

 

However, the reality of this “perfection” has now coming home to roust. Germany has stopped their phasing out of coal powered plants, so that they can phase out their nuclear plants. Coupled with the inability of keeping up with their desire to increase commercial and residential building efficiency and their failed diesel car experiment, Germany faces a situation where their subsidies are not enough. Consequently, Energiewende is not a popular word in Germany anymore. Accordingly, a simple lesson is learned: change –especially environmental change – requires good planning, good strategy, good execution and good follow through. If you miss any of these things, your plan will fail.

 

So with this in mind, let’s turn to Alberta. I am the first to admit that our politics has been plagued by fear when dealing with the decarbonisation issue. Instead of taking the approach of Norway or Denmark, Alberta has been slow to change. The Klein government fought against Kyoto. The Stelmach, Redford and Prentice Governments brought a modest carbon pricing scheme which only applied to high volume emitters. Before Notley, we can all admit that the oil and gas industry had been slow to change.

 

After Notley, we have seen a pick-up in concern. So much so that the new Premier, Premier Kenney, has recently gone back on a campaign promise and declared that he would leave the 100 megatonne CO2 cap in place. With this said, there is more to do.

 

However, to Bill Malcolm and others who share his same point of view, leaving all of the bitumen in the ground will not speed up the process of decarbonising the world. As the German Energiewende project showed, simply trying to radically rework the Oil and Gas Industry will lead to disaster. If you want to know why, just look at the last time the Federal Government tried to rework or close an industry: the Atlantic Cod Moratorium.

 

In many ways, this is a story we know. From 1497 to 1992, fishermen took Atlantic Cod from the waters off of Newfoundland. However, a problem developed in the 1980s: there were ever decreasing amounts of fish. There were studies and commissions sponsored by provincial and federal government to investigate the issue. However, as the issue became more problematic, the federal government stepped up. In the fall of 1989, as the fish plant closures became more evident, the Federal Government provided $130 million dollars for a short-term programme to help the workers and communities affected by fish plant closures.

 

On the 7th of May, 1990, the federal government revealed that they would fund a 5 year, $584 million programme called the Atlantic Fisheries Adjustment Programme (AFAP). It was designed to address the decline in the resource as well as the fish harvesting and processing overcapacity in the Newfoundland and the Atlantic fishery.

 

However, in May of 1992, John Crosbie announced the “unthinkable”: the Federal Government was going to temporarily close the Atlantic Cod fishery. In a few years, it would be clear that the temporary closure was became a permanent one. The moratorium led to the single largest mass layoff in Canadian history. 12% of Newfoundland and Labrador – 30,000 people – suddenly became unemployed.

 

The Federal Government did many things. Through the Northern Cod Adjustment and Rehabilitation Program (NCARP), out-of-work fishing people received higher than average weekly unemployment insurance benefits. Approximately 28,000 of the province’s fishers and plant workers received income support benefits under the program. However, it didn’t stop there. Through, the Atlantic Groundfish Strategy (TAGS) and related programs, the federal government would provide more than $4 billion in assistance to reduce economic dependence on the fisheries.

 

With that being said, the Federal Government also bought some assets. Just look at the Atlantic Groundfish Licence Retirement Program (AGLRP). It was revealed on June 19, 1998. The AGLRP was a part of the federal government’s $730 million Canadian Fisheries Adjustment and Restructuring (CFAR) Program to reshape the Maritime, Quebec and Newfoundland groundfish industry. It aim was to “permanently remove up to 3,000 groundfish licences from the Atlantic fishery”, so as to “achieve a more diversified and economically viable fishery by retiring licence holders who were less viable and less diversified”.

 

Or put differently, the Federal Government has the power to buy up assets for a larger purpose. It could do so when dealing with the Alberta Oil Sands; and to be clear, the Federal Government has done this before. To keep Syncrude from going bankrupt in the 1970s, the Federal Government bought up 15% of it. To create a “national oil and gas champion”, the Government of Canada purchased British Petroleum’s Canadian assets to make Petro-Canada. Accordingly, the Federal Government could buy up all of the Oil and Gas Industry to keep all of the oil in the ground.  The only problem is where would you come up with several trillions of dollars?

 

Don’t believe me; well let’s do the math. If we were to buy up all of the Oil and Gas Producers, the cost would be more than $447 billion since that is the value that the Alberta Securities Commission came up with in 2017. To give one an idea of how big that is, it is more than 10% of the Canadian Capital Market. Or imagine, for a second if, that 10% of the TSX was to vanish in one day and the Federal Government would be responsible to pay for it. The Federal Debt would almost double over night going just over $687 Billion to $1.134 Trillion Dollars. So the Federal Government could buy up all of the assets, but who is going to pay for it?

 

However, if one thinks that is the end of the costs, one would be sorely mistaken because that is only the beginning of the costs. After all, someone will have to clean up what is left behind.

 

The Orphan Well Association can give us an idea of what the cost will be because they are the body in Alberta that right now deals with any leftover wells. As of today, they have over 3,000 wells that need to be plugged or abandoned, and more than 1,400 sites that have been abandoned but still need to be reclaimed. But, there is still more because there are nearly 90,000 inactive wells across the province. If any regulatory or legislative body were to end the practice of Oil and Gas extraction, society would have to clean up the mess. In 2017, the Orphan Well Association (OWA) spent $35 million dollars but it was behind in its job. So by the end of 2017, the OWA was given $70 million dollars; or put differently $40 million dollar bump was given to the OWA to try and get it caught up. If the Government of Alberta is correct and Alberta has an estimated 176,000 in active wells, 90,000 in inactive wells and 77,000 abandoned wells, then some simple math might give us an idea of what the cost of clean would be.

