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C2C Journal

Indecent Proposals: How Activist Investors Hijacked Responsible Corporate Governance

Published

4 months ago

39 minute read

From the C2C Journal

By Gina Pappano of InvestNow

It’s a central tenet of the free-market economy: a corporation’s job is to maximize investment returns to its shareholders. Bluntly, to make money. And “shareholder proposals” have been a powerful tool enabling investors to pressure a company’s board to take a particular action to increase its value. In recent years, however, activist groups have been weaponizing shareholder proposals to pressure companies into pursuing ideological goals, especially environmental and “progressive” social-welfare causes. In the case of the oil and natural gas industry, they’ve even pushed for companies to take actions that would drive them out of business. Veteran markets expert Gina Pappano examines this damaging phenomenon – and the new movement pushing back.

No matter what business they engage in, the purpose of all corporations – their raison d’être – is to generate returns on their shareholders’ investment and to maximize shareholder value by achieving a rising price in the stock market, paying dividends to shareholders, and eventually perhaps engineering a profitable “exit” from the market by being taken over at a premium. This understanding is known as “shareholder primacy” and it is so central to good corporate governance that companies and regulators have developed a mechanism, the shareholder proposal, whereby anyone who holds stock in a corporation can petition its board of directors to examine some practice or other with an eye towards improving the company and its value.

But in the 21st century – especially in the last decade or so – activist groups have repurposed shareholder proposals into weapons used to pressure companies to adopt policies informed by the group’s ideological concerns. No sector in Canada has been targeted by ideologically driven agendas more than the oil and natural gas industry, a crucial branch of Canada’s economy that includes hundreds of producers, pipeline companies, refinery operators and service companies, many of which are publicly traded. Using shareholder proposals whose goal is the limitation and eventual elimination of Canada’s oil and natural gas production, activists who are shareholders-of-convenience are attempting to villainize one of the most productive, vital and longstanding pillars of our country’s economy.

Popular delusions: Climate activists push for an end to the oil and natural gas industry even as an energy-hungry world set records last year for energy consumption and oil production; the world will need crude oil and natural gas for decades to come and Canada could be a preferred supplier. (Sources: (photo) Rainforest Action Network, licensed under CC BY-NC 2.0; (chart) Energy Institute)

Stand.earth, Investors for Paris Compliance, the BC General Employees’ Union, Environmental Defence Canada, the Shareholder Association for Research and Education and MÉDAC are just a few of the activist groups that over the past few years have presented anti-fossil-fuel shareholder proposals to Canada’s “Big Five” banks and to oil and natural gas companies. Last year, for example, Stand.earth demanded that the Royal Bank of Canada’s (RBC) “Board of Directors adopt a policy for a time-bound phase-out of the RBC’s lending and underwriting to projects and companies engaging in new fossil fuel exploration, development and transportation.” In other words, they were asking Canada’s biggest bank to stop supporting an industry that provides hundreds of thousands of Canadian jobs, pays tens of billions of dollars in taxes annually and forms the economic backbone of three Canadian provinces.

The demands of these groups are premised on convincing shareholders that eliminating one of our country’s most productive sectors will benefit Canada socially and environmentally and reduce global CO2 emissions, when the facts demonstrate that nothing Canada could do domestically could influence emissions on a global scale. The most recent Statistical Review of World Energy, for example, described 2023 as a “year of record highs in an energy hungry world”.

The world will continue to need crude oil and natural gas for decades to come – not only the energy these fuels provide, but the thousands of crucial products that are made from them. Canadian oil and natural gas companies, with their high environmental and safety standards and technical expertise, should be among the preferred suppliers of the energy that powers the world. Yet the activists driving these economically ruinous crusades, based on dogma and ideology, want shareholders, investors and Canadians at large to vote in favour of their proposals. How did we get here?

The Annual General Meeting as Town Hall Meeting

Annual general meetings (AGM) used to be mostly stodgy affairs, dedicated to discussing a company’s financial statements and general business; the rise of shareholders’ proposals has made some of them much more contentious. Depicted, (top) Ford’s AGM, 1980; (middle) Bank of America’s AGM, 2024; (bottom) an activist is removed from Shell’s 2023 AGM. (Sources of photos: (top) Ford Motor Company; (middle) Rainforest Action Network, licensed under CC BY-NC 2.0; (bottom) Sky News)

Historically, the annual general meeting (AGM) of a corporation (whether privately held or publicly traded) was called to present and discuss the previous year’s results as embodied in the audited annual financial statements, to elect any new directors that might be required, to announce the retirement of existing directors if applicable, to announce any major changes to the company’s executive team, and to discuss any other relevant business as the company’s leadership might deem necessary. These were often stodgy and boring events, especially if things were ticking along smoothly. And these are still the core matters to which the majority of AGMs are devoted among Canada’s approximately 3,500 publicly traded companies as well as the vastly more numerous privately held companies.

But since the Second World War, and especially over the past 30 or so years, AGMs have become more – much more. In the United States’, the Securities and Exchange Commission’s (SEC) Shareholder Proposal Rule (Rule 14-a8) came into force in 1942. In testifying before Congress on the then-new rule in 1943, SEC Commissioner Robert H. O’Brien explained that its motivation was to “approximate the widely attended town hall meeting type of forum characteristic of the days when nearly all corporations were closely held and geographically limited.”

The Town Hall analogy is a good one. In a 2022 speech entitled The Shareholder Proposal Rule: A Cornerstone of Corporate Democracy, former SEC Director Renee Jones laid out the role and the rights of the shareholder. “Shareholders, that is individuals or institutions that invest in a corporation, are purchasing a share of the company with the understanding that the board of directors and senior management team will use their investment wisely, making sound corporate decisions with the intent of increasing profits, to which [the shareholders] are entitled to a share. They are also entitled to certain governance rights including the right to elect directors, approve major corporate transactions and express their views on corporate governance matters and other fundamental issues related to the corporation’s business. Additionally, shareholders generally have the right to bring matters before other shareholders for a vote at a shareholder or ‘town hall’ meeting.”

In 1969 a group called the Medical Committee for Human Rights filed a shareholder proposal asking Dow Chemical Corporation to stop manufacturing napalm, an explosive chemical used with at-times horrifying effects in the Vietnam War.

