Canada West Foundation Blog

By: Robert Roach

At first blush, the challenge created by a pipeline that would ship oil from Alberta to the BC coast seems quite simple: figure out how to address the environmental impact so we can unlock the economic benefits that the pipeline will bring.

If only it were this simple.

Opposition to a new pipeline from Alberta to BC is like a Russian doll. Just when you think you understand the situation, another source of opposition emerges.

On the economic side of the ledger, the benefits are very clear. A pipeline means jobs, spin-off economic activity in the service sector and manufacturing, government revenue through royalties and taxes and returns on investment for oil companies and other investors including many RRSP holders. In addition, a pipeline would provide the Canadian oil sector with a major customer other than United States and, in turn, allow us to get a better price for our oil and ensure that we have customers who will buy it.

On the opposition side of the ledger, the first of the Russian dolls is a pipeline’s direct environmental impact. Although pipelines are extremely reliable, a spill is still a possibility and the construction will have an impact on natural areas. Arguably, these risks are manageable and are not the main driver of the opposition to the project.

The second doll is climate change. Some argue that the challenge of climate change is so pressing that we need to stop burning all fossil fuels as fast as possible regardless of the economic pain this may cause. Because the pipeline would bring more oil to market, it is automatically a bad idea. While many feel this way, there is a rough consensus around the world that fossil fuels are going to remain a critical source of energy for some time so servicing this demand is legitimate.

The third doll is specific opposition to the oil sands. This is rooted in concern about the direct environmental impacts of oil sands projects encapsulated in the phrase “dirty oil.” The oil sands industry is working hard to address these concerns through improved environmental performance and has had many successes, but the dirty oil label is a hard one to remove.

The fourth doll is concern over tanker traffic off the BC coast. The specter of another Exxon Valdez is a rallying point for opposition to the pipeline. There is not much that can be done to address this fear as the possibility of an oil spill cannot be eliminated. It comes down to a trade-off between this risk and the economic benefits of selling oil to Asia.

The fifth doll is the interests of the First Nations communities that the pipeline will traverse. This is a complex mix of grievances and aspirations that go well beyond any specific pipeline project. It remains to be seen if the benefits of a pipeline to these communities can find a path through this complex political terrain.

The sixth doll is a “what’s in it for me?” attitude. There are some who feel that if a pipeline is going to be built through BC, that BC should get a cut of the profits that result from selling the oil that flows through it. This is akin to asking truckers to pay a toll to go through the BC section of the Trans-Canada Highway. While this line of thinking is a fast track to the balkanization of the Canadian economy, it is nonetheless operating just below the surface of the West Coast access debate.

So where does this leave us? Do the economic benefits outweigh the sources of opposition? Unfortunately, there is no objective way to answer this for even if we calculate the billions of dollars of economic benefit that will be generated by the pipeline, it is still a subjective matter whether the economic boost is more important than the concerns about the environment and the claims of First Nations.

Clearly, industry has to do the best possible job it can addressing the environmental impacts of the oil sands and new pipelines, governments have to ensure high standards are met and all stakeholders have to work in good faith with First Nations communities.

But ultimately, it is Canadians and the people we elect to represent us who will have to weigh the pros and cons of this and all the other thorny matters related to Canada’s energy resources.

To this end, we are fortunate in Canada that we have open processes for assessing projects like the proposed Northern Gateway project. The National Energy Board—an agency respected for its independence and expertise—is examining the project and will make a decision after conducting public hearings and conducting extensive research. The NEB process and the process under the Canadian Environmental Assessment Act are being conducted simultaneously under a joint panel, thereby bringing the economic and environmental issues forward for examination together. Some may see flaws in the process but it is one of the soundest such processes in the world and it is far, far better than a propaganda war among misinformed celebrities and angry politicians. .

Let’s give the panel a chance to do its work helping us to unpack the dolls and find a way forward with regard to West Coast access. The alternative is to become paralyzed in the face of the complexity or to make arbitrary decisions that undermine the faith of Canadians in the system. The questions are many and the answers will not make everyone happy, but this is the reality we face.

By: Casey Vander Ploeg, Senior Policy Analyst

In April 2011, the Canada West Foundation published and releasedThe Penny Tax: A Timely Tax Innovation to Boost our Civic Investments.  This report, which drew considerable attention across Canada, proposed a fresh, creative, and innovative tax reform to help cities with their huge infrastructure funding challenges, and continues to be widely discussed and debated.  I find myself constantly fielding calls and questions on the report.

The idea behind the “penny tax” is to give voters in our cities the right to choose whether or not they want to impose upon themselves a local value-added sales tax—an additional 1% point of GST in their city—to fund specific infrastructure projects.  This “piggy-backed” tax would come into effect only if voters approve the tax in a referendum, and approve the specific infrastructure projects to be funded with the revenue.  These types of local, voter-approved, and earmarked taxes are quite common for counties and cities in more than a few US states.

Adopting the penny tax concept into the Canadian context has generated some significant reaction—both positive and negative.  What begins here is a four-part series to explore the penny tax idea in more detail.

The Problem

A Macro Look
Most of Canada’s municipal infrastructure was laid down in the post-war years from 1945-1975.  Because infrastructure has a limited life-span—about 50 years averaged across all asset types—much of our urban infrastructure needs renewal.  New infrastructure is also needed to accommodate continually expanding urban populations.

In the 1960s, governments in Canada were investing about 5% of that nation’s GDP into infrastructure.  By 2000, investment had fallen to 2%.  The ratio of the public capital stock to the private capital stock has also declined—from a high of 42% in 1975 to 28% by 2003.  The infrastructure funding gap in the municipal sector alone has grown from an estimated $12 billion in 1984 to $123 billion today, and that does not include an estimated $115 billion that municipalities need to accommodate growing populations.

All of this “macro” data gives us a broad sense of the infrastructure issue.  More helpful are some “micro” data.

