Canadian Resource Caution or Complacency?

“There is a fine line separating caution from complacency when it comes to Canadian attitudes toward energy and resource development.”

As the characters David St. Hubbins and Nigel Tufnel observe in the movie This is Spinal Tap1, there is a fine line between stupid and clever. And there is an equally fine line separating caution from complacency when it comes to Canadian attitudes toward energy and resource development.

Last year a Nanos poll2 found that Canadians strongly supported the energy economy, but “presented with the choice, protecting the environment at a cost of slower growth was more important than creating jobs even if the environment suffered by a margin of more than 2-to-1.” Prudent Canadian caution at first glance, but underlying the caution is an assumption: that resources can be developed eventually anyway. Like funds in a savings account, they are “banked” and nothing is lost by waiting until later to develop resources.

That fails to account for the dynamics of commodity markets, however. Prices fluctuate, and a project that is commercially viable in a high price environment can become a money pit when prices fall. In global markets, projects that move ahead in other countries can beat Canada to market, and lower global prices with new supply. Given the long lead times for resource project planning, permitting and construction, delays springing from caution sometimes result in missed opportunities.

Not always, of course, and this is why caution usually wins the day in Canada.

Environmental activist Andrew Nikiforuk’s book, Tar Sands: Dirty Oil and the Future of a Continent3, has an amusing obsession with a report written by the Hudson Institute’s founder, Herman Kahn4, in 1979 for the federal government. Kahn advised the Trudeau government to take advantage of the high prices generated by the Iranian revolution to accelerate the development of Canadian oil sands.

“Offshore, Canada’s Artic oil was once seen as the next energy frontier.”

“Offshore, Canada’s Artic oil was once seen as the next energy frontier.”

Instead, Trudeau introduced the National Energy Policy.

This caution was evident in the debate over Arctic oil and gas. In 1975, a federal commission of enquiry chaired by Thomas Berger was established to study the impact of a natural gas pipeline through the Mackenzie Valley5 to connect potential Arctic gas fields with northern Alberta. The commission recommended against development until aboriginal land claims could be settled. In 2011, the Canol Shale play attracted the interest of major energy firms from the United States and elsewhere, and Canada’s National Energy Board approved the 1,200 kilometer Mackenzie Valley pipeline project because aboriginal land claims had since been settled. Yet in 2014, energy firms began abandoning their interest in Canol shale.

Offshore, Canada’s Artic oil6 was once seen as the next energy frontier. Again, Artic oil drew the attention of major oil companies who worked to overcome the challenges of operating in the Arctic. Environmentalists protested, and called for a moratorium on Arctic energy development. A larger issue was an unresolved boundary dispute7 between Canada and the United States in the Beaufort Sea. Despite ongoing cooperation in the Arctic Council, the United States and Canada have not resolved this dispute to date, and today’s low oil prices have led the companies interested in the region to abandon plans and move equipment out of the region.

Hydraulic fracturing technology has been around for some time, but its expanded use in natural gas and tight oil extraction has triggered a cautious response from policymakers as well as citizens. Allan Ingelson and Tina Hunter at the University of Calgary compared regulatory frameworks in Australia, Canada and the United States in an article8 published in the Natural Resources Journal in 2014. They note that the United States developed unconventional gas deposits first in Texas, and federal and state policymakers moved to establish standards for this activity that quickly expanded to other states. In Canada, federal and provincial standards set in British Columbia, Alberta and New Brunswick allowed Canadian shale oil and gas to be developed, but other provinces cautiously have not acted.

In each of these examples, a reasonable person could judge the Canadian response as prudent, even at the risk of missing an optimal window for bringing a resource to market from the price perspective.

“There is a complacency hazard because the average Canadian weighs the risk of resource development against the indirect benefit of economic growth.”

“There is a complacency hazard because the average Canadian weighs the risk of resource development against the indirect benefit of economic growth.”

Yet there is a complacency hazard because the average Canadian weighs the risk of resource development against the indirect benefit of economic growth that might reach them personally. And in most cases, such risks will always outweigh benefits. Canadians, as the Nano poll suggests, prefer doing nothing as the safest choice, confident that the resources are there when needed.

Meanwhile, countries like the United States, Russia, China and Mexico race ahead to develop their resources and the infrastructure needed to bring them to market. Commodity prices fall as global supply rises, and Canadian projects stay on the drawing board.

It used to be easier to resolve this dilemma in Canada. Ottawa or provincial governments would step in, weigh the costs and benefits for the community as a whole – not just for individuals. If governments saw a net benefit, would approve projects and compensate those who lost in the process, and fund environmental monitoring and remediation if needed.

“Now in Canada, aboriginal leaders can assert a veto right over resource and energy projects that affect lands to which they have a historic claim.”

“Now in Canada, aboriginal leaders can assert a veto right over resource and energy projects that affect lands to which they have a historic claim.”

But a new conceptualization of “social license” was touted in which citizens, and not their representatives, were called upon to assent or dissent to projects. Government approvals were challenged by activists and minority groups as illegitimate. Nothing should proceed until we all agreed.

Then in 2014, the Supreme Court of Canada added a twist with their verdict in the Tsilqhot’in Nation9 case. Now in Canada, aboriginal leaders can assert a veto right over resource and energy projects that affect lands to which they have a historic claim.

“Given the long lead times for resource project planning, permitting and construction, delays springing from caution sometimes result in missed opportunities.”

Which brings us to what may be the very line between caution and complacency in Canadian energy and resource development after which future projects may languish and Canada’s energy and resource potential is diminished as new rivals reach global markets first.

Future Canadians may look back on this moment as the time when Canada crossed the line from clever to stupid.

Christopher Sands is Senior Research Professor and Director of the Center for Canadian Studies at the Johns Hopkins University School of Advanced International Studies and a Senior Fellow of the Hudson Institute in Washington, D.C. He also holds the G. Robert Ross Chair in the College of Business and Economics at Western Washington University.

  1. This is Spinal Tap, online: <https://www.youtube.com/watch?v=juRLXEf4IyE>.
  2. Nanos poll of Canadian attitudes on energy: online <http://www.ivey.uwo.ca/cmsmedia/1431034/ivey-u-ottawa-nanos-survey-for-positive-energy-conference-march-2015.pdf>.
  3. Tar Sands: Dirty Oil and the Future of a Continent, Revised and Updated Edition: online <http://www.amazon.com/Tar-Sands-Continent-Revised-Updated/dp/1553655559>.
  4. Hudson Institute’s founder, Herman Kahn: online <http://www.hudson.org/experts/174-herman-kahn>.
  5. Mackenzie Valley pipeline timeline: online <http://www.thestar.com/news/insight/2014/09/28/norman_wells_1982.html>.
  6. Arctic oil: online <http://www.cbc.ca/news/business/oil-arctic-drilling-shell-1.3248233>.
  7. Unresolved boundary dispute: online <http://www.bbc.com/news/world-us-canada-10834006>.
  8. Natural Resource Law Journal: online <http://lawschool.unm.edu/NRJ/volumes/54/2/NRJ-54-2-Ingelson-Hunter.pdf>.
  9. Tsilqhot’in Nation case: online <http://www.theglobeandmail.com/news/national/supreme-court-expands-aboriginal-title-rights-in-unanimous-ruling/article19347252/>.