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The bulk of the foregoing paragraph is a good synopsis of a shareholder’s rights and roles as it has been understood for the past 200-300 years. But Jones packed a lot into the sentence following the word “Additionally”. What she mentioned has in fact happened – with a vengeance. Since the enactment of the U.S. Shareholder Proposal Rule and the U.S.-inspired Canada Business Corporations Act’s Shareholder Proposal Regime, the number of shareholder proposals being presented every year in each country has increased exponentially.

The mechanism allows for any shareholder to present a proposal to a corporation provided the shareholder meets certain technical requirements set out by the SEC or the Canada Business Corporations Act, as the case may be. The proposal is printed in the set of corporate documents sent to all stockholders prior to any AGM. At the AGM, the shareholder presents the proposal and there is a vote.

In the early years, most shareholder proposals concerned matters of corporate governance. It was not until the 1960s and 70s that the phenomenon took off, possibly reflecting the era’s increased social activism. For example, in 1969 a group called the Medical Committee for Human Rights filed a shareholder proposal asking Dow Chemical Corporation to stop manufacturing napalm, an explosive chemical used with at-times horrifying effects in the Vietnam War. In the 1970s and 1980s, the anti-Apartheid movement used the shareholder proposal process to pressure corporations to terminate their business dealings in South Africa.

Renee Jones, a former director of the U.S. Securities and Exchange Commission, defended the right of shareholders to bring matters to a vote at AGMs; many such proposals have focussed on left-leaning environmental, social and governance (ESG) topics, and companies have been anxious to play along. At right, a screenshot from the presentation entitled “Unlocking the Power of Environmental, Social and Governance Data” by the World Economic Forum. (Source of right photo: World Economic Forum, licensed under CC BY-NC-SA 2.0)

Most such proposals did not tend to get very far, however; Boards of Directors typically recommended voting against them, and that tended to be the end of it. Most shareholders in publicly traded companies do not delve very deeply into the affairs of the often-numerous companies in which they might hold a position. A small business owner who is saving for retirement, for example, might well hold shares in several dozen companies via their RRSP portfolio; what they or their investment adviser monitor above all is whether dividends are being paid and share prices are doing well.

Accordingly, most shareholders take their cue from the Board of Directors and vote according to their recommendation, via so-called “proxy” forms, which also cover votes on standard matters like approving the financial statements and electing new directors. In this vein, proxy advisory firms have arisen, which institutional investors and large public pension funds rely upon to guide their voting. This is why it is very difficult to vote against a board and why most shareholder proposals fail at the AGM ballot.

Still, the number of shareholder proposals has grown dramatically and this increase has coincided with a rise in ideologically driven proposals. And none more than those associated with the environmental, social and governance (ESG) movement. In even a cursory investigation into this issue, one is struck by the degree to which shareholder proposals and ESG have become inextricably linked. Many of the current definitions of shareholder proposals one comes across, in fact, claim that they are “an important corporate governance tool which allow[s] shareholders to engage with public companies with respect to environmental, social and corporate governance issues.” Effectively, the shareholder proposal mechanism has been hijacked and harnessed to one dominant purpose.

Shareholders vs. Stakeholders

The evolution away from shareholder primacy to what is known as stakeholder primacy in the purpose and governance of corporations has been closely aligned with the rise of ESG investing. Proponents of so-called “stakeholder capitalism” contend that corporations should care less about superficial concerns like profits for shareholders and instead focus on the good of all their “stakeholders”, by which they mean anyone who is affected by, depends on or makes use of a company: customers, employees, the communities in which a company operates, the environment, governments and society as a whole. Klaus Schwab, founder of the World Economic Forum, is a prominent proponent of stakeholder capitalism, writing a book of that title.

Under the ESG or ‘responsible investing’ vision, society presumably no longer has much need for profitable companies whose earnings help build up the retirement accounts of tens of millions of future pensioners, but has become primarily focused on saving whales, fighting climate change or paying for free social housing.

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The company’s actual investors, who make its work possible, should presumably get some consideration as well, but their good tends to get lost in the idealistic rhetoric which accompanies the ESG approach. The corporation’s original purpose as a profit-maximizing entity dedicated to serving its shareholders’ financial interests becomes subsumed by the deluge of social welfare-oriented activities (“giving back to the community”) and support for environmental causes. It is noteworthy that all of this is heavily skewed towards “progressive”, i.e., left-leaning, causes. In some cases, this has become self-destructive if not borderline suicidal, such as the BP CEO who some years ago infamously stated that the “B” in British Petroleum should be reimagined as “Beyond”.

Advocates of “stakeholder capitalism” believe companies should care less about profit – but it’s the push for those profits that makes companies successful, creates jobs and wealth, and finances retirement for millions. (Source of photo: Scott Beale, licensed under CC BY-NC-ND 2.0)

An important and current statement of ESG principles can be found in the United Nations-supported Principles of Responsible Investing (PRI), which has been signed by over 3,500 asset managers pledging to further “environmental, social, and corporate governance” goals in order to “better align investors with broader objectives of society.” Under this vision, society presumably no longer has much need for profitable companies whose earnings help build up the retirement accounts of tens of millions of future pensioners, but has become primarily focused on saving whales, fighting climate change or paying for free social housing.

It is interesting to note that the Canada Pension Plan (CPP) Investment Board is one of the PRI’s founding signatories. As a future beneficiary of Canada’s public pension system, I find myself worried by this fact. Like millions of other Canadians, my future wellbeing depends on the continued solvency of the CPP which, in turn, depends on the ongoing profitability of the companies in which it invests. The same can be said about dozens of other pension funds such as those for teachers, nurses and government employees.

The United Nations-supported Principles of Responsible Investing, signed by 3,500 asset managers – including the Canada Pension Plan Investment Board – demanded that companies pursue ESG goals to “better align investors with broader objectives of society”; ideological dogma has replaced the pursuit of shareholder value. (Source of photos: (left) expatpostcards/Shutterstock; (right) Sheila Fitzgerald/Shutterstock)

The two most prominent concepts among ESG investing principles and in shareholder proposals meant to push ESG agendas are: (1) diversity, equity and inclusion (DEI), and (2) “sustainability”. DEI is a highly ideological, neo-Marxist doctrine with which C2C readers are by now amply familiar. Sustainability is a somewhat older term that refers to goals pursued by the environmentalist movement, which currently include “net zero”, so-called decarbonization and the divestment from, reduction or outright banning of fossil fuel production and consumption.