A Micro Look
Detailed municipal capital budgets drill into the details and represent thousands of hours of planning.  Together, the seven large western cities estimate that in the next 10 years they require $63 billion in infrastructure investment.  But funding is in place for only $21.5 billion, leaving a $41.5 billion funding “gap.”

To be sure, not everyone agrees with these numbers.  Economists are divided on the size of the investments required.  But, there is broad agreement that a gap exists, it is significant, and it is growing.  What seals the deal for me is that the issue is global.  Infrastructure is emerging as an issue right around the world.  It’s highly unlikely that Canadian cities would be the singular exception.

Brad Watson, a partner with KPMG, noted that, “Infrastructure is undoubtedly one of the great universal challenges of the 21^st century.”

In tackling the challenge, the Foundation has advanced a package of five reforms that were first presented in Framing a Fiscal Fix-Up and then expanded further in No Time to be Timid.  One reform we suggested was to augment the municipal property tax with more robust tax sources that could be targeted specifically to infrastructure.

The Opportunity

Investment in public infrastructure is critical to the continued economic and social development of our large cities, our provinces, the western region as a whole, and the nation.  Public infrastructure provides necessary support for private sector investment by lowering costs for business and increasing the rate of return to private capital.  Of what use is a factory sitting all alone on the prairie with no roads, no rail, no electricity, and no water?

Canada is better positioned to address its public infrastructure challenges than most other western industrialized nations—especially when it comes to expanding the pool of funding.

1)    Canada’s finances are relatively solid:

•  According to the IMF, only Germany posted a smaller government sector fiscal deficit than Canada in 2011.
• Canada’s total government fiscal deficit, measured as a percent of GDP, pales in comparison to the US  (registered at 9.5%), the UK (registered at 8.6%), and Spain (registered at 8.0%)—we won’t even talk about Greece.

2)    Canada has seen substantial reductions in its total tax load over the past 20 years:

• As noted in the Foundation’s report Ready for Takeoff, Canada has seen some of the largest tax reductions in the OECD.
• In 2011, taxes for all orders of government totaled 31.4% of GDP.  That’s down from a high of 37.2% in 1998.  That equals a $100 billion reduction in the total tax load.
• Cuts in the GST can also be measured.  In 2003, GST revenues peaked at 2.6% of GDP.  In 2011, GST revenues were 1.9% of GDP.  That reduction is worth $10 billion.  Similar calculations for provincial sales taxes show a $5 billion reduction.

The Point
Across the long-term, Canada will not be as pressed—at least as much as other nations—to draw on tax revenues to close the deficit, cover interest, and repay accumulated debt.  Unlike other nations, Canada has also benefited from large reductions in personal income tax, corporate income tax, and federal and provincial general sales taxes.

The point is that Canada has a measure of fiscal space—tax room—to start making serious headway on the nation’s infrastructure liability.  Providing voters themselves with the option to employ that tax room is a viable policy option that we should consider.

When the federal GST was reduced from 7% to 6% in 2006, and reduced again to 5% in 2008, the Prime Minister was clear in an address to the Federation of Canadian Municipalities that Ottawa was not necessarily working to “reduce” the sales tax but to “vacate” the tax room for the provinces, enabling them to pick some of it up and use it for provincial as well as local needs.  And, that’s exactly what the penny tax proposal is all about. Click here to read the Prime Minister’s address.

Big Problem Meets Small Solution

Getting a handle on an infrastructure challenge that runs into the billions of dollars requires more than just “tinkering” with the status quo or “piddling” around the periphery.   Big problems require big solutions.  Interestingly enough, a big part of Canada’s solution could come in the form of a small and seemingly insignificant penny.

But, let’s also be very clear here.  I’m most certainly not arguing that taxes should rise back to the levels we saw in the 1980s and 1990s.  There is virtual unanimity across the policy community that a tax-to-GDP ratio of 37% is too high, and I agree.  However, could it also be that a tax-to-GDP ratio of 31% is too low, especially when considering the nation’s infrastructure needs?

Also, I’m not one to argue that throwing money at the infrastructure challenge is the solution.  Enlarging the funding pool is part of the answer, but not the whole answer.  New funding tools and mechanisms are best seen as embedded into a larger policy package that includes a stronger focus on core priorities, better pricing models for municipal services and infrastructure, and competitive service delivery options.

You may also be interested in parts II, III, and IV of the “1¢ Solution to a Billion Dollar Problem” series.

Related Readings

Harper, Stephen, the Right Honourable.  2006.  Address by the Prime Minister on Commitments to Communities.  A speech of Prime Minister Stephen Harper delivered at a June 2, 2006 meeting organized by the Federation of Canadian Municipalities.  Montreal, QC.

Vander Ploeg, Casey G.  2011.  The Penny Tax:  A Timely Tax Innovation to Boost our Civic Investments.  Canada West Foundation.  Calgary, AB.

Vander Ploeg, Casey G.  2009.  Ready for Takeoff:  Bold Tax Policy Moves for a More Competitive Western Canada. Canada West Foundation.  Calgary, AB.

Vander Ploeg, Casey G.  2004.  No Time to be Timid:  Addressing Infrastructure Deficits in the Western Big Six.  Canada West Foundation.  Calgary, AB.

Vander Ploeg, Casey G.  2002.  Framing a Fiscal Fix-up:  Options for Strengthening the Finances of Western Canada’s Big Cities.  Canada West Foundation.  Calgary, AB.

By: Shawna Stirrett

Just prior to Environment Minister Peter Kent’s announcement in December 2011 that Canada had decided to withdraw from the Kyoto Protocol, the Canada West Foundation and the National Round Table on the Environment and the Economy (NRT) wrapped up a series of meetings in western Canada on developing a low-carbon growth strategy for the country. One of the key themes that emerged from these meetings was the role of national and international emission reduction targets such as those in the Kyoto Protocol.