 

If we were to abandon every well, you would need an organization which is approximately 24 times the size of what the Orphan Well Association presently is. If we assume a $40 million a year budget for this new body that would mean the new organization would need a budget of about $960 million a year. Assuming that that organization would be around for about 10 years – a reasonable assumption given other clean ups – someone would have to come up with $9.6 Billion Dollars. However, there are still more costs.

 

Much of Alberta depends on Alberta’s Oil and Gas Industry. After all, Oil and Gas Companies make up about 50% of Alberta’s Capital Market. If 50% of an economy disappears, other things disappear too. The need, or revenue, for government jobs as an example. So, if Alberta has more than 4.3 million people, what would happen if 50% of the economy evaporated; likely more than 50% would move away. That would mean almost 6% of Canada would move from Alberta to other provinces. Imagine if 1 million people showed up in BC, 1 million in Ontario and 1 million in Quebec. Imagine the havoc that would cause. Additionally, there would be increases in human capital costs: retraining, welfare and social housing as an example.

 

This might sound ridiculous but it is not. If we leave the bitumen in the ground tomorrow the national debt (federal and provincial debts combined) would easily jump from its present 2 Trillion dollars to 4 Trillion dollars over night. And for that cost, Canadians and the World would not stop using oil, natural gas, coal or any fossil fuel. Given present economic trends, Alberta’s market share would likely flow to other Heavy Oil Producers like the United States and Venezuela. They use techniques we invented to get at their own bitumen. Consequently, instead of Canada producing large amount of CO2, others would and we would not have a way of incentivizing them to change; for, after all, we are a small economic player when compared to Europe, the US, Japan and China. Consequently, a radical proposal like leaving Alberta’s Bitumen in the Ground would just spend money unnecessarily and not change a thing.

 

Consequently, let’s talk about sensible transition: The same thing that I have been talking about since launching this blog. As Norway and Denmark have shown transition can happen in an economically profitable way. As the world still uses oil, Alberta should move to strict regulation and not just leaving the resource in the ground. If we want to use Norway as an example, Alberta companies could scrub the CO2 from their natural gas deposits and instead of releasing it into the air, as they do now, Alberta companies could be required to reinject it into the existing deposit.

 

With that being said, the Governments of Canada and Alberta could help existing Oil Sand producers to become cleaner or even Green Energy Producers, just as Norway has helped/demanded the same of StatOil and Denmark of Ørsted A/S (formerly Dong Energy). Germany and their Energiewende experiment has taught us one thing: be prudent when making changes. “Producing Oil today and Green Energy tomorrow” can and should be are motto. Diversifying Alberta’s economic should be our plan. For those ideas are better for the environment and all of our pocket books. So, please Bill Malcolm, let’s talk about smarter policy, so that all children – including my little one – has an amazing planet for decades to come.

One thought on “In defence of Alberta, Decarbonisation and an Intelligent Transition to a Different Future

  1. If we had all the time in the world, your logically argued plan sounds wonderful. I live in Atlantic Canada and remember the end to the cod fishery well. There were essentially none left, and 25 years of leaving them alone hasn’t brought them back the way they used to be. What happened to the fishery was what needed to happen. Denmark fished out the Atlantic salmon by discovering where they gathered at sea, so no saintly angels they. Norwegians are behind a lot of the salmon farms in BC and their gross mismanagement has been exposed by the Common Sense Canadian.
    Right now, Mount Palomar in Hawaii has measured CO2 at the 415 ppm level. The Arctic sea ice has virtually disappeared. Our North is warming six times faster than least affected areas; the permafrost is melting and will soon release methane in vast quantities. The Greenland glacier/ice-pack is melting fast, and parts of the Antartarctic ice shelves are undermined, leaving scientists to wonder when they’ll break off. Alberta’s fresh water comes from melting glaciers in the Rockies, glaciers that aren’t going to exist in perpetuity.
    So we are all rushing headlong into an environmental brick wall, and I’m afraid we’re going to need a lot more than policy wonk ideas and a long term plan to stop a disaster. Action is required now. It isn’t a time to be expanding tarsands production and filling a new pipeline, unless committing suicide sooner rather than later seems to a wonderful thing to do. Ersatz oil production in Alberta has increased by over 50% since 2010. The NEB has all the figures on their website. Almost 3 million barrels per day go to the US these days via pipeline. Will virtually another million in a new pipeline to BC tidewater ameliorate the gasps this planet is giving out?
    That’s my point. Far better and more in-depth analysis than mine has been provided for several years by the Disaffected Liberal blog, here on ProgBlogs. Apparently to you, there is no real emergency, we must all sit down and wisely consider our options. the time for that was right about the time of Fukushima, whose entrails are still spewing radioactivity which ocean currents happily deposit on the BC and West coast shorelines right now. i believe the time for coming up with a reasonable plan was a decade ago. Now it’s too late without major societal disruption to halt the damage – so mankind would have to accept that as Newfoundlanders did with cod. Do I expect anything like that to happen that makes sense? No, we’re all too stupid and afraid, so we’ll go down whimpering, trying to backstop infrastructure, re-locate climate refugees until it all gets to be too much and we start killing each other off. Will that be better than getting on the case now? It’ll be hell no matter what at this stage.
    So I cannot in all conscience accept your criticism of my points. If you cannot recognize an emergency, that’s not my fault, sorry.

    Like

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