Should We Nationalize the Oil Sands?

Martin Lukacs, the investigative journalist, editor at The Breach and author of The Trudeau Formula says yes.

This is a make or break decade for climate action, which will either usher in a transition to a low-carbon economy or lock in a future of floods and fires of the sort that have devastated Alberta. Increasingly alarming reports from the UN Intergovernmental Panel on Climate Change (IPCC) have underlined that we need to keep more than 80 per cent of known fossil fuel reserves in the ground. Yet epic shifts like that aren’t exactly the outcome of modest policies, which are still the dominant approach of governments in Canada.

If we want to dramatically drive down greenhouse gas emissions, there’s no precedent of the private sector mobilizing at the speed and scale required. A carbon price—the preferred policy tool—simply won’t cut it. Instead we’ll need a revived public sector capable of leading a rapid and just transition off oil, making major public investments in green infrastructure, transit, retrofitted houses and conservation.

To adapt a joke from US climate journalist David Roberts, Canada didn’t help defeat the Nazis by taxing factories that weren’t producing enough planes and tanks for the war effort.

Just as during the Second World War, we’ll need vastly more public control of economic activity, this time geared to creating millions of good green jobs and raising the standard of living for all. And it should include deploying the most dramatic tool in the planning arsenal: full public ownership.

Should Canada’s oil industry be up for nationalization? Yes, but with a strong caveat: not immediately, and indeed only after the industry looks different than it does now. The share prices of oil and gas companies are massively inflated, because they’re based on expected profits from fossil fuels they still plan to dig up and burn. Before we can even consider public ownership, those prices will need to drop. We should start with policies that cap production, curtail the ability of companies to explore for more oil, and cut billions in subsidies that have tilted the playing field in favour of fossil fuels. A tougher regulatory agenda would drive down oil companies’ profits and force them to start paying the full cost of dumping their waste into the atmosphere.

And instead of being bailed out, this is when they should be bought up—at fire-sale prices. Before we wound down companies’ fossil fuel operations, the last years of revenue would be used to help fund a broader green transition and retrain workers for renewable industries—because tradespeople who drill for oil can just as easily drill geothermal.

The public ownership option is already surprisingly popular. A 2005 poll showed that half of the country, and more than a third of Albertans, supported the idea—and that was without any party or politician of profile having advocated for it in decades. This will change as the case for bold thinking becomes more evident. Planning, banning, buying and banishing: these should be the new watchwords of the era.

 

Max Fawcett, the freelance writer and former editor of Alberta Oil magazine says no.

Bold, progressive ideas have plenty of political currency right now, and few ideas are bolder than nationalizing Canada’s oil sands industry. But when you swing for the fences you increase your risk of striking out, and that’s how this particular at-bat should be scored. Publicly owned oil companies aren’t necessarily a bad idea, and Norway, where Equinor (formerly Statoil) has helped the government save hundreds of billions of dollars over three decades, is proof of that. But unless someone has access to a time-travelling DeLorean, Alberta can’t go back and relive those years. As for the years ahead, a nationalized oil sands industry would almost certainly do more to harm the public than help it.

Why? First and foremost, nationalizing a sector whose five largest companies have a combined market capitalization of more than $70-billion would have hugely negative impacts on investment in Canada and Alberta. Our fledgling cleantech sector, for example, and the companies in it that do everything from build wind farms to produce advanced materials such as lithium and carbon fibre, might pay the highest price— kneecapping, somewhat ironically, its ability to create jobs and contribute technology as the global economy decarbonizes. And whether we like it or not, external investment is the lubricant that keeps the gears from seizing up in an economy as small as Alberta’s—and Canada’s, for that matter.

There is, I confess, a well-fed devil on my shoulder who would enjoy watching a federal government led by a Prime Minister Trudeau try to nationalize the oil sands, if only for the reaction it would elicit from certain Alberta conservatives. But such a move would almost certainly be beyond its constitutional purview, to say nothing of the political consequences that might follow. And while the Government of Alberta could theoretically do it, the current one in Edmonton doesn’t seem capable of managing a lemonade stand, much less a multi-billion-dollar industry. Even its predecessors have failed badly on this account, from the disastrously over-budget Sturgeon Refinery (so expensive that it might as well burn literal money) to the Getty era’s failed forays into ventures such as meatpacking plants and pulp mills. Governments may not be universally bad at owning profit-making enterprises, but the ones in Alberta seem particularly ill-suited to the task.