Interestingly, there was consensus among the participants that Canada should not be overly focused on emission reduction targets. Participants argued that reduction targets have a tendency to send the wrongsignals to producers and consumers. A focus on targets that are not accompanied by a clear strategy for meeting them can have a paralyzing effect rooted in uncertainty and fear.

For example, did every province under Kyoto need to reduce emissions by 17% by 2020, or was the target meant to be a national average? If it was a national average, did that mean that if some provinces did not meet the target, other provinces would have to make up the difference?

Another reason participants took issue with an emphasis on targets was that they can have the unintended consequence of promoting competition rather than cooperation. Targets can create the perception of a zero-sum game in which, as long as a province or country is doing better than another, it wins.

A final reason participants argued that there should be less emphasis on emission reduction targets is that they often overshadow other environmental considerations such as land management, water quality, protection of biodiversity and so on.

Instead of relying exclusively on emission reduction targets, participants argued that Canada should be setting environmentally quantifiable goals that are holistic in nature. These goals would ideally foster interprovincial cooperation, account for all aspects of environmental protection, encourage energy efficiency and facilitate the creation of a nationally coordinated plan for dealing with energy and environmental issues.

While the consensus of participants was that emission reduction targets should not be the main focus of environmental management in Canada and it’s path to a low-carbon future, this does not mean that they were in favour of pulling out of Kyoto. Nonetheless, there was a clear sense of the limitations of Kyoto-like targets for achieving our environmental goals.

For the full summary report of the western Canadian roundtables on a low-carbon growth strategy for the country, see the Canada West Foundation report entitled: “Cautious Optimism: Western Perspectives on a Low-Carbon Economy.”

By: Casey Vander Ploeg, Senior Policy Analyst

A couple of weeks ago, hundreds of municipal officials and public servants met at the Queensbury Centre in Regina for the annual meeting of the Saskatchewan Urban Municipalities Association (SUMA). Saskatchewan has Canada’s fastest growing provincial economy, and the rooms were abuzz with growth-related issues like infrastructure and affordable housing.

I like getting out to these get-togethers. It’s a chance to leave the office behind, shake off the reading, the researching, the analyzing and the writing, and spend some time with those who live and breath public policy at ground zero. Of course, such invitations don’t come without strings. At SUMA, I gave a presentation about www.LetsTOC.ca. Click here to view the PowerPoint of the presentation.

I showed delegates some numbers that I developed from the capital budgets of the seven biggest cities in western Canada—Victoria, Vancouver, Edmonton, Calgary, Saskatoon, Regina, and Winnipeg. Over the next 10 years, the capital budgets show a combined infrastructure need of $63 billion but only $21.5 billion in secured funding. That leaves $41.5 billion worth of infrastructure investment—for new and existing assets—that is unfunded.

Sure, some dispute the numbers. Do the cities really need that much? Or, is this just a ploy for more grant funding? For sake of argument, let’s cut the number by half—a $2 billion funding gap. That’s still a lot of kingo.

The point is, the magnitude of the challenge requires policy-makers to embrace innovation as a guiding theme. This means thinking and doing things in new ways that are:

BIG …and… small.

A seemingly “small” or insignificant innovation that hits on a routine infrastructure investment—such as a regular maintenance procedure—has the potential to increase efficiency and productivity, and thereby, lower costs. Huge savings can accumulate because the infrastructure investment is undertaken year after year and in city after city. Over time, that means big savings that can then be pumped into completing more infrastructure projects.

A good example of this kind of innovative focus comes from a new initiative being played out in several Saskatchewan municipalities to design, test, and prove out a better and more efficient way to replace water service connections—a regular if not rather mundane maintenance procedure that goes on in cities across the world each and every day. The new approach—dubbed “End-to-End” Service Connection—is one of the key projects being financed and driven by Communities of Tomorrow (CT).

The idea is to reduce the amount of time it takes to repair or replace a local water service connection by designing a new type of excavation cage, pipe-winching device, and water shut-off valve. Just like arthroscopic surgery, the intent is to reduce the amount of digging and subsequent repairs to streets, sidewalks, boulevards, and property. When compared to the current method of service connection replacement, cost savings in the order of 40% could be achievable.

In Regina alone, there are almost 7,000 local water service connections that need to be replaced at some point in the near future. Possible savings could reach $15 million. If Regina’s situation reflects that of the other six big western cities, that $15 million adds up to $250 million in combined savings.

While the innovation itself is interesting enough, what’s more is the innovative process by which “End-to-End” got started and continued to develop. CT first held a series of discussions with the managers, leaders, and staff at a number of Saskatchewan’s cities. These “brainstorming” or “blue sky” sessions were intended to identify a list of common challenges to which the cities were seeking solutions—a sort of “wish list.” Repairing and replacing municipal water service connections floated to the top as a shared concern.

During these discussions, it was found that the City of Regina had pioneered a new “Super Winch” system, which was the key that opened the door to a completely new approach. CT pulled together a collaborative consortium to begin and develop the work. The partners in this consortium include staff from the Public Works and Engineering Departments of seven Saskatchewan cities, researchers from Canada’s National Research Council, the University of Regina, and the Saskatchewan Research Council, and instructors from the Saskatchewan Institute of Applied Science and Technology (SIAST).

The efforts of the consortium are geared toward developing and proving out a high efficiency version of the service connection system that can be deployed throughout Saskatchewan municipalities. The City of Regina and the City of North Battleford are participating as the “living labs” to demonstrate and test the new system.

Dorian Wandzura is the General Manager of Public Works for the City of Regina. He understands that these types of “small” innovations can generate “big bucks” in savings. “Small savings on each job in beijing can add up to significant dollars when that job is multiplied thousands of times over. This is a clear demonstration that an innovative approach can make a dramatic difference,” [1] he says.

