When the domestic economy is running relatively smoothly and employment figures are at an acceptable level, the price of energy is overlooked. As a result it often ends up on the back burner of political discourse.
In tough times, however, energy policy and the price at the pumps become part of the national debate.
In the United States, attaining energy independence from unfriendly foreign sources is a key goal, said President Barack Obama in March 2012: “We can’t have an energy strategy for the last century that traps us in the past. We need an energy strategy for the future — an all-of-the-above strategy for the 21st century that develops every source of American-made energy.”
And yet, sources such as the International Energy Agency, say the U.S. is on track to become the world’s largest oil producer by 2020 and energy independent 10 years later. But the way to independence is not without controversy.
Take fracking away, Dan Kish, senior vice president of policy for the Institute for Energy Research is reported as saying, “the oil and gas production drops. They [policymakers] also always seek to drive up the costs of activities so as to make them uneconomic, and there is no shortage of levers they use for that. Since the myth of energy scarcity is their justification for federal programs … this doesn’t fit the agenda. They will fight it by trying to scare people.”
In Canada, the policy debate has less to do with energy independence and more to do with foreign ownership and how best to distribute the natural resources it already has elsewhere — realizing that the U.S is its largest trading partner. Canada’s policies reflect, perhaps, a broader global perspective.
So how do the two nations view their energy policies and what factors temper the debate on either side of the border? Is there a common ground?
Regional vs. Region
In the U.S., policy has evolved over the last four decades. “Energy policy and politics, for many years, was a regional issue in the U.S., in terms of roll call voting in the House of Representatives and the Senate,” says Robert Stavins, Albert Pratt professor of Business and Government at the Harvard Kennedy School of Government, who further notes that the regional voting pattern of lawmakers goes as far back as the 1960s and continued up to the late 1990s. “Those regional lines were sometimes coal states versus non-coal states or urban versus rural,” he says.
However, the pattern changed in the late 1990s and into the 2000s when voting shifted to a more partisan stance rather than regional. Stavins notes that this was not exclusive to energy policy but permeated voting on issues such as international trade. In the earlier era, he adds, voting reflected the economic interests of members and their districts or states, whereas now it has more to do with ideology and how best to represent the ideology of voters. “That’s the major change that has taken place and that’s what affects voting behavior more than anything else.”
A stark example of this, he says, can be seen with the passing of the Clean Air Act in 1990. The bill passed 89 to 11 in the Senate with 87 percent of Republicans and 91 percent of Democrats voting in favor. The House passed it 421 to 21 with 87 percent Republican and 96 percent Democratic support, indicating little party differences.
By 2009, voting patterns were very different with regard to the American Clean Energy and Security Act. In the House, the bill narrowly passed (219 to 212), with 83 percent of Democrats voting in favor and just four percent of Republicans. “Those changes over time have less to do with energy and the environment and more to do with an increasing polarization in the Congress and in the country to some degree,” says Stavins. Still, the energy policy caught in that divide is unlikely to change any time soon.
Also, the attitude toward North American free trade has changed since the late 1980s and early 1990s when the Canada-U.S. Free Trade Agreement and later NAFTA [North American Free Trade Agreement] were adopted. “The American public thought NAFTA was stealing their jobs,” says David Emerson, Canadian Federal Minister of Industry between 2004 and 2006 and the International Trade Minister from 2006 to 2008. “We went from a period of where a North American concept was starting to emerge that could have expanded but suddenly became a no-no because the American public saw NAFTA as a threat.”
In Canada, the parliamentary system makes things a little different. Members of Parliament generally vote the party line and with a majority Conservative government, energy policy can take a more cohesive shape (even if there is internal strife within the party).
For example, late in 2012, the Canadian government approved the $15 billion takeover of oil and gas producer Nexen Energy in Alberta by China’s CNOOC Ltd. The move made headlines but was approved with relative ease by the government. Notably, the day the deal was announced the government said that similar takeover bids by “state-owned enterprises” for Canadian oil-sands businesses would be approved only in exceptional circumstances.
So while U.S. lawmakers used to concern themselves with regions and state needs but have turned partisan, Canadian lawmakers are more inclined to look at the issue of sovereignty and foreign ownership. “We have to make sure there is a level playing field [between state-owned and private enterprise] so we can equate the two,” says Dan Gagnier, president of the Energy Policy Institute of Canada. “So what the government is saying is ‘yes we want direct investment but we want to make sure the conditions under which they are made are equitable,” he adds.
Keystone ‘Cops’
Generally, the U.S. is not threatened by Canadian companies, especially those wanting to provide energy. However, the Keystone XL pipeline is a recent example where politics played a crucial role in the postponing or halting the project. Simply, the pipeline (to be built by Canada’s TransCanada Corp.) was meant to send oil-sands bitumen from Alberta to the Gulf Coast. This would open up markets to Canadian oil and increase distribution. The decision by the Obama administration to reject the application was brought on by protestors and lobbyists demanding the president look at the pipeline’s environmental impact, and some argue, a decision to tie the 60-day deadline to a payroll tax bill last year.
Election 2012 may have had something to do with it, as well as forcing the president’s hand on environmental issues may have also been part of the motive. Still, in the wake of Hurricane Sandy and pressure from environmentalists, projects like Keystone are still being held up because of political jockeying.
In a new development — in January 2013 — Nebraska Gov. Dave Heinman, a Republican, endorsed a revised route through his state, removing a final hurdle for the $5 billion project on the state level. And governors and congressional delegations from the four other states it crosses have already pressed for federal government approval, reports Devin Dwyer of ABC News online.
So, now the fate of the project rests squarely with the Obama administration.
The politics of left versus right and environmentalism have created deadlocks that are really hurting the kinds of infrastructure needed, adds Emerson. He says that over the past decade, Canada has been more interested in North American partnerships whereas the U.S. has encouraged greater protectionism in its policy decisions.
However, with protectionism having grown somewhat and a diverging view on a North-South partnership, there are still reasons to find common ground. “On environmental and energy policy, Canadian administrations tend to follow the U.S. We are each other’s most important trading partner so it is important to have regulatory policy frameworks that make for a level playing field,” says Harvard’s Stavins.
Gagnier agrees and says Canada and the U.S. want the same things. “We have a lot more pulling us together than dividing us.” He also states a practical view: “We can argue over the fact of how we want to do it, but what we can’t argue about is having a secure, reliable supply of energy.”
What is clear, at least in the U.S., is that the largest immediate issues remain economic and social. The partnership the U.S. and Canada enjoy today is not in jeopardy and Canada will continue to provide oil to the U.S.
Politics will likely continue to surface in the energy debate — particularly when it can be used as leverage or to win votes. In the meantime, good ideas for both nations (like Keystone, for example) that may get overshadowed could resurface if the debates re-focus on partnerships rather than politics.
This article first appeared in the March 2013 issue of Financial Executive magazine.