Most shareholder proposals focused on sustainability are sector-specific. Oil and natural gas companies and financial institutions received the largest number in the 2023 AGM season. In Canada, most proposals have been aimed either at pushing oil and natural gas companies to net zero and decarbonization goals or at pressuring the Big Five chartered banks to stop investing in oil and natural gas companies and projects.

In 2022, for instance, Investors for Paris Compliance (I4PC) asked Calgary-based pipeline and utilities giant Enbridge Inc. to “strengthen their net zero commitment such that the commitment is consistent with a science-based, net zero target.” I4PC defines net zero to mean “no new oil and gas fields are required beyond those already approved for development in conjunction with a historic investment surge in clean technologies.” So not only was I4PC demanding that Enbridge officially commit to long-term decline in its business (since all oil and natural gas fields deplete over time, requiring continuous reinvestment in new fields merely to maintain current production), but it was also prescribing a huge (“historic”) amount of investment in so-called “clean” technologies that are outside Enbridge’s core business (wind turbines do not require pipelines).

Oil and natural gas companies and financial institutions have been the primary targets of shareholder proposals in Canada, which typically demand aggressive decarbonization and divestment from the energy sector. Shown at bottom, protesters march at the RBC AGM, Toronto. (Sources: (chart) Harvard Law School Forum on Corporate Governance; (photo) Rainforest Action Network, licensed under CC BY-NC 2.0)

The Gathering Pushback in the United States

There are glimmerings of an awakening that the wave of activist shareholder proposals and ESG investing is materially impairing investment returns and could prove economically ruinous. Investors are, in effect, being defrauded by companies diverting capital, executive attention and employee talents towards expensive social goals that do not, say, develop new products or generate revenue.

In the U.S., pushback has been gathering from several directions. Warren Buffett, the famous “Sage of Omaha,” has openly expressed skepticism about ESG investing and things like corporate reporting on climate change efforts – although it is a sign of the ideology’s thorough penetration of the investment world that Buffett’s stance would be labelled  “unconventional” in a business magazine.

One of the world’s most successful investors, Warren Buffett, has been decidedly lukewarm on ESG, a position one business magazine called “unconventional” – an indication of how thoroughly the ideology has penetrated. (Source of photo: Fortune Live Media, licensed under CC BY-NC-ND 2.0)

More substantively, new asset management firms have been launched by entrepreneurs who concluded that the stakeholder primacy model just does not work. Strive Asset Management was founded in early 2022 explicitly to “live by a strict commitment to shareholder primacy – an unwavering mandate that the purpose of a for-profit corporation is to maximize long-run value to investors.” Its founders are private equity manager Anson Freriks and flamboyant commentator Vivek Ramaswamy, who was a candidate for the most recent Republican Presidential nomination, won by Donald Trump.

Strive believes that companies should do what they do best and not fall prey to other agendas. The fund was started specifically to “solve a problem,” as its website explains: “Large financial institutions, including the biggest asset managers, were using their clients’ money to advance social, cultural, environmental and political agendas in corporate America’s boardrooms. Asset managers and for-profit corporations have a fiduciary duty to maximize value, and that duty had been neglected.”

Strive’s pitch clearly resonated with investors, as the firm soon became one of the fastest-growing asset managers in the U.S. And its position appears to be having an effect. The latest edition of Strive’s newsletter, The Fiduciary Focus, includes the following headlines: “The Financial Times Credits Strive for Pushing Companies to Drop ESG-Linked Compensation,” “John Deere Pulling Back on ESG,” and “Wall Street Cools on Sustainable Funds.”

“Asset managers and for-profit corporations have a fiduciary duty to maximize value,” says Vivek Ramaswamy, co-founder of Strive, an asset management firm committed to the primacy of shareholders’ financial interests; the firm’s data on the fall of ESG-focussed fund launches suggests his approach is resonating with investors. (Source of left photo: AP Photo/J. Scott Applewhite)

There is also growing concern in the political arena that ESG investment and other socially motivated corporate activities pose a threat both to the financial integrity of public pension funds and a challenge to democratic governance. A number of U.S. states have taken formal steps to confront and counter the ESG investment behemoth. One such measure is the non-profit State Financial Officers Foundation (SFOF). According to its website, “SFOF’s mission is to drive fiscally sound public policy, by partnering with key stakeholders, and educating Americans on the role of responsible financial management in a free market economy.”

The organization and its members are firm and vocal defenders of shareholder primacy. Among their activities have been letter-writing campaigns to corporations and fund managers that urge them to scale back political activism and instead focus on the interests of their shareholders. They are putting teeth to their words: according to a recent Torys Report, 18 of the SFOF’s member states have enacted anti-ESG laws, including prohibiting fund managers from considering ESG factors in their investments and state entities from investing with asset managers deemed to be discriminating against or boycotting the fossil fuel industry.

ExxonMobil’s bolder, more confrontational tactic may be pointing the way, because in late June both activist groups not only dropped their proposals but promised not to bring forward similar demands in future; in return, ExxonMobil agreed to have its lawsuit dismissed.

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Some of the SFOF member states have also put their money where their mouths are in pushing to restore shareholder primacy. The organization recently supported the State of Texas Permanent School Fund (a large investment fund with US$53 billion in assets that helps pay for the state’s school system) as it cancelled a US$8.5 billion investment with BlackRock, one of the world’s largest investment funds and a prominent proponent of ESG investing. As SFOF urged, “BlackRock should withdraw from international organizations seeking to orchestrate opposition to fossil fuel investment, abandon ‘decarbonization’ policies that are a form of boycotting fossil fuels, and stop using its proxy voting authority to promote an anti-fossil fuel agenda.”

Pushing back: The U.S. State Financial Officers Foundation has urged corporations and fund managers to put shareholders first; 18 member states have enacted anti-ESG laws, including prohibitions on state entities investing with asset managers deemed to be discriminating against or boycotting the fossil fuel industry. (Source of photo: Center for Media and Democracy)

Further pushback is coming from some of the recipients of activist shareholder proposals. It is perhaps not surprising that ExxonMobil is among the leaders here. The company has long been reviled by environmentalists for its insistence on keeping profitability, technical excellence and energy production central to its business. To some, it is the ugly face of “Big Oil”.