John Wade, City Manager for Melfort, echoes the refrain. “Anytime that there’s a possibility of saving dollars for the taxpayer, and there’s ways to accomplish that, we’re behind it one hundred percent.” [2]

Back to SUMA. Delegates at the workshop where I presented on LetsTOC were invited to fill out a short survey prior to the session. One of the questions asked delegates to identify infrastructure innovations they were pursuing. While a number of examples flowed forth, the one mentioned the most was establishing partnerships to develop new technologies and improve on existing practices and approaches.

Broadly speaking, there is nothing new or innovative about the concept of partnership. But, when non-profits like Communities of Tomorrow and Canada West Foundation join up with municipalities and researchers at educational institutions and independent research councils, the “small” idea can produce some “big” results.

References

1. Quote obtained from “Governments of Canada and Saskatchewan invest in waterline replacement technology”, published at Canada News Centre on November 25, 2011.

2. Quote obtained from “Governments of Canada and Saskatchewan invest in waterline replacement technology”, published at Canada News Centre on November 25, 2011.

By: Shawna Stirrett

Using market-based instruments (MBIs) for environmental protection is a potentially exciting way to manage the tension that sometimes arises between economic and environmental goals. MBIs apply the economic principles of supply and demand to the management of natural resources and they rely on the market to positively influence behaviour.

There are many different kinds of MBIs and some of them, such as deposit refund programs for drinking containers, have a long history in Canada. Other types of MBIs, such as transfer of development credits and resource allocation trading, have had limited uptake in Canada so far.

There is, however, the chance that MBIs will be used more frequently in Alberta in the coming years because of some recent policy changes that have come about with the passing of the Alberta Land Stewardship Act (ALSA) in 2009. This Act explicitly enables the use of market-based instruments for the protection of natural resources in Alberta.

While the theory behind MBIs is solid, the challenge is in the details. It is imperative that market-based solutions are clearly addressing an environmental problem, that they are understandable and accessible to the public, and that they operate within clear regulatory boundaries.

An illustration of how challenging it can be to find the right balance is found in Alberta’s home rebate program for energy efficient new homes. The idea behind this rebate is to incent homebuilders or homebuyers to choose products and designs that will be as energy efficient as possible. This means that if you buy a new home with an EnerGuide rating of 80 or above you will receive a government rebate that ranges from $1,500 - $10,000 on a sliding scale tied to efficiency ratings.

This is a fantastic program in theory because the more that can be done to encourage home owners to reduce their energy consumption the less greenhouse gas will be emitted, the less need there will be for new power generating stations and fewer building materials will end up in the landfills. According to C3 (the organization that administers the rebate program): “Upgrading the energy efficiency of a new home could reduce its greenhouse gas emissions by upwards of one tonne per year.”

The devil, of course, is in the details. The first challenge is that most builders do not know, or do not advertise, the energy rating of the homes they build. If a new buyer wants to find out the rating of their home, they will have to go through a pre-evaluation process. This means sending building site plans with elevations, sections and floor plans; specifications on insulation, doors and windows; mechanical details on the furnace, hot water heater, fireplace and other efficiencies; and information about appliances and lighting systems for assessment.

Not only is this a lot of work, but it will cost homeowners around $300 (if their new house is 1,200 square feet or less, additional footage is charged extra) to have this pre-evaluation done, which will tell them if they might be eligible for the rebate. The fee is non-refundable. There may also be additional charges if the house has solar or geothermal systems attached.

Should they decide to go ahead with getting their house EnerGuide rated, homeowners then have to get a blower door test done—at a cost of $175 for the first hour and $120 for every subsequent hour, and potentially including mileage for the Energy Advisor.

Finally, it is an additional $100 to update the file with the blower door test information, submit the claim to Natural Resources Canada and get the EnerGuide label and report.

A conservative estimate, then, is that a homeowner would need to spend around $600 in order to apply for the rebate that is offered. This is worth it if the house will be rated at the highest level, giving them a rebate of $10,000 or if there is certainty that the house will qualify for a rebate. But what about those who come in at the lowest level eligible for the rebate? They will have spent $600 (not to mention what they will have already spent on high efficiency furnaces, windows, insulation, etc.) in order to get back $1,500. What about those who invest in the pre-evaluation only to find out they are ineligible?

Because of the effort and the amount of money required to get this rebate, this program will have the greatest appeal for those who already care about the efficiency rating of their home and will have designed their home with efficiency measures in mind. In other words, this rebate as currently designed is aimed largely at people who would have made their homes as efficient as possible already and are not motivated by the promise of money back.

The argument could be made, therefore, that the rebate program is not incenting people to buy or build energy efficient homes, merely rewarding those who do.

So what can be done about this? It’s not as though the assessment process can be scaled back. There needs to be certainty that rebate-receiving houses really are as efficient as they say they are otherwise taxpayer money will be thrown away and no environmental benefit will result.

One potential solution is increased system integration around this issue. Would it be possible, for example, to require homebuilders to assess and disclose the EnerGuide rating of their homes, much like auto manufacturers are required to disclose the fuel economy of their vehicles? This would enable consumers to quantify the efficiency levels of new homes and this information, in addition to the rebate program, could lead to preferential selection of homes with higher efficiency ratings. In this way, builders would acquire greater experience and expertise in efficiency measures, one of the main barriers to consumers (the cost and the time of finding out the rating of their new home) would be reduced and substantial improvements could be made in Alberta’s environmental performance.

As this example demonstrates, the idea behind MBIs is good and they have the potential to enable environmental protection in an economically sustainable way. Getting the details of a market-based instrument right, however, is imperative if the tool is going to be effective at solving environmental problems and motivating people to change behaviour.

A detailed look at the role of market-based instruments within the Alberta context is covered in a forthcoming Canada West Foundation report entitled: “The Invisible Hand’s Green Thumb: Market-Based Instruments for Environmental Protection in Alberta.”

