Canada West Foundation Blog

Two new publications released by the Canada West Foundation examine the current and future state of Canada’s water supply and the impact that market-based instruments in water resources management have on policy innovation.
 
Charging for Water Use in Canada: A Workbook of the Central Principles, Key Questions, and Initial Steps provides a workbook that outlines the questions policymakers must answer in order to build a comprehensive water system from interviews of 42 water policy experts in Australia, Canada and the United States.

Our Water and NAFTA: Implications for the Use of Market-Based Instruments for Water Resources Management determines whether using market-based instruments as a solution for water allocation will impact Canada’s participation in the North American Free Trade Agreement.

“Canadians are some of the heaviest users of water in the world and we also pay some of the lowest prices for that water. Yet, the nation’s current supply of clean and safe freshwater is not guaranteed given the prospect of climate change and our critical water and wastewater infrastructure in many areas of the country is in a clear state of disrepair,” noted Vander Ploeg. “More rational and appropriate pricing strategies for water are one way to resolve some of these concerns.”

Canada’s water supports diverse and significant ecosystems, is essential to almost all aspects of the economy and has great social and cultural significance. With that said, global trends including climate change, population growth and urbanization are creating apprehension about the future of one of our greatest resources. By creating a comprehensive framework for water management, we will be able to successfully manage coming stresses and strains on Canada’s water supply.

Download Charging for Water Use in Canada: A Workbook of the Central Principles, Key Questions, and Initial Steps or Our Water and NAFTA: Implications for the Use of Market-Based Instruments for Water Resources Management.

By: Dr. Roger Gibbins

When the federal, provincial and territorial energy ministers met over the last two days in Kananaskis, Alberta, they faced a surprisingly vocal and concerted call by industry associations, environmental groups, think tanks, editorial commentators and even some of their own members for a Canadian energy strategy.

But, when the ink finally dried on the official communiqué, there was no mention of a Canadian energy strategy, only much softer language around a “collaborative approach” to energy.

As one voice in the chorus calling for the creation of a Canadian energy strategy, I was initially disappointed that the energy ministers had pulled up short. However, the documents released by the ministers outlined a shared vision for greater pan-Canadian collaboration, a guiding set of principles, a comprehensive list of key objectives, and action plans.

In short, most of the components of a Canadian energy strategy are there, albeit clothed in the language of “collaboration.” The ministers have set the stage for an expanded national conversation on energy policy, which is precisely what the advocates of a Canadian energy strategy had hoped to achieve.

To adopt the old cliché, if it walks like a duck...it is probably a duck, or in this case, a Canadian energy strategy. The ministers have delivered, and should be forgiven the awkward language that the realities of Canadian federalism impose on any policy debate. The fact is there is a consensus that a collaborative, pan-Canadian approach to energy should be achieved and although the words may be more subdued, it still sounds like a Canadian energy strategy to me. Good progress has been made.

Read the 2011 Energy Communiqué.
Visit the 2011 Energy and Mines Ministers' Conference page.

Dr. Roger Gibbins is President & CEO of the Canada West Foundation and attended the Energy Ministers’ Meeting in Kananaskis.

The latest research released by the Canada West Foundation delves into the world of natural gas, explaining its economic benefits for Canada over the past 50 years, and its value as a foundational fuel for our energy systems going forward. Sound policy decisions will ensure that natural gas continues to be a cost effective and stable energy alternative as we move toward a carbon reduced future. 

Seismic Shifts: The Changing World of Natural Gas by Michael Cleland, Nexen Executive-in-Residence, examines the future of natural gas from the perspective of both consumers and producers. Natural Gas accounts for about one-quarter of Canadian energy end use as well as a growing share of fuel for power generation. Seismic Shifts concludes that natural gas is not a “bridging” fuel, but rather a stable foundational fuel that will remain a part of the energy mix in the future.

“Although the energy landscape in Canada is shifting with new technologies and resources, the future of natural gas is extremely positive for consumers. Lower costs underpin the competiveness of the Canadian economy, and in addition to being affordable, natural gas is abundant and reliable and can significantly reduce the environmental impact of the energy system,” author Michael Cleland explains. “While the producer’s perspective is less optimistic, Canada needs to look at both internal policies and Asian export opportunities to remain in the game.”

The Seismic Shifts paper outlines several policy directions that need to be discussed when outlining future policies that deal with this resource.

“Natural gas is abundant, has relatively low emissions and may be the only part of the energy system not facing increasing commodity costs in the coming decade,” said Cleland. “It is a natural foundation fuel in an increasingly carbon constrained world.”

Since the policy foundations for natural gas were laid in the mid-1980s, supply sources, markets, environmental imperatives and technologies have changed. Up to this point, Canada has benefited from a successful natural gas industry, and with some refining and additions to existing policies, has the ability to succeed in the future.

This report is part of the Canada West Foundation’s Powering Up for the Future Project, which focuses on public policy challenges at the interface of the economy, the environment and energy.

