In the aggregate, Canada’s real Gross Domestic Product per capita has fallen. There is, however, one industry that has managed to grow: Energy. Every developed economy has a need for fuel. It is this ubiquitous demand for energy that has allowed for successful growth in a country that continues to face economic challenges in key industries. Canada’s natural gas sector has recently been invigorated by the completion of the Trans-Mountain pipeline. This recent development has the potential to project Canada into becoming a crucial player in the global energy market, even as concerns over the long-term efficacy and morality of the fossil fuel industry loom over the minds of Canadians.
Growth in the Canadian energy sector from fossil fuels may seem a little perplexing for it contradicts Ottawa’s policy directions regarding natural gas. Indeed, oil and gas is a heavily subsidized sector of the Canadian economy, creating a surplus of oil production above market-equilibrium levels. However, the government also engages in measures that reduce natural gas consumption, most prominently, the carbon tax. The current government has focused many of its policy efforts on combating climate change. The Liberals frequently use rhetoric on climate change as a means to attack both the New Democratic Party and the Conservative Party. Prime Minister Justin Trudeau has even stated that other parties’ plans are “magic thoughts” compared to the Liberal plan. The incumbent government is in an awkward position: on the one hand, the NDP is claiming that the Liberals are not doing nearly enough to fight climate change, while on the other, the Conservatives are claiming that the Liberals are increasing the cost of living through measures like the carbon tax.
The Pipeline Expansion
The expansion of the Trans-Mountain pipeline is yet another example of an attempt to strike a balance between energy production and environmental goals in Canada’s increasingly syncretic energy policy. After years of delays due to environmental groups and Indigenous rights organizations, the Liberal government purchased the Trans-Mountain pipeline project from Kinder-Morgan, who had previously discontinued its construction. The Canadian government spent 4.5 billion dollars on the purchase of the project. The acquisition was controversial among economists, several of whom questioned whether the government buy-out of the Kinder-Morgan pipeline was a fiscally responsible decision. The government has now spent 34 billion dollars on the construction of the pipeline expansion, well above the initial anticipated cost. Still, despite all roadblocks, the pipeline is now complete and has delivered on its promise to nearly triple Canada’s oil exporting capacity.
The International Market
The pipeline creates potential challenges for Canada on the global stage. Almost all of Canada’s current oil is sold to the United States. Due in part to a lack of export infrastructure, Canadian firms have had no choice but to sell to American consumers, providing American firms with a cheap and reliable stream of oil. The expanded capacity of the pipeline and distribution infrastructure provides access to the Pacific ocean. This, in turn, will allow Canadian oil producers to export oil to markets across the world. With American firms no longer able to leverage their status as the only buyers of Canadian oil, supply from Canadian producers will fall and prices will rise. Oil is a key factor of production, and an increase in its price could contribute to supply side inflation in the United States. With price inflation already being a major concern in the American zeitgeist, particularly during the most recent election, more money spent at the gas pumps could deteriorate consumer confidence, among other economic effects.
Long Term Efficacy
It is no secret that the success of the Trans-Mountain pipeline depends heavily on a constant demand for oil. While developing economies will no doubt be eager to access Canadian oil, the long-term integrity of the project is threatened if the oil market falters. Specifically, the meteoric rise of solar energy betokens a potential future where the government’s investment in natural gas is a long-term financial negative for Canada, as the government continues to provide support to the fossil fuel industry that some experts say has worn out its welcome. Projections for the future demand of oil and gas are, by some reports, set to be significantly reduced in the not-so-distant future, a troubling prospect for the Trans-Mountain pipeline project which has already cost the federal government significantly more than its initial estimates.
Edited by Isabelle Monette
The opinions expressed in this article are solely those of the author and they do not reflect the position of the McGill Journal of Political Science or the Political Science Students’ Association.
Featured image by Sally T. Buck obtained via Flickr