By: Michael Cleland and Robert Skinner

The International Energy Agency (IEA) and its member countries are by no means a perfect analogue for Canada but there are striking parallels:

• The IEA consists of many sovereign governments (with some important exceptions, provinces in Canada embody comparable degrees of sovereignty in the energy domain);
• IEA countries encompass resource short energy consumers and large net energy exporters;
• Some have highly carbon-exposed energy economies by virtue of resource endowment, industrial structure and past policy—others are decidedly carbon light;
• All individually and collectively need to engage on energy matters with other countries.

The IEA’s internal challenges sound very similar to those facing Canada as it grapples with coordinated energy policy. Herewith, building on Bob Skinner’s article in LTE February 7, 2012 are some lessons from the IEA experience.

Modest ideas can produce important outcomes

The 1993 shared goals (and their predecessor, the 1977 principles) are brief and far from anything that might be termed a strategy. But they have provided real guidance over the years to a disparate group of over 20 countries, spanning four of the world’s continents, and to countries with which IEA members need to engage. To cite some examples:

• The shared goals provide a template for policy reviews of member and non-member countries. Several countries live by these peer reviews and use them to bolster good policy in the face of recidivist tendencies toward protectionism or anti-market policies.
• At the time of the 1990 Gulf War, the commitment to international cooperation combined with a principle that underscored the sometimes painful virtue of avoiding controlled prices, helped several countries (including Canada) to resist domestic calls for harmful beggar thy neighbour or adjustment inhibiting policies.
• The shared goals underpinned an extensive dialogue with former COMECON and FSU countries with some positive effect (although increasingly attenuated with the passage of time) in nudging them toward market based policies.
• Similarly, they provided the basis for IEA members to assist countries such as post-apartheid South Africa to frame a new energy policy.

“Strategy” may be a bridge too far—for governments at least

Despite almost 40 years of existence the IEA has never had an overarching strategy on anything.

In corporations, strategy involves an on-going dialogue within the company about its business environment, its prospects and whether its resources are fit for purpose to pursue and succeed with a portfolio of initiatives or prospective ventures. Too often strategy rests on the fallacy of ‘planning’—that the future is broadly predictable and all that is needed is a set of tactics to achieve a set of goals—the outcome of strategy.  This deterministic approach generally fails in the private sector; it virtually alwaysfails in the public sector.

Private firms conduct a continuous review of strategy and maintain flexibility to change course.  For fundamental internal structural reasons, this is nearly impossible in the public sector, above all, in a confederation of such diversity as Canada.

Alternatively, principles and shared goals can reflect broad agreement on world views, desired outcomes and areas for more focused attention. With such a framework, governments can pursue initiatives that aim for specific desirable outcomes. Examples are: continued structural and regulatory reform and sorting out the federal/provincial roles in environmental evaluation, assessment and monitoring; meaningful sharing of resource rents with First Nations; or getting serious about carbon pricing.  The recent announcement of Alberta and Canada on oil sands monitoring illustrates that an initiative-by-initiative approach might be slow and will always attract criticism, but it works. And this resonates with at least one of the IEA’s Shared Goals.

Context matters: sometimes it should reshape fundamental policy

The shared goals in the early 90’s reflected the dramatic shift in political consensus, from relatively dirigiste[1], prior to the rise of Ronald Regan and Margaret Thatcher, to strongly market oriented, from the late 80’s onward.  The first set of principles was developed in an era when Canada—barely avoiding being thrown out of the IEA club—pursued its National Energy Program; the other was a very comfortable place for the Canada of deregulation and NAFTA. Had the shared goals been developed in the late 90’s instead of the early 90’s they almost certainly would have incorporated a much stronger statement specifically on climate change and carbon.

But more often context distorts sustainable policy thinking 

It is sometimes better to have no strategy than a bad strategy and bad strategy arises when it is too much driven by short term considerations, special interests or fashion. In the course of the few years in which Canada has been discussing an energy strategy we have seen the virtual (albeit probably temporary) collapse of the consensus to act on climate, combined with the 2008/09 recession and its lingering aftermath. These two facts have radically altered the debate but it is not clear that they have radically altered the essential circumstances that should underpin something called a strategy.  Even more striking is the rise of China in the past year in our energy consciousness, a rise that feels ever so slightly fashionable (although it may be fundamental). Regardless, we need to be mindful that we are building on long-term trends not on today’s preoccupations.

Some principles are enduring but their precise application varies with circumstances and learning

Even the relatively dirigiste 1977 principles acknowledged the important role of prices and free flows of investment. By 1993 this essential idea had become a “fundamental point of departure”. In a world marked by increasing tendencies to backslide with protectionism disguised as environmental virtue or actions to inhibit the impacts of rising prices, Canada might do well to refresh its commitment in this regard.

To take another example, the desirability of energy conservation and efficiency is expressed in 1977 and then again in 1993, albeit with much more emphasis on the economic idea of efficiency, less on the behavioural construct of conservation and less on subsidization. Simply put, economically sensible energy efficiency is a good thing whether government is concerned about energy security, consumer costs or the fate of the planet. That is the principle. How one goes about it will vary over time, with circumstances and by jurisdiction. That is where the strategy comes in and here the Shared Goals offer a further principle: “To the extent necessary and practicable, the environmental costs of energy production and use should be reflected in prices.”  Here almost all Canadian governments could use some guidance; whether non market electricity pricing, regulated gasoline prices, or rebates on natural gas, all work against efficiency and conservation. But how governments actually respond will always be specific to their economic and political circumstances.

It helps a lot if you know what it is you want to achieve

The 1977 principles were a reflection of a huge preoccupation with one thing—oil security.  Jimmy Carter was sworn in ten months earlier as the Great Lakes Blizzard raged and Canada’s National Energy Board took exceptional measures to make sure our neighbours received natural gas.  Carter established the Department of Energy a few days before IEA Ministers met.  Demonstrations against the Shah in Iran had just begun.  And fearing climate change—a colder climate—Environment Canada set up an interdepartmental working group on climate change.  It is easy to forget that for western governments at the time, the oil crises were seen as existential in their implications. Minds were accordingly concentrated.