In January, ExxonMobil filed a lawsuit to block a shareholder resolution put forward by the groups Follow This and Arjuna Capital, whose stated objective was to force the company to commit to precipitous cuts in CO2emissions, including with respect to the downstream effects from the combustion of its products by customers. Exxon argued that such a resolution would force the company to “change the nature of its ordinary business or to go out of business entirely.” Which is what these “shareholders” intend; Exxon’s lawsuit quotes Arjuna Capital’s contention that “Exxon should shrink” and Follow This’s statement that its goal is “to wind down the company’s business in oil and natural gas.”

As Follow This states on its website: “We buy shares in order to work on our mission to stop climate change.” And, it says, its shareholder proposal aims to make ExxonMobil “stop exploring for more oil and gas.” While this kind of agenda is no longer surprising, ExxonMobil’s response was. Corporations generally try to deal with motivated activists by adopting some version of their favoured policies in the hopes they’ll go away (not that they do). ExxonMobil’s bolder, more confrontational tactic may be pointing the way, because in late June both activist groups not only dropped their proposals but promised not to bring forward similar demands in future; in return, ExxonMobil agreed to have its lawsuit dismissed.

Blazing the trail: ExxonMobil early this year filed a lawsuit to block two activist groups from submitting shareholder proposals demanding that the company stop exploring for oil and natural gas and, thereby, “change the nature of its ordinary business or to go out of business entirely”; in June the activist groups backed down. (Source of photo: ET Auto)

Still more pushback in the U.S. is coming from the small but growing number of advocacy organizations submitting anti-ESG shareholder proposals that call on corporations to refocus themselves on shareholder-centred capitalism. The National Center for Public Policy Research and the National Legal and Policy Center are two such organizations. According to a recent SquareWell Partners report entitled “What Do Shareholders Propose?” these kinds of proposals surged by 64 percent in 2023.

Now What About Canada?

This process is still at a much earlier stage in Canada. Last year the not-for-profit organization I lead, InvestNow, submitted and presented shareholder proposals to three Canadian banks asking for explicit commitments to continue to invest in and finance the Canadian oil and natural gas sector. These were the first proposals of this nature presented to Canadian banks and their shareholders. The overwhelming majority of the vote – 99.5 percent of it – was against InvestNow’s proposal. However, fellow shareholders and even some board members approached me after the meeting and thanked me for standing up to the banks and for advocating on behalf of Canadian oil and natural gas and everyday Canadians.

We were back again doing the same this year, presenting shareholder proposals at the AGMs of all five big chartered banks – BMO, CIBC, Scotiabank, RBC and TD – asking them to commission and issue reports qualifying and quantifying the impacts and costs of their net zero commitments. This time we received one percent support for our proposal, a 100 percent increase over last year.

Although InvestNow’s proposal was rejected by Suncor’s board, our hope is that we planted a seed in the directors’ minds about their duty of care and fiduciary obligations to the company’s shareholders and that they will soon find the courage and conviction to say ‘No’ to the activists and ‘Yes’ to shareholder proposals like ours.

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This year InvestNow also submitted our first shareholder proposal to an energy company. We asked Suncor Energy Inc., one of Canada’s largest oil producers and refiners (with production this year estimated at approximately 800,000 barrels per day), to drop its pledge to achieve net zero carbon emissions by 2050 and rededicate the company to its core business of producing and refining crude oil. In our view, Suncor should be producing more oil and getting it out to more customers in Canada and around the world – not contributing to its own demise and that of its industry. And it should do this unapologetically. In the face of growing global demand and concerns over energy security, Suncor should increase Canada’s energy supply, thereby helping to reduce energy costs for Canadians and the world.

In the first actions of their kind in Canada, the not-for-profit group InvestNow – led by the author – submitted several shareholder proposals to Canadian banks, asking them to commit to keep investing in the oil and natural gas sector, and to Suncor Energy Inc., asking it to drop its “net zero” commitment; Suncor, the author points out, has held its overall greenhouse gas emissions virtually flat year-over-year, and should unapologetically keep producing oil. (Sources: (photo) Suncor; (graph) Statista)

Like Exxon, Suncor has received many anti-fossil-fuel shareholder proposals over the years. Unlike Exxon, however, Suncor has not yet publicly pushed back. But why not? Suncor has worked concertedly to improve its “emissions intensity”, which is the volume of greenhouse gas emissions per unit of oil or natural gas produced, and has held its overall greenhouse gas emissions essentially flat, as the accompanying graph shows. [Editor’s note: the recent passage of the Liberals’ Bill C-59, which makes it illegal for energy companies and advocacy groups to defend themselves, on pain of criminal penalties, caused a vast amount of useful technical information to be abruptly removed from the internet.] Why commit to an arbitrary target like net zero, especially one that would necessitate massive declines in the use of oil and natural gas? Net zero wouldn’t increase shareholder value. Quite the opposite, since fossil fuels are Suncor’s main business.

Although InvestNow’s proposal was rejected by Suncor’s board, our hope is that we planted a seed in the directors’ minds about their duty of care and fiduciary obligations to the company’s shareholders and that they will soon find the courage and conviction to say “No” to the activists and “Yes” to shareholder proposals like ours.

Canada’s shareholder proposal regime was put in place as a response to the U.S.’s rule on shareholder proposals. Hopefully, the boards of directors at Canadian corporations and financial institutions, investors, customers and citizens at large will see what is happening south of the border and will add to the still-budding pushback movement in our own country. It’s time.

Gina Pappano is executive director of InvestNow and was formerly head of market intelligence at the Toronto Stock Exchange (TSX) and TSX Venture Exchange (TSXV).

Source of main image: Kenzie Todd, retrieved from History and Future of Divestment at St. Olaf.

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C2C Journal

Why the Trump Administration is Unlikely to Impose Import Tariffs on Canadian Oil and Natural Gas

Published on November 25, 2024

By

From the C2C Journal

By George Koch

Few things about Donald Trump’s recent election are causing worse disarray worldwide than the incoming U.S. President’s vow to erect a tariff wall against all imports in order to spur a resurgence in American manufacturing might. Canada’s up to $200-billion-a-year worth of oil and natural gas exports lie at stake, feared to be among the new Administration’s tariff targets. But how strong is the basis for such fears? Probing the political psychology of Trump’s economic and trade policies and examining the intricate mechanism that is North America’s vast integrated oil and natural gas sector, George Koch illuminates the role Canadian energy can play in the U.S. economic revival and the Trump team’s geopolitical drive for global “energy dominance”.