That’s why we should focus on helping these companies adapt and evolve, not on expropriating their assets. Our goal should be to increase the public’s return and reduce its economic and environmental risks. That can be done through policies such as a higher carbon tax, one that encourages more pollution-reducing innovation and whose proceeds can be used to chip away at the billions of dollars worth of environmental remediation that’s still needed. But the cost of nationalizing these companies would be too great—especially when in the end it would fall most heavily on Albertans.

 

Martin Lukacs responds to Max Fawcett

An irony in this debate is that the Canadian government has already embraced the tool of nationalization. It just happens that they’re using it not to arrest climate breakdown but to accelerate it—by buying and attempting to construct an economically unnecessary and environmentally destructive project, the Trans Mountain pipeline. (Jason Kenney himself followed Trudeau’s example by backstopping Keystone XL with a $7.5-billion public investment.)

The silver lining in these disastrous moves is they should demonstrate that dramatic public intervention in the economy, shunned for decades because of supposed pragmatic constraints, was in fact avoided for entirely ideological reasons. Free market triumphalism consigned many of the most important levers of government power to the wilderness. But now that the fences neoliberalism erected around the political imagination are finally collapsing, we should vigorously revive bold policy to confront the climate crisis.

I happen to agree that nationalization of the oil industry is out of the question in the short term—Alberta and Canada have missed their chance to capture hundreds of billions of dollars in oil wealth for rainier days, Norwegian-style, which private oil companies instead made off with. But democratic economic planning in the energy sector must still be on the agenda. After all, the notion that we can stave off climate catastrophe with a “focus on helping these companies adapt and evolve,” as Fawcett suggests, is about as fanciful as time travel.

Globally, oil and gas companies have in their reserves more than five times the amount of fossil fuels than the carbon budget of the atmosphere can handle. They are determined to burn it all. Mere market nudges won’t knock the oil giants off this lethally lucrative business model. As we now know, they investigated and understood before anyone the science of climate change, and used that knowledge to spend decades funding disinformation campaigns to mislead the public and delay climate action. They’ve bullied and dictated policy to Liberal, Tory and NDP governments alike. Today, they are shifting to more subtle strategies, trying to delay decarbonization by accepting mild carbon taxes that give them a back door out of more serious regulations.

These companies will never adapt and evolve. Left to their own devices, they’ll only dig in and burn our planetary future.

A second irony in this debate is that it was indeed a Prime Minister Trudeau who came closest of all Canadian politicians to getting these questions right—Pierre Elliott, that is, when he introduced major public ownership and government involvement in managing the energy sector in the 1970s and early 1980s.

His National Energy Program had major flaws, asserting the authority of the federal government without sufficient political preparation and ignoring Indigenous rights. But he was right to create a strategy to increase control of a vital and poorly overseen industry, raising the federal share of revenue, increasing Canadian and public control of oil extraction, and helping with the conservation of energy. Before oil companies and the right-wing press launched a red-baiting campaign to turn the NEP into a bogeyman, it was highly popular: polling at the time by oil lobby groups showed the policies were supported by an overwhelming majority of Canadians, including a majority of Albertans.

The program remains one of the most ambitious and far-ranging interventions by Canada’s government in our economy, and a model of what we might do. “Despite the program’s egregious faults on provincial resource control, it deserves credit as the only time Ottawa ever stood up to Big Oil and its allies in Washington,” economist and founding director of the Parkland Institute Gordon Laxer has written. Our governments must be pushed to recover this willingness. This time, they should put hard limits on exploration, production, new pipelines and overall emissions; massively tax corporate profits to fund low-carbon improvements to our standard of living in healthcare, housing and public transit; use conventional oil to serve domestic energy needs; and yes, perhaps even eventually publicly own some companies—at a scale exceeding what Pierre Trudeau was willing to do. That would be the surest way to ensure we get maximum benefit as we wind down fossil fuel use and transition to a renewable energy economy.

One other area in which Fawcett and I agree is that none of this will happen under Alberta’s current regime. But governments change, and the political climate sometimes even faster. As Albertans and others experience cascading climate disasters and the increasingly visible impacts of a contracting industry, these opportunities may present themselves more quickly than we anticipate.