The 1993 shared goals reflected a new need at the IEA, to allow the organization to respond to the collapse of the Soviet Union and to engage with countries moving away from centrally planned economies. In order to do so, a statement of principles sounding rather less like central planning was clearly needed.

Canadians to date have been less than clear about what it is exactly that makes them think they need an energy strategy. It is not enough to say “because Canada is a large country” or that it “has a lot of energy”. Japan and Denmark are geographically small and have almost no energy resources and they have highly evolved energy policies. Some interests in Canada clearly seek a different regulatory climate and better market access for Canadian resource development; others see an energy strategy as essentially a climate change strategy; still, others look for an all out government effort to support “clean tech”. Until some clarity is achieved on the question of why we want a strategy—as opposed to continuing to muddle through—even something as modest as a meaningful statement of principles may prove elusive.

1. Economic planning and control by the state (Mirriam Webster definition)

One Comment

The hint here is that a clear longterm understanding of desirable outcomes is needed and that it should encompass as many of the peripherals/externalities as possible if the principles are going to work.

We hear and are seeing a dramatic focus on the short-term, and the salvation offered by any new(?) opportunity (deep Gulf of Mexico, shale etc). A larger framework might have made the implosion of the intersection of climate action and energy less likely than it now is.

We need to be thinking of 2050 and our grandchildren!

By: Robert Roach, VP, Research

While the recession has affected countries throughout the globe in the past few years, Canada’s economy has done reasonably well. Yet, things are not all that they seem. Like a frog in a pot of warm water, Canadians have not yet realized the danger. A rapidly changing global economy is heating up the water in the pot.

The Boiling Frog Dilemma: Saving Canada from Economic Decline by Todd Hirsch, Senior Economist, ATB Financial and Robert Roach, Vice President of Research, Canada West Foundation, outlines ways that Canadians can get out of the pot before the water boils—and not only survive, but thrive, in the global race for good jobs.

Canadians need to become much more creative and this means a revolution in education and how creativity is harnessed in the workplace. Canadians need to embrace risk and stop lamenting the good old days when more things were made in Canada. They need to see the potential in lodging themselves at the top of the global value chain as the world’s designers, managers, educators, investors and creators. Canadians need to integrate their business practices with environmental stewardship, see the world as their oyster rather than a threat, and be much better neighbours to one another at home.

It is individual Canadians who need to change their own attitudes and habits. Governments can’t do it for them. The Boiling Frog Dilemma envisions new Canadian entrepreneurs who will move Canada from being largely invisible to totally indispensible in the global economy of the 21st century. The new entrepreneur puts into action the argument that nothing generates economic wealth except the power of ideas.

Read Rob and Todd’s op-ed in the Calgary Herald “People, not tax credits, will power the economy.”

To order The Boiling Frog Dilemma: Saving Canada from Economic Decline, visit www.toddhirsch.com

By: His Worship Carl Zehr, Mayor, City of Kitchener

Storm drainage or storm water management (SWM) is just one of many responsibilities shouldered by Canada’s municipalities.  But it’s also a very unique responsibility in that it offers municipalities a great opportunity to motivate positive changes in behaviour and alter their perceptions about the environment.

In 2011, the City of Kitchener engaged in an innovative yet controversial change.  The City moved storm water management funding from the tax base to a user pay system.  The new user pay rate—based on the amount of impervious area on each property—has resulted in a source of dedicated and sustainable funding for the costs associated with storm water management.  The rationale is clear: the more impervious area that an individual property contains, the greater the runoff and pollutants that will come from that property.  And, that property will also result in greater demand on the City’s storm water management system.

Properties with a high percentage of impervious surfaces—buildings, driveways and parking lots—typically create a lot of runoff.  These surfaces don’t allow water to absorb into the earth.  Under Kitchener’s new user pay system, industrial, institutional, and commercial properties are now paying a fairer share.  These types of properties contribute more runoff and pollutants than residential properties.

I even feel self-conscious about the amount of impervious area on my own property.  My own driveway is quite big.  Things are designed for convenience, not for conservation.  I didn’t think about that before because the cost impact was buried in my taxes.

In Kitchener, replacement and maintenance of aging infrastructure priorities historically took precedence over upgrading the system, resulting in current SWM infrastructure needs being under-funded, says Grant Murphy, who serves as Kitchener’s Director of Engineering Services.  According to Grant, the old tax-based system of funding placed a disproportionate amount of storm water management costs on properties with a higher assessed value, and residential properties carried more of the burden than industrial, commercial and institutional properties.  What’s more, tax increases only amplified this inequity between different property sectors.

Now, with a user-fee system, storm water services are no longer funded through property taxes but through a separately billed utility—just like gas and hydro.

It scared the heck out of me when we first started talking about doing this.  It’s not an easy process to change the way we think about making the system fairer for taxpayers.  Selling the concept to the public can be extremely difficult when you’re talking about taxes versus user fees.  The result, however, is a solution that, at its core, makes Kitchener a better steward of the environment.

Kitchener has a population of about 230,000.  Its storm water infrastructure assets are valued at $260 million, and are spread across a land mass of about 137 square kilometres (53 square miles).  All of the City’s storm water flows are directed towards the Grand River, with Lake Erie acting as the ultimate receiver.  Additionally, about 70% of the drinking water for Kitchener comes from groundwater sources, with the balance from the Grand River.  Therefore, source water protection is critical, not only for Kitchener but right across the watershed.

Under the new user pay funding model, we were able to bring Kitchener’s storm water management up to a sustainable level of service, clean-up the central downtown Victoria Park Lake, and make other improvements to the SWM system.  There was overwhelming evidence that the City needed to move forward with an increased level of SWM service.  Urbanization and intensification were placing pressure on system capacity and causing significant impacts on downstream natural streams and creeks.