To download Seismic Shifts: The Changing World of Natural Gas, click here.

By: Gil McGowan

Suddenly, everybody’s talking about a national energy strategy.

Whether it’s the head of Shell Canada, the Alberta Energy Minister, federal political leaders, editorials in the media or environmental groups, there’s recognition of the need for a real plan to develop our resources.

The Alberta Federation of Labour has been saying this for some time. While it is gratifying that a wide range of others now recognize the need, it is more important than ever for the voice of labour to be heard. Now that the conversation has begun on what kind of energy strategy is required, we must act quickly to ensure that our views are taken into consideration.

Without labour’s involvement, Alberta and Canada could end up with an energy plan devised to allow corporations to make maximum profit, while doing as little as possible to improve environmental standards, and without a map for how the province can make the transition from fossil fuels to clean energy.

Alberta must find a way to meet the demand for our resources in an environmentally sustainable way, while creating jobs for Alberta workers today and building a bridge to a future where we are global leaders in renewable energy and where our children and grandchildren can work in well paid and secure jobs.

We must also ensure that the province collects a fair share of revenue from selling these finite and transitional resources—which belong to the citizens of Alberta—so that we can afford to pay for the vital services that keep our communities alive.

Growing interest in Alberta’s oil sands provides us an opportunity to do all this—and more. We can build a cleaner future, improve government revenue, provide more stable public services—and we can grow the labour movement, too. Unions have a better a chance to organize in the energy sector than they have seen for many years.

These challenges must be met, these opportunities must be taken. The time to act is now.

This article was originally published in the May 2011 issue of Union Magazine, which is produced by the Alberta Federation of Labour. You can view the full energy themed issue here.

Gil McGowan

Gil McGowan was recently re-elected to his fourth term as president of the Alberta Federation of Labour (AFL), Alberta’s largest union organization, representing more than 145,000 workers in both the public and private sectors.

Raised in rural north-central Alberta, McGowan received degrees from both the University of Alberta in Edmonton (Bachelor of Arts in History) and Carleton University in Ottawa (Master of Journalism) before embarking on a career in journalism.

McGowan then worked for the Alberta labour movement as a researcher, communications officer and community organizer for a decade before being first elected as AFL president in 2005.

As a union staff member and communications coordinator for the group Friends of Medicare, McGowan helped lead the broad public opposition to privatization in Alberta’s health care system.

As president of the AFL, McGowan has presided over the substantial growth of his organization and has been instrumental in putting many important issues on the agenda for public discussion in Alberta, including workplace safety, the use (and abuse) of temporary foreign workers and the loss of jobs due to the increasing export of raw bitumen (as opposed to creating value-added jobs in the province by doing the upgrading and refining here).

McGowan is the author of several award-winning studies on the Alberta economy including Crumbs from the Table, Missing Out on the Boom and Lost Down the Pipeline. He appears regularly in the Alberta media as a spokesperson for labour issues and is a frequent author of guest columns in Alberta’s major newspapers.

McGowan is a member of the Communication, Energy and Paperworkers Union (CEP) Local 445. He lives in Edmonton with his wife and three children.

By: Nancy Olewiler

If you took a poll of Canadians and asked: “Is it better to use subsidies or taxes to stimulate investment in clean energy technologies and reduce pollution from energy production?”, my expectation is that a majority would say—subsidies. Yet in theory, they should work identically—if they are set at the same level. Both policies should raise the cost of using pollution-intensive technologies. Using the example of electricity generation, the tax works as follows. For each kilowatt hour (kWh) of electricity produced using a technology that emits air contaminants and greenhouse gases, the producer pays a tax of say, 2 cents. If that same producer were to generate electricity using a technology that emits no contaminants, they would receive a payment of 2 cents for each kWh produced. The opportunity cost of the tax and subsidy are identical. “Dirty” generation pays 2 cents per kWh if there is no change in technology or foregoes the opportunity to receive 2 cents. Same goes for the “clean” producer: it gains 2 cents/kWh and doesn’t have to pay the tax. Thus, on the margin, for each kWh generated, the policies should have the same effect.

The trouble is, they don’t have the same effect when looking beyond the marginal impacts on individual producers. Taxes generate revenue; subsidies require governments to increase taxes, reduce expenditures on other programs, or increase debt to pay for them. What about raising taxes? Unless the tax is non-distortionary, an example is a head tax—you cannot avoid it except by leaving the country. For every dollar of a subsidy granted, there is what economists call a ‘dead weight loss’ to the economy. This is the inefficiency that is created from taxes that change the relative prices of inputs or outputs. For example, income or payroll taxes distort the choice between work and leisure for the household or between using capital and labour for firms. What about diverting funds from other government programs to energy subsidies? People might be happier because it doesn’t imply any new taxes, but less happy about the loss of say, money for health care or kids’ education. You’d have to argue that subsidizing energy  is more in the public’s interest than hiring more teachers or doctors. This could be the case, but this question is rarely asked of the public in quite the same way. Do you want energy subsidies to eat your health care or education or—pick your program’s—lunch? What about increasing public sector debt? That mortgages future generations—our children and grandchildren have to pay higher taxes or have fewer public services. They may benefit from cleaner energy production, but at what price?