It won’t happen a moment too soon. As the IPCC has put it, staving off climate breakdown will require “rapid, far-reaching and unprecedented changes in all aspects of society.” There couldn’t be a stronger scientific imperative to use every policy tool at our disposal.

 

Max Fawcett responds to Martin Lukacs

If you wanted to find a way to dump gasoline on the smouldering embers of Alberta’s separatist movement, you couldn’t do much better than follow the advice Mr. Lukacs lays out in his opening argument. After all, he is proposing to deliberately reduce the value of Alberta’s largest oil and gas companies—which all Canadians are invested in through the Canada Pension Plan, and which Albertans are even more obviously exposed to—before buying them at “fire-sale prices.”

When you’re the one intentionally setting the fire, though, that’s generally known as arson. Mr. Lukacs is right that these companies won’t be able to burn all of the reserves on their books, but he seems to overlook the fact that they don’t have to in order to thrive. The global transition to a low-carbon economy is a multi-trillion-dollar opportunity, and our oil and gas companies shouldn’t be denied the chance to participate in it.

That participation is underwritten by the federal carbon tax, which is set to rise to $170 per tonne by 2030. This is the bridge that will help these companies cross the river, as it simultaneously forces them to reduce their emissions and encourages them to invest more of their capital in low- and zero-carbon alternatives. And make no mistake: There is nothing “modest” about the price signal that the Government of Canada has committed to, despite what Mr. Lukacs wants you to believe. Whether some people like it or not, markets will play a key role in helping us reach our net-zero emission goals—and in creating thousands of new jobs along the way.

I understand the temptation to compare the challenge we face dealing with climate change to the one the Allied powers overcame during the Second World War, and I understand why writers like Mr. Lukacs continue to do it. But a war against Nazi Germany and a global campaign to reduce emissions of an invisible gas are fundamentally different, and pretending otherwise only serves to obscure the challenge we actually face. Canadians were willing to make sacrifices and take steps back then that they would instantly balk at today, especially when the threat is still comparatively distant and diffuse.

But if there’s one aspect of this analogy that holds up, it’s the role that strategic alliances will play in any victory. Winning a war is a messy business, and in the Second World War that meant fighting shoulder to shoulder with Josef Stalin’s Soviet Union. In the fight against climate change, it will mean working with corporations, including the oil and gas industry and the capital markets that sustain them. Yes, as climate campaigner Bill McKibben has said, “to win slowly on climate is to lose.” But winning slowly is preferable to losing quickly, and any victory on climate change is going to require as many people pushing in the same direction as possible.

And as much as I hate to trade in the kind of arguments that would appeal to Jason Kenney and his more fervent supporters, I can’t help pointing out the irony of a Quebec-based writer suggesting a course of action that would have disproportionately negative consequences for Albertans. We have not, despite what Alberta’s premier suggests, been sending cheques to Mr. Lukacs’s province to fund their social programs and other entitlements. But Alberta taxpayers have been net contributors to Confederation for many years, and the balance on that particular account is well in excess of $250-billion.

It’s time for the rest of the country to contribute to Alberta’s future. That doesn’t mean subsidizing oil sands companies or pretending climate concerns aren’t fundamentally reshaping their future. But it does mean using our public policy matches to light a fire under the oil sands companies that Albertans have helped build rather than burning them to the ground. Sure, nationalizing them would scratch an itch that some people feel, but the strategy wouldn’t do anything  to solve the problem it claims to address. Instead it would discourage investment in Canada and make it far more difficult to create the kind of clean energy companies that we all want to see grow and thrive here. It would do very little to actually reduce global oil consumption and the carbon emissions it creates, as other producers would fill the void. And it would effectively reward other global oil producers who haven’t been trying to reduce their emissions the way ours have.

It would also blow apart the political cleavages that are already forming here in Alberta, giving life to a separatist movement that could be even more destructive than the one that consumed Quebec for so long. Yes, as Mr. Lukacs noted, a 2005 poll showed that more than one-third of Albertans supported nationalization. But that means nearly two-thirds didn’t—and I’d bet good money that if a poll were taken today the number would be even higher.

I’m all for pushing companies to move as far and as fast as possible in reducing their emissions. That’s what a rising carbon price will do. But in lighting a fire under them, we can’t afford to set the province ablaze in the process—and we should be wary of anyone who’s recommending the use of gasoline.

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