A storm water rate credit system is also underway that will recognize efforts by private property owners to adopt best management practices, including vegetated swales, infiltration trenches, porous pavement, or extended detention stormwater basins.  Property owners can qualify for a maximum credit of 45% of the monthly utility bill if they can demonstrate that their stormwater facilities are functioning as approved.

Others are beginning to take notice of our innovative program.  In August 2011, the City of Kitchener was awarded the Peter J. Marshall Municipal Innovation Award from the Association of Municipalities of Ontario (AMO) for implementing the new storm water utility. The award recognizes municipal governments that demonstrate excellence in using innovative approaches to improving capital or operating efficiency and generating greater program effectiveness through alternative service delivery initiatives and partnerships.

Kitchener was also awarded a grant from the Government of Ontario’s Showcasing Water Innovation Program, which supports projects with innovative and cost-effective ways to improve drinking water, wastewater, and storm water systems.

The City was also awarded almost $1 million to develop public outreach tools and pilot projects to ensure effective uptake of the stormwater rate credit policies by property owners and another $1 million for a City initiative called Beyond the Landfill, Finding Better Uses for Stormwater Pond Sediments.

All of this funding recognizes Kitchener’s dedication to developing smart solutions to help protect our local water supply. The investment will go a long way in helping us continue the work that’s now underway in the areas of storm water management and innovative sediment treatments.  Pending the success of the trial study we’re conducting with the Region of Waterloo, it could lead to space savings in local landfills and a reduction in energy required to fertilize local soils.

To be sure, it hasn’t always been an easy path to follow, but in the end, it was the right thing to do.  And it’s nice to be recognized not just for the effort we put in, but that the idea itself is innovative and helps foster positive environmental action by our community.

By: Robert Roach, VP, Research

In an article in today’s Globe and Mail, John Ibbitson argues that "One question will define national politics in our time: Are Western Canadians prepared to sacrifice for the sake of the nation, now that Ontario is less able to help?"

In addition to incorrectly implying that western Canadians chipping in to help the rest of the country is a new phenomenon, the question is the wrong one to ask.

The question Canadians should be focused on is how to ensure that the nation successfully adjusts to the evolving global economy. It is a mistake to start with a negative question that assumes the need for "sacrifice"—whatever that means—or puts pressure on the nation’s fault lines by immediately assuming that regional wealth redistribution is the solution to central Canada’s problems. This is the old way of thinking and this is not the time to bring it back.

The West knows what it is like to have its interests and economic prospects ignored and how damaging this is to the country and its potential. It will not, therefore, make the same mistake that central Canada has made in the past and be blithe to the blight of the other regions.

The West gets it—all regions benefit when all regions are heard and respected. The West will do its part, as it always has.

Ensuring Canada’s prosperity will happen naturally as the western economy continues to provide jobs and returns on investment. It will also happen at the political level through the equalization program, a strong tax base in the West that helps fill the national treasury, and by ongoing efforts by Canadians to ensure strong regional representation within the national government.

Ultimately, however, the economic recovery of Canada's industrial heartland will depend on the efforts of individual Canadians and their ability to harness the changes happening at a global level.

By: Dr. Robert Skinner

Since 1957 when the Gordon Commission on Canada’s Economic Prospects identified the need for a comprehensive energy policy, the call for a national energy framework, strategy, plan, program or policy has recurred at least once a decade. Although the focus of these statements, the interests driving them and the political context and partisan balance varied (watch this space), all were triggered or influenced by events and pressures external to Canada. Meanwhile, Canada played a role in international institutional responses to global economic and energy developments. This experience offers lessons and even a template for crafting an energy strategy for Canada.

In 1992 after the fall of the Berlin Wall, the Breton Woods institutes, the Organization of Economic Cooperation and Development and the International Energy Agency (IEA) were besieged by delegations from the former Soviet Bloc ‘economies in transition’, seeking advice on how to shift from a centrally-planned to democratic, pluralistic, market-based economies.

IEA officials, when asked for energy policy advice, were loathe to dust off the agency’s only existing policy manifesto, the “12 Principles for Energy Policy” adopted by IEA energy ministers in October 1977 (at the annual Ministerial Meeting, chaired by the Canadian Energy Minister).

IEA Ministers in the seventies fervently believed that since oil prices were not market-driven, but subject to a foreign cartel, nonmarket response measures were justified. Not surprisingly, the 12 Principles had a Soviet Gosplan ring to them; hardly appropriate for newcomers to the market economy club! To paraphrase the Principles:

1. Reduce oil demand;
2. Environmental and safety concerns, yes, but ‘fast track’ approvals;
3. Let prices go up to encourage conservation and alternatives (but note, not to world prices—the Canadian chairman could hardly reside over anything that conflicted with Canada’s polices, especially its regulated oil price regime);
4. Promote and subsidize energy conservation and fuel substitution;
5. Progressive replacement of oil in power generation, district heating and industry;
6. Promote the use and trade of steam coal;
7. Reserve gas for premium uses—not for power generation;
8. Expand nuclear “as a main and indispensable, element in attaining the group objectives…”;
9. Spend more on energy R&D directed to near term impact, new fuels, renewable;
10. Provide a favorable investment climate, and increase flow of private and public capital to resource development, including incentives for exploration in offshore and frontier areas;
11. Develop plans to fill supply gaps—the IEA, surrounded by economists, was obsessed with supply ‘gaps’;
12. “Appropriate cooperation in energy” (this was code for dialogue with OPEC; appropriate” was code for, ‘Don’t breach US anti-trust laws’ by talking about price).

So, gingerly, the IEA Secretariat launched a dialogue among its member countries to ‘modernize’ what these industrialized countries thought should inform energy policies.  The word ‘principles’ was too sensitive or ambiguous for some cultures, so we settled on ‘Shared Goals’.