Tariff,” U.S. presidential candidate Donald Trump was fond of saying with a smirk, “it’s my favorite word.” It was enough to curdle the blood and wobble the knees of political leaders, trade officials and business groups around the world – not least in export-dependent Canada. This was one Trumpian campaign line not swatted aside by critics as bombast, trolling, dog-whistling to the “extreme right” or unhinged fantasy. And with evident good reason.

After all, it was President #45 who after rising to political prominence largely on his promise to go after “bad trade deals” had upended 70 years of U.S. trade policy by imposing tariffs on Chinese (and some Canadian) imports and demanding to renegotiate the North American Free Trade Agreement. It was returning candidate Trump who picked as his running mate J.D. Vance, whose life story growing up amidst family wreckage in rural Ohio is almost the embodied result of a hollowed-out manufacturing economy, and who today is an articulate frontman for the something-less-than-free school of international trade. And it is President-elect Trump who has nominated prominent advocates of “America-first” trade policy – in which tariffs are central – to become his Secretary of Commerce and Secretary of the Treasury.

Tariff king: Consistent with his first presidency, U.S. President-elect Donald Trump has vowed to pursue an “America-first” trade policy this time. Shown, Trump speaking during an America First Policy Institute gala at his Mar-a-Lago, Florida estate, November 2024. (Source of photo: AP Photo/Alex Brandon)

Few sectors in any country stand to suffer greater damage from U.S. tariffs than Canadian energy. Canada’s fossil fuel production is at record levels, with crude oil averaging 5.8 million barrels per day so far this year and natural gas well over 18 billion cubic feet per day. Exports of these key commodities (plus natural gas “liquids” like ethane and propane) are valued at more than $134 billion per year – another measure has it at US$160 billion – with exports of petrochemicals generating billions more. Canada’s oil and gas sector is directly responsible for $210 billion of the nation’s GDP and 25 percent of its exports.

Yet while the industry today is a marvel of leading technology, deep expertise and operating efficiency, Canadian energy remains costly to produce, heavily taxed and saddled with ever-increasing regulations, such as the recently announced federal “emissions cap”. Moreover, the remoteness of the Western Canada Sedimentary Basin – the world-scale producing region that covers most of Alberta plus northeast B.C., southern Saskatchewan and a corner of Manitoba – imposes costs not incurred by U.S. producers. Constraints on export capacity effectively trap oil and gas within Western Canada, dampening regional benchmark commodity prices. And the industry remains over-dependent on the U.S. market; the expanded Trans Mountain pipeline will enable at best 20 percent of Canada’s crude oil production to access offshore markets, while the country’s first liquefied natural gas (LNG) export terminal is not yet operational.

This critical industry thus sits exposed and vulnerable to U.S. tariffs. A levy of 10-20 percent – the rate Trump has said he wants to slap on all imports – would be catastrophic, reducing Canada’s energy exports by an estimated 22 percent, causing domestic pricing to collapse and, with it, any new capital investment. Thousands would lose their jobs and government deficits would soar. Rory Johnston, a Toronto-based oil market researcher and founder of Commodity Context, describes Canada as “uniquely vulnerable to market pressure posed by U.S. refineries.”

“Uniquely vulnerable”: Canada’s oil and natural gas production is setting records and generating 25 percent of the country’s overall export earnings; a 10-20 percent U.S. import tariff could wreak catastrophic damage. (Sources: (graph) CAPP; (left photo) MikoFox, licensed under CC BY-NC-SA 2.0; (right photo) Green Energy Futures, licensed under CC BY-NC-SA 2.0)

But is the threat of such a tariff imminent – or even credible? The evidence to date – partial and indirect though it may be – suggests not. More profoundly, the logic of U.S. self-interest and of Trump’s stated policy objectives points away from tariffs on Canadian oil and natural gas.

First the evidence. Trump had barely been declared victor in the November 5 Presidential election before voices on both sides of the border began talking about creating a tariff “exemption” for Canadian fossil fuels. Wilbur Ross, Secretary of Commerce in Trump’s first term, called fears of such a tariff “overblown” and said he “can’t imagine” his former boss imposing them. Alberta Premier Danielle Smith also said she was “not worried”.  Then again, she also wrangled for herself invitations to key events such as next month’s meeting of the Western Governors’ Association, as well as Trump’s Inauguration in January, to make sure Alberta’s message gets through.

Similar views have been expressed by other knowledgeable sources from industry, trade and investment organizations. They note that Trump has done this very thing before; the renegotiated U.S.-Mexico-Canada Agreement of 2019 notably excused oil and natural gas flows from any tariffs. A further favourable indication is Alberta’s recent admission to the U.S. Governors’ Coalition for Energy Security, a group of 12 states that have banded together to cooperate on policies that promote reliable and affordable energy.

Guys who get it: Among Trump’s Cabinet nominees are North Dakota Governor Doug Burgum (left) and Liberty Energy CEO Chris Wright (right), both known for their vigorous support of oil and natural gas development and free North American trade in energy products. (Sources of photos: (left) Gage Skidmore, licensed under CC BY-SA 2.0; (right) Gage Skidmore, licensed under CC BY-SA 3.0)

Another positive sign is that alongside Trump’s pro-tariff Cabinet picks have come nominations of individuals with a deep understanding of North America’s petroleum sector. Douglas Burgum, a successful software entrepreneur and currently Governor of North Dakota, is slated to become Secretary of the Interior, chairman of the newly created National Energy Council and a member of the U.S. National Security Council. Burgum’s primary mandate is to promote innovation and investment by cutting through the thicket of new restrictions on oil and gas development that President Joe Biden had imposed. Chris Wright, founder of Liberty Energy and an unashamed industry booster, has been nominated to become what one U.S. commentator describes as “the most knowledgable secretary of energy the nation has ever had.” Lee Zeldin, another pro-industry figure, has been tapped to head the Environmental Protection Agency.

The fundamental objective underlying all of Trump’s trade policy is to strengthen American manufacturing. It is something he has articulated since before entering politics in 2015; it can accordingly be regarded as sincere.

