Our review of energy cost inputs - Trudeau & Trump's diverging energy policies
By: Canadians for Affordable Energy
|Canada-United States energy policies are
rapidly diverging. Donald Trump was supposed
to be a White House train wreck. But as 2017
ends, the U.S. president is scoring wins
that will boost the U.S. economy, create
good-paying jobs, and advance his
administration’s ambition of American energy
Former presidents focused on “energy independence,” which was neither sensible nor necessary government policy when friendly neighbours – like Canada and Mexico – can help meet rising U.S. energy demand. In contrast, President Trump wants his country to export energy, use its natural resources to fuel domestic economic growth, and advance U.S. foreign policy by providing energy security to its allies, thereby weakening Russia and hostile countries in the Middle East.
To increase U.S. output of oil, natural gas and coal, Trump signed an executive order approving Alberta’s Keystone XL pipeline soon after entering the White House, lifted a moratorium on new coal leasing on federal land, abandoned the Paris climate agreement, promised to open Alaska’s Arctic National Wildlife Refuge to oil drilling (now done), and cut job-killing and investment-killing red tape. As the Weekly Standard reported, “The government has added an average of 13,000 new restrictions annually for the past 20 years. Under Trump, the number of new regulations is near zero.” Near Zero! That’s an impressive accomplishment by any measure.
And that was just the warm up act. This week, before leaving for its Christmas recess, Congress passed the biggest tax overhaul in 30 years. This sweeping tax bill will dramatically lower the U.S. business tax rate from 35% to 21%. Canada just lost its tax advantage – the average Canadian federal-provincial combined tax is now one point higher than the combined U.S. federal-state rate.
U.S. tax relief isn’t being slowly phased in over a decade, it will happen overnight – effective January 1, 2018. Tax expert Jack Mintz writes in the Financial Post, “Canada’s competitive position is about to get rocked, making it harder for Canadian governments to push costs onto businesses through higher levies and regulations. Federal and provincial authorities will need to change course. If politicians sit on their hands, the private sector won’t: Canadians will see investment, jobs and profits flowing to the States.”
There is more: U.S. energy companies, which traditionally have a higher marginal tax burden than other large companies, are the “tax overhaul’s biggest winner,” according to Forbes magazine. Energy is a capital-intensive business. “Under current tax law, [capital] expenditures can't be deducted in the year they are incurred. But the new law allows capital expenditures to be deducted in the year of their occurrence. This change will further lower the tax burden for the energy sector while encouraging more capital spending.”
And what’s happening in Canada?
Justin Trudeau is also motoring ahead on his own energy policy. Only our Prime Minister is less forthcoming than President Trump about the Liberal government’s objective, which is to shackle Canada’s hydrocarbon energy industry.
Like Trump, Prime Minister Trudeau wasted no time pursuing his agenda when he assumed office by cancelling the Northern Gateway pipeline project from Alberta to British Columbia. The Energy East pipeline to New Brunswick was killed this year after Ottawa signalled it wanted the National Energy Board to add layers of regulations on “upstream and downstream” CO2 emissions. It didn’t matter that the rules were being changed after Energy East had started the review process. Tellingly, the same “upstream and downstream” public review of Bombardier and Ford operations wasn’t done before these companies received massive government subsidies.
The effects of these deliberate policy changes combined with rising taxes on carbon dioxide emissions mean less investment in Canada’s oil sector, lost employment opportunity, and higher energy prices at home. The next hit on business and consumers will be the federal government’s soon-to-be unveiled Clean Fuels Standard regulations. It will add layers of red tape while steadily increasing the price of all forms of hydrocarbon fuels in Canada – including gasoline or diesel to fill your car, and natural gas, home heating oil or wood to heat your home.
In January 2017, the Prime Minister said at a town hall, “We can’t shut down the oilsands tomorrow. We need to phase them out. We need to manage the transition off of our dependence on fossil fuels but it’s going to take time and in the meantime we have to manage that transition.” Trudeau quickly backpedalled, said he “misspoke” and told Canadians, “I said something the way I shouldn’t have said it.” But it was a revealing political gaffe. As the political commentator, journalist and Vanity Fair columnist Michael Kinsley has said, a gaffe reveals some truth that a politician did not intend to admit.
Today, RBC Dominion Securities warns “Canadian oilsands producers face rising price discounts as growing production ‘materially exceeds’ export pipeline capacity to the United States in the first quarter of 2018.” Translation: Canada cannot get its oil to international sellers and is forced to sell its product at a lower price to the few buyers it can reach. Because our oil is unable to reach either the Pacific or Atlantic oceans, we are left with one foreign buyer – the United States – which sets the discount price.
Reuters warns: Canada oil producers exhaust options as pipelines, railroads fill. Oil companies have left Canada to invest instead in the U.S. – a more agreeable and profitable location – and in 2017 sold over US$23-billion in Canadian assets. Reuters also reports that output from Canada’s oilsands will grow, “but only as projects under construction are completed and smaller expansions come online.” Energy companies aren’t building new large projects. Why? Prices aren’t high enough and higher returns are realized elsewhere in North America.
Take a bow Mr. Kinsley: Prime Minister Trudeau's vow to “phase out” the oilsands was prophetic. Only it’s happening far faster than anyone expected.
When Canada and the U.S. has had broadly aligned energy policy, which is the historical norm, the outcome has led to aligned prices for consumers. Divergent policies will lead to dramatically different prices – at a cost to Canadians at home and at work.
Canadians for Affordable Energy
Canadians for Affordable Energy · Canada