Subsidies to the energy economy take many forms and can be granted to producers or consumers, but all of them generate costs to society that can result in the public paying a lot more to reduce emissions. These costs includes over $300 billion a year in subsidies to ethanol and biodiesel fuels which translate into amounts of between 30 and 90 cents per litre of fuel. Subsidies to renewables such as wind allow them to ‘compete’ with fossil fuels, but a carbon tax would do the same thing more efficiently. Consumers face electricity prices that are lower than high cost of new renewables because prices reflect the average cost of historical sources of generation plus the new sources, which at present are a small share of the total. There is little incentive for consumers to reduce their electricity use, putting more pressure on the system to add capacity, and that capacity is the high cost (and subsidized) renewable. The investment in renewables may help bring their average costs down over time, but the ‘playing field’ could be levelled with environmental taxes instead of subsidies, and we’d mortgage less of our kids’ future.

Federal and provincial subsidies to the major oil producing provinces: Alberta, Saskatchewan, and Newfoundland/Labrador (who represent 97% of Canada’s oil production) cost governments $2.8 billion per year [1].  This is $2.8 billion that could have funded better child care, more parks, or left more money in our and our kid’s pockets. What about the argument that these subsidies benefit the economy by stimulating investment and employment? Sawyer and Stiebert [2] estimate what happens if all subsidies are removed—the subsidies have no effect on aggregate Canadian GDP or employment. Looking at 2020, Alberta’s GDP is higher with the subsidies than without, but even without subsidies, output from oil production would grow over time. Oil subsidies reduce government balances (i.e., bigger deficits or smaller surpluses) by 1% for the federal government, 5% for Alberta. The subsidies stimulate oil production, thus emissions of GHGs also are 2% per year higher than they would be without the subsidy. Looking to the future, what is most concerning is that if these subsidies remain, increased output of oil will double the subsidy to this sector as a share of government revenue. In other words, oil subsidies will eat more and more of everyone’s lunch over the next 10 years. Adding in all the renewable energy subsidies would create well over an annual $3 billion hit to the budgets of governments.

Do we have a choice? Can we stimulate the production of energy from clean sources without falling into the subsidy trap? Sure. Tax the pollution-intensive energy production and remove the subsidies. A tax on a polluting activity improves the efficiency of the economy by changing relative prices, making it more expensive to generate the energy with a pollution-intensive fuel than a less pollution-intensive means, and provides the incentive to producers and consumers to invest in cleaner technologies and reduce emission-intensive energy use. Taxes generate revenue; they don’t require it. What to do with the tax revenue? If governments don’t want to increase the size of the public sector, they can return the tax revenue to the economy. This is exactly what British Columbia’s carbon tax does. The revenue from the carbon tax is recycled in the form of lower personal and corporate income tax rates, plus transfers to those least able to adjust their consumption of GHGs (low income and rural folks, farmers). The net effect of the tax can thus be doubly beneficial—the tax creates incentives to reduce pollution and the use of tax revenues to lower distorting taxes improves economic efficiency and people’s well being.

Do we want to sustain inefficient energy subsidies that worsen the fiscal balance, particularly now when governments are trying to eliminate deficits? Or, should we tell our governments to phase out energy subsidies and create incentives for cleaner energy by taxing emissions? Our kids might want to be consulted about this before energy subsidies eat their whole lunch.

1. Dave Sawyer and Seton Stiebert (2010) “Fossil Fuels – At What Cost? Government support for upstream oil activities in three Canadian provinces: Alberta, Saskatchewan, and Newfoundland and Labrador”, Global Subsidies Initiative for International Institute for Sustainable Development.
2. Ibid.

Nancy Olewiler

Nancy Olewiler is a Professor of Public Policy and the Director of the School of Public Policy, Simon Fraser University.  She is Chair of the Board of Directors of TransLink and on the board of BC Hydro’s subsidiary, Powertech.

Prior to joining the Economics department at SFU in 1990, she was a professor in the Economics Department at Queen’s University.  From 1990 to 1995 she was Managing Editor of Canadian Public Policy. Ms. Olewiler has a PhD is in economics with a specialization in Resource and Environmental Economics from the University of British Columbia.  Nancy’s areas of research include natural resource economics including energy and environmental policy.

Nancy has published in academic journals, edited books, has written two widely used textbooks (The Economics of Natural Resource Use andEnvironmental Economics), and produced numerous reports for the Canadian federal and provincial governments on a wide range of environmental and natural resource issues, including studies in the energy field and federal business tax policy.