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Equally noteworthy is that, in contrast to the widespread and bipartisan clamouring for tariffs on Chinese imports, nobody in the U.S. is demanding that Trump target Canadian energy. Even Bernie Sanders, the avowedly socialist Senator from Vermont who wants a “windfall tax” and higher government royalties imposed on all oil producers, appears indifferent to import tariffs. And while U.S. environmental groups don’t like any free trade in oil and gas, they devote most of their energy to pushing their government towards restrictive European/Canadian-style climate-change policies or a new UN “climate damages tax.” The American fossil fuel sector, meanwhile, is not only in favour of tariff-free trade in energy products – including with Canada – it opposes tariffs on anything.

The evidence to date, however hopeful it may seem, remains inconclusive. Trump prides himself on his unconventional and unpredictable nature. This is what causes America’s adversaries – most notably Communist China – the greatest consternation. Regardless of his previous decisions on trade issues, if Trump thinks imposing tariffs on Canadian energy imports make sense now, he will do so.

“Manufacturing superpower”: The fundamental objective underlying Trump’s trade policy is to reverse the long slide of American industry through decades of globalization – mainly by targeting offshore manufacturing. Shown at top and middle, Trump at campaign event at Dane Manufacturing in Waunakee, Wisconsin, October 2024; at bottom, an assembly line for automobile engines. (Sources of photos: (top and middle) AP Photo/Charlie Neibergall; (bottom) Alliance Employment Services)

Logic and self-interest, however, also point away from such tariffs. The fundamental objective underlying all of Trump’s trade policy is to strengthen American manufacturing. It is something he has articulated since before entering politics in 2015; it can accordingly be regarded as sincere. Trump wants to halt and if possible reverse that sector’s long slide through decades of offshoring and globalization that crippled or wiped out whole industries all over the U.S., especially in the Midwest heartland. These are the places Trump promised to help, this lies at the core of his slogan “Make America Great Again”, and these are many of the people who sent him to the White House the first time and stuck by him through the depths of his ignominy following his second, failed Presidential run. This year, Trump ran on a platform to transform his country back into “it’s my favorite word.”.

To accomplish that dramatic – some would say grandiose if not unachievable – objective, Trump intends to punish countries that use subsidies, favouritism and other policies to unfairly advantage their own industries and flood the U.S. with underpriced goods, harming domestic producers and preventing new ones from starting up. China may be hit with tariffs as high as 60 percent. He will also target imports believed to threaten U.S. national security (such as electric vehicles vulnerable to hacking by foreign enemies) while working to reduce dependence on imports of strategic materials or components critical in wartime. And he wants to close loopholes allowing China to bypass U.S. tariffs by locating production in proxy countries – especially the two countries adjoining the U.S.

Mexico has gone quite far down the road of partnering with Chinese companies, and Trump’s key advisors have warned that Mexico will be held to account for it. Canada is certain to be scrutinized as well, but can probably allay similar U.S. concerns by avoiding becoming a backdoor and way-station for Chinese goods, something Deputy Prime Minister Chrystia Freeland already promised last week. This will require several key policy commitments, as well as competent, rigorous enforcement (always a questionable assumption for this Liberal government). It will also be necessary to continue matching U.S. tariff-related moves against China, as Canada did earlier this fall in imposing tariffs on Chinese EVs and aluminum.

Closing the back door: Trump is determined to eliminate loopholes allowing China to bypass U.S. tariffs through “transshipment”, i.e., locating assembly plants in Mexico or Canada. Shown at top, Chinese company setting up facility in northern Mexico; at bottom, transshipment occurring in Texas. (Sources of photos: (top) Kosuke Shimizu/Nikkei; (bottom) T. Hammonds MSW, licensed under CC BY-NC-SA 2.0)

In addition to tariffs, Trump’s critical policies in restoring American manufacturing competitiveness will be reducing taxes, lifting the regulatory burden and, as his campaign platform puts it, ensuring the flow of “Reliable and Abundant Low Cost Energy”. By “energy” one should mainly read “crude oil and natural gas” – something Trump describes over and over as “liquid gold”. (Ending the demonization of coal is also a part; as well there is likely to be a modest revival in nuclear power.) In addition to supporting American industry, cheap energy is intended to help ease inflation and improve the lot of hard-pressed consumers, homeowners and wage-earners.

Among the associated promises and policies Trump has mentioned are to cancel the Biden Administration’s planned pro-electric vehicle policies (similar in effect to Canada’s outright mandate) and its moratorium on new LNG export facilities, end permitting of offshore wind turbines, reopen offshore areas to oil and gas drilling, unlock Alaska’s National Petroleum Reserve, reopen federal lands to drilling and hydraulic fracturing, pull the U.S. out of the Paris Climate Accord (for the second time, in Trump’s case) and otherwise end the Biden-era’s “Green New Deal”, which Trump derides as a “green new scam”.

During his election-night acceptance speech, Trump pointedly told Robert F. Kennedy, Jr., his pick to be Secretary of Health and Human Services and formerly a vocal anti-oil activist, to keep his nose completely out of energy issues. Chris Wright, his recently announced nominee to be Secretary of Energy, has written a 180-page paper which contends that “Zero Energy Poverty by 2050 is a better goal than Net Zero 2050.”

Trump’s energy policy includes cancelling President Joe Biden’s moratorium on new liquefied natural gas (LNG) export facilities, reopening offshore areas to oil and gas drilling and unlocking Alaska’s National Petroleum Reserve. Shown at left, Trump visits the Cameron LNG liquefaction terminal in Hackberry, Louisiana, 2019; at middle, an oil drilling platform at Green Canyon in the Gulf of Mexico; at right, the National Petroleum Reserve. (Source of right photo: mypubliclands, licensed under CC BY 2.0)

Trump’s energy policy, in short, is “drill, baby, drill” – often written in all-caps. Where might Canadian-produced oil and natural gas fit into this picture? Right in the middle, as it turns out – figuratively and literally.

It cannot be said often or loudly enough: inexpensive, reliable and plentiful energy is essential to economic competitiveness, national prosperity and modern civilization. But many Western governments – Canada’s among them – act as if it is optional. Right now, industries in authoritarian China use low-cost coal-fired electricity to produce the pricey solar panels and wind turbines that are exported to Western countries where they produce exorbitantly expensive electricity that in turn renders their domestic industries uncompetitive. Industrial users in Great Britain, for example, currently pay five-and-a-half times as much for electricity as those in the U.S., while German industry pays more than three times as much. Both countries are seeing their industrial base evaporate before their eyes. If Canada remains on its current policy path, it will be next.

