Prime Minister Mark Carney delivers remarks at a Board of Trade breakfast in Vancouver on Wednesday.ETHAN CAIRNS/The Canadian Press
In its 2024 election manifesto, Britain’s Labour Party promised that, if it formed government, “we will not issue new licences” to find or develop new oil and gas fields. The party won the election while pledging a steady decline in North Sea oil production.
Earlier this month, in the King’s Speech – their version of the Speech from the Throne – Prime Minister Keir Starmer announced his intention to pass a bill imposing the promised ban on oil and gas exploration.
Also this month, his government announced that, in a bid to keep a lid on high fuel prices – and because the less you produce at home, the more you must buy abroad – Britain will water down planned sanctions on imported Russian gas and oil.
Canada, do you want to be Britain? Or rather: Canada, do you still want to be Britain?
Between 2015 and 2025, that’s what Canada was shooting for – less transparently than the Brits, but on a far larger scale. For the past year, Ottawa finally has started aiming for the reverse, though the sensibilities of progressive voters prevent Prime Minister Mark Carney from saying so too loudly or clearly.
The Carney government wants to attract massively more private investment into the oil patch, in the hope of raising Canadian oil and gas production and exports. That would deliver a huge economic boost: hundreds of billions of dollars of private investment, tens of billions of dollars in tax revenues and royalties and tens of thousands of jobs.
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The memorandum of understanding with Alberta has a one-million-barrel-a day pipeline to the Pacific as its centrepiece. Our punditocracy tends to talk about this as a political strategy to mollify Albertans and maybe win the Liberals some seats in the province. But as a political strategy, it’s very risky. There’s limited political upside and enormous potential downside.
As an economic strategy, though, it’s an absolute no-brainer. It’s all upside.
To boost Canadian economic growth, we have to increase business investment in Canada. The one large, capital-intensive industry where we have an insurmountable competitive advantage is oil and gas.
Attracting investment in other areas is difficult and uncertain – see, for example, battery-electric vehicles. In oil and gas, in contrast, we’ve had to work at discouraging investment. We have the world’s third-largest oil reserves, and among the largest gas reserves. We’re to oil and gas what Florida is to oranges.
A new pipeline to the Pacific is the chicken in our chicken-and-egg problem. Without the certainty that there will be more pipe, nobody will ever invest in producing more oil.
A reluctance to invest in the oil patch is what our previous collection of policies achieved. Canada enjoyed a boom in oil sands investment in the early 21st century, but as the last round of developments came onstream, there was more oil than pipeline capacity – and an effective ban on building new capacity.
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Canadian policy made it impossible to send more oil to the coasts, while two American presidents from the Democratic Party gave cover to the massive expansion of their oil and gas industry by scapegoating a single Canadian pipeline, Keystone XL. It turned Canada from one of the most logical places for oil and gas investment into one of the most risky.
Mr. Carney has laid out a grand bargain, in which Ottawa promises to push a Pacific pipeline through its overgrown regulatory garden, in return for Alberta imposing significant carbon pricing and industry agreeing to invest heavily in carbon capture and storage. The new emission targets are less strict than they were under the Trudeau government – but more onerous than anything faced by the oil and gas industry on the rest of the planet.
The promise of low-carbon oil production is probably a political necessity. Without it, the Liberal electoral coalition could fall apart.
But the more costly we make our carbon rules, the less incentive there is for oil and gas investors to build in Canada. Industry in most of the rest of the world isn’t subject to carbon pricing. Oil is a commodity, and we are placing costs on our commodity producers that are not borne by competitors in countries from Saudi Arabia to Russia to China to the United States.
Mr. Carney’s economic imperatives are pointing in one direction, while a large part of his political coalition pulls in the other. The latter direction is the road that Mr. Starmer is following in Britain.
Can Mr. Carney get a pipeline built and attract hundreds of billions of dollars in investment in new oil sands production while holding on to progressive voters? It won’t be easy.