Getting agreement on a set of principles/goals to inform energy policies for (then) twenty three diverse countries was going to be a challenge given the context of 1991/92 when the project started: the end of managed economies (in Europe), a year after Operation Desert Storm (with all its lessons in price pass-through and the power of signaling the coordinated release of IEA strategic oil stocks), the first report of the Intergovernmental Panel on Climate Change had just been released, while Chernobyl still made the ‘N’ word awkward if not impossible for several delegations.

The first sentence of the Goals’ preamble is what energy policy aims to do:

The Member countries of the International Energy Agency (IEA) seek to create conditions in which the energy sectors of their economies can make the fullest possible contribution to sustainable economic development and to the well-being of their people and of the environment.

The second sentence reflected the core or fundamental starting point: “…the establishment of free and open markets is a fundamental point of departure”.

This was qualified with, “…though energy security and environmental protection need to be given particular emphasis by governments.”

Recognizing “the significance of increasing global interdependence in energy”, (this was before governments timorously deferred to energy ‘experts’ from Hollywood), the IEA countries sought “to promote the effective operation of international energy markets…”

To achieve their objectives, IEA countries aimed to create a policy framework consistent with the following ‘goals’ (but really ‘principles’).

Diversity, efficiency and flexibility within the energy sector are basic conditions for longer-term energy security: the fuels used within and across sectors and the sources of those fuels should be as diverse as practicable. Non-fossil fuels, particularly nuclear and hydro power, make a substantial contribution to the energy supply diversity of IEA countries as a group.

Energy systems should have the ability to respond promptly and flexibly to energy emergencies. In some cases this requires collective mechanisms and action: IEA countries co-operate through the Agency in responding jointly to oil supply emergencies.

The environmentally sustainable provision and use of energy are central to the achievement of these shared goals. Decision-makers should seek to minimise the adverse environmental impacts of energy activities, just as environmental decisions should take account of the energy consequences. Government interventions should respect the Polluter Pays Principle where practicable.

More environmentally acceptable energy sources need to be encouraged and developed. Clean and efficient use of fossil fuels is essential. The development of economic non-fossil sources is also a priority. A number of IEA member countries wish to retain and improve the nuclear option for the future, at the highest available safety standards, because nuclear energy does not emit carbon dioxide. Renewable sources will also have an increasingly important contribution to make.

Improved energy efficiency can promote both environmental protection and energy security in a cost-effective manner. There are significant opportunities for greater energy efficiency at all stages of the energy cycle from production to consumption. Strong efforts by governments and all energy users are needed to realise these opportunities.

Continued research, development and market deployment of new and improved energy technologies make a critical contribution to achieving the objectives outlined above. Energy technology policies should complement broader energy policies. International co-operation in the development and dissemination of energy technologies, including industry participation and co-operation with non-Member countries, should be encouraged.

Undistorted energy prices enable markets to work efficiently. Energy prices should not be held artificially below the costs of supply to promote social or industrial goals. To the extent necessary and practicable, the environmental costs of energy production and use should be reflected in prices.

Free and open trade and a secure framework for investment contribute to efficient energy markets and energy security. Distortions to energy trade and investment should be avoided.

Co-operation among all energy market participants helps to improve information and understanding, and encourages the development of efficient, environmentally acceptable and flexible energy systems and markets worldwide. These are needed to help promote the investment, trade and confidence necessary to achieve global energy security and environmental objectives.

The “Shared Goals” were eventually adopted by IEA Ministers at their June 4^th, 1993 meeting in Paris.

Canada’s official energy policy is broadly grounded in these Shared Goals and above all the starting point of “free and open markets”.   Yes, these Goals are written in ‘international agency bafflegab’ but this is inevitable in representing a diversity of interests and jurisdictions.  And is ‘representing diversity’ not the perennial challenge for Canadian policy-makers?  There are lessons in these goals; not only in terms of what they say, but in how they were produced and in how they continue to be used by the IEA and its member countries.

Dr. Robert Skinner

Dr. Robert Skinner is an independent strategy advisor and consultant in Calgary. His career in Energy spans four decades in government, industry and academia.  He is currently advising the Canada School of Energy and Environment on its strategy and research programs.

He is formerly Senior Vice President Statoil Canada Ltd, former Director of the Oxford Institute of Energy Studies in Oxford, England, Administrator, Northern Pipeline Agency, Vice President, Total E&P Canada and Senior Advisor, gas and power, Total, Paris, Director of the Long Term Office of the International Energy Agency, Paris (where he led the agency’s work on Climate Change and the drafting and negotiation of its Shared Goals), Assistant Deputy Minister, Energy Commodities, Energy, Mines & Resources (now Natural Resources Canada), and before that, Director General of EMR’s Natural Gas Branch, Director General of Oil Prices and Compensation Branch, Senior Advisor Oil Import Strategy, the first Director of EMR’s Office of Environmental Affairs, Science Policy Advisor, Department of External Affairs and Research Scientist, Geological Survey of Canada (GSC) where he developed techniques for the exploration of base metals and diamonds. He did his doctoral research in the late sixties for the GSC on ancient climate change in the James Bay Lowlands.

Bob is the author of numerous papers, articles and lectures, contributor to books and studies on energy, geopolitics and policy.   He is a Senior Research Advisor to the Oxford Institute for Energy Studies, Associate Fellow of Chatham House, past Academic Advisor on Energy and Sustainable Development to the Club of Madrid, former external faculty of Vienna University’s Executive Academy Exec MBA in Energy Management, member of the Bertelsmann Foundation’s Global Policy Council, occasional external editor for Abu Dhabi’s Emirates Centre for Strategic Studies & Research,  member of Editorial Board ofGeopolitics of Energy, and has been a consultant and advisor to industry and governments in Europe, Asia and Latin America.

Dr Skinner has advanced degrees in geology from Queen’s University (BSc, 1968) and the University of Washington, Seattle (PhD, 1971).