Oil and natural gas are critical inputs that make American manufacturers more competitive, reduce the operating costs of nearly any business and allow American consumers to pay less to fuel their vehicles and heat/cool their homes. Canadian oil and natural gas not only do not undermine Trump’s economic and trade policies, they strengthen and advance them.

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Trump is unshakeably determined to avoid that for his country – and this is where Canadian energy enters the picture. Crucially, Canadian fossil fuels are not manufactured goods except in the narrowest technical sense. Unlike cars, smartphones, toys, shoes or furniture, they are commodities rather than finished products. They aren’t produced with unfair subsidies. They don’t contain secret chips enabling the Chinese to spy on U.S. military bases. They don’t threaten to displace or bankrupt age-old American companies, throw thousands of employees out of work or transform once-thriving cities into ghostly husks.

They are the very opposite: critical inputs that, by being priced competitively, make American manufacturers more competitive, reduce the operating costs of nearly any business and allow American consumers to pay less to fuel their vehicles and heat/cool their homes. Canadian oil and natural gas not only do not undermine Trump’s economic and trade policies, they strengthen and advance them.

Integrated system: Western Canada’s producing region supplies the U.S. heartland with crude oil and natural gas, where it can be refined and distributed, meeting the Trump test of (as his campaign platform puts it) “Reliable and Abundant Low Cost Energy”. Shown at top, an oil refinery in Rosemount, Minnesota. (Sources: (photo) Pexels; (map) CAPP)

This beneficial role is accentuated by some geographical quirks. Although North America’s vast interlinked system of energy pipelines is a near-miracle of technology, operating efficiency and reliability, it is not perfect or seamless. Major consuming regions tend to get most of their oil, natural gas and liquids from the nearest producing region; why ship the stuff farther than you must? Consequently, the U.S. Midwest and portions of the “near South” and northeast are heavily supplied from Canada.

If this supply were to be curtailed or disrupted by tariffs or other measures, manufacturers in these dependant regions would suffer immediately as wholesale and consumer prices jumped substantially. Regional oil refineries, gas/liquids facilities and petrochemical plants would pay more for their feedstock, face shortages as Canadian producers “shut in” no-longer-profitable production, and/or would operate below capacity or inefficiently as they sourced sub-optimal feedstock from elsewhere.

Even a 10 percent tariff would raise the average retail gasoline price across the U.S. by 5 percent, according to commodity pricing analysts at Montreal-based BCA Research. But the regional effects would be much greater. Regional prices not only for gasoline and heating fuel, but on any goods related to oil and natural gas, would rise far more than is implied by a mere 10-20 percent import tariff. And keep in mind, much of this region is MAGA country. Over time, some pipelines that currently ship product out of the Midwest might need to be “reversed”, no longer exporting to the Gulf of Mexico and Northeast regions but drawing energy from them. The U.S. might even need to increase imports from geopolitical adversaries like Venezuela or dodgy and corrupt African states.

All of this would be damaging not only to American consumers, business and manufacturing industries, but to U.S. foreign policy and even to the U.S. energy industry itself, the ostensible “competitor” that one might intuitively think stands to benefit from import tariffs. It hardly needs to be said that this would run counter to the new Administration’s objectives.

Despite being dubbed “dirty oil”, “unsustainable” and a “sunset industry”, the energy sector has led America’s productivity gains over the last decade while providing well-paying jobs to hundreds of thousands of Americans – including Hispanics, Blacks and American Indians. (Source of bottom photo: Sahara Group)

In addition to its roles in supporting manufacturing and consumers, America’s oil and gas industry is seen by Trump and key members of his nascent Administration as a competitive advantage for the economy as a whole, as a major source of wealth-creation in its own right and as a geopolitical weapon. For this to make sense, one needs to know a few things about this industry. In contrast to its image as “dirty oil”, “unsustainable” or a “sunset industry”, oil and natural gas is among the most technologically advanced, innovative, entrepreneurial and dynamic industries in the economy. This sector led the entire American economy in productivity gains over the previous decade, as the accompanying graph indicates.

The million or more jobs it provides across the continent are by turns technically intricate, dangerous, physically hard, intellectually stimulating – and very lucrative. Just as more and more Canadian First Nations are becoming proponents of natural resource development because they recognize the benefits to themselves, the U.S. industry provides jobs to hundreds of thousands of Hispanics, Blacks and American Indians – an impressive number of whom just voted for Trump.

This is all thanks to one of the most remarkable industrial turnarounds in history: America’s transformation from an insatiable importer of oil and natural gas, its domestic production sagging by the year towards apparent oblivion, its producing sector increasingly demoralized and decrepit, into a country that’s not only energy self-sufficient but has leapfrogged to a net exporter. All in the dizzying time-frame of barely a dozen years, starting in 2008, the year U.S. crude oil production reached its nadir of a mere 5 million barrels per day. (Not long after, just as U.S. oil production was showing sparks of revival, President Barack Obama contemptuously declared that, “Anybody who tells you that we can drill our way out of this problem doesn’t know what they’re talking about, or just isn’t telling you the truth.”)

By last year the average rate had soared to 12.9 million barrels per day which, the U.S. Energy Information Administration recently pointed out, represented “more crude oil than any country, ever.” U.S. production isn’t just higher than Saudi Arabia and Russia’s – it’s nearly 30 percent higher. How this came about is its own story. But suffice it to say that Canadian visionaries and companies played an important role. So, interestingly, did prospective energy secretary Wright and his company, Liberty Energy, which helped pioneer the development of formerly inaccessible shale reservoirs by using horizontally drilled wells completed with multiple hydraulic fractures. In short, this transformation has fundamentally changed the energy game for the U.S., domestically and internationally.

Since its nadir at 5 million barrels per day (mmbpd) in 2008, U.S. crude oil production has soared to an average of 12.9 mmbpd in 2023 – more than any other country in history and trumping Saudi Arabia and Russia. Concurrently, exports of liquefied natural gas have zoomed from zero a decade ago to 12 billion cubic feet per day. (Sources of graphics: (top) eia.gov; (bottom) S&P Global, retrieved from The New York Times)

Here again, imported Canadian energy is neither a competitive threat nor a hindrance – but a source of economic value. The quirks of geography combined with the refusal of successive Canadian governments to ensure that Canada’s oil and natural gas could access global markets have created what amounts to a gargantuan, continent-spanning arbitrage mechanism that enriches American companies, investors and governments. In brief, cheap Canadian crude oil, natural gas and liquids are drawn into the U.S. from the north, enabling domestically produced crude oil, natural gas, liquids, refined fuels and petrochemicals to be exported from the vast Gulf of Mexico energy complex to hungry global markets, where they access premium international prices.

This has become a multi-hundred-billion-dollar opportunity that American entrepreneurs and financiers have exploited with alacrity. Vast investments in LNG export facilities have taken the U.S. from zero LNG as recently as 2014 to approximately 12 billion cubic feet per day this year, a figure forecast to zoom to 20 billion cubic feet per day within two years (the U.S. will thus be exporting more gas than Canada produces in its entirety). U.S. net exports of refined fuels (much more valuable than crude oil) are generating more than US$60 billion annually. The associated processing and export facilities themselves employ thousands.

Trump’s ‘liquid gold’ will soothe American consumers, grease the skids of American manufacturing, fill the financial tanks of American investors and set economic bonfires upon America’s enemies.

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Clearly, the more Canadian oil and natural gas can be imported from the north, the more American energy – including value-added refined/processed products – can flow from the Gulf of Mexico outward to the world. Indeed, Trump himself has said he would like to reinstate the federal permit for the much-fought-over, 800,000-barrel-per-day Keystone XL pipeline, which he approved early in his first term but was then cancelled by Biden.

The stunning U.S. energy turnaround in barely 15 years plus the current prospect of enormous further growth enable Trump and his policymakers to credibly talk about elevating the U.S. to global “energy dominance”. That is to say, an America liberated from dependency on imported oil not only can act unconstrained by the need to placate oil-producing nations that don’t share U.S. interests, but can use its own energy exports to enrich itself and support allied countries. It can also stare down oil-producing adversaries like Iran and Russia, leaving them weaker, contained and less able to fund wars, terrorism and other foreign mischief. Trump’s stated policy to curtail oil production misused by dictatorships in Iran and Venezuela also implies that Canadian energy exports will be more highly sought-after than ever. More Canadian energy strengthens U.S. energy dominance and weakens its enemies by helping to hold down international commodity prices.

Golden opportunity: The Trump Administration’s stated goal of global “energy dominance” appears achievable, weakening its oil-producing adversaries while holding open the door to Canada – if Canada’s political leadership is intelligent enough to seize the moment. Shown, Trump shakes hands with UFC Champion Jon Jones at Madison Square Garden, New York, 11 days after his election victory. (Source of photo: AP Photo/Evan Vucci)

The U.S. is already the world’s energy giant. Its goal of “energy dominance” is therefore serious and realistic. Standing atop it all will be Trump, the energy dominator: his “liquid gold” will soothe American consumers, grease the skids of American manufacturing, fill the financial tanks of American investors and set economic bonfires upon America’s enemies. That simply does not sound like an Administration about to place tariffs on the very imports that will help it make this happen. Far more likely, the 47th President’s energy policy will offer Canada a golden opportunity to play a supportive role as a neighbour, friend, trading partner and ally – and to profit greatly from doing so.

George Koch is Editor-in-Chief of C2C Journal.

Source of main image: heritage.org.

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C2C Journal

Net Gain: A Common-Sense Climate Change Policy for Canada

Published on November 16, 2024

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From the C2C Journal

By Robert Lyman
Most Canadians have come to agree that the federal carbon tax needs to go. But while the rallying cry “Axe the Tax!” has been a deadly partisan tool for Pierre Poilievre, it does not constitute a credible election campaign platform, let alone a coherent environmental policy for a new government. The Conservative Party needs to develop both, writes Robert Lyman. The election this past week of Donald Trump as U.S. President creates an urgency to remake Canada’s climate policy on more realistic, sensible grounds. Drawing upon the pragmatic, economics-driven approach of the Copenhagen Consensus, Lyman proposes a middle path that discards the uncompromising, self-destructive ideology of the Justin Trudeau government while recognizing that most Canadians won’t accept doing nothing.

The Justin Trudeau government has made reducing greenhouse gas emissions the pre-eminent goal of public policy. In 2021 it passed the Canadian Net-Zero Emissions Accountability Act, binding present and future governments to a process intended to achieve “net zero” emissions by 2050 and to set incremental five-year emission reduction targets and plans towards that end. Net zero essentially means eliminating almost all the greenhouse gas (GHG) emissions resulting from the consumption of hydrocarbons – crude oil, natural gas and coal – in the Canadian economy, and doing so within 29 years of the new law’s passage.

This presents an immense challenge and is effectively impossible in the intended timeframe. Canadians currently rely on fossil fuels to meet about 73 per cent of their energy needs. These energy sources provide services essential to Canadians’ incomes and wellbeing: secure, reliable and affordable heat, lighting and motive power to move people and goods, as well as the food, medicine and other critical services to sustain them. Without these energy sources, Canadians would all be far poorer, colder, less mobile and less able to compete in the global economy.

Impossible dream: With fossil fuels currently meeting 73 percent of Canada’s overall energy requirements and fulfilling critical needs from heating to medical services, getting to “net zero” emissions anytime soon seems delusional. (Sources of photos: (top two) Pexels; (bottom two) Unsplash)

At least four trends are coming together to make the present policy course untenable:

  1. The Canadian public is becoming far more aware of the financial costs of the emission reduction measures, including especially the impact of “carbon” taxes (technically, taxes on fossil fuel-related emissions of carbon dioxide (CO2)) and higher electricity rates from switching away from lowest-cost generating options. Federal climate-related spending, by the government’s own admission (see page 125 of the pdf version of the linked document), is now in the range of $20 billion per year, while the economic cost of working towards net zero has been credibly estimated at $60 billion per year.
  2. The public – notably young people and seniors – are becoming more aware of the effects of climate-related regulations and taxes on the cost of living, especially the cost of housing, and on employment opportunities.
  3. There is a wide and growing disparity between the promises of politicians to reduce emissions and what is actually happening; no national emissions “target” has ever been met or is likely to be met.
  4. Rapidly growing emissions in many developing countries (especially China and India), which now collectively generate 68 percent of the world’s total, demonstrate that net zero will not be achieved globally. Furthermore, reductions achieved regardless of cost in Canada (which produces approximately 1.5 percent of global emissions) will yield negligible global benefits in terms of temperature or weather.

The Temptation of a Different Kind of “Net Zero” Policy

Based on these trends, it might be argued that Canada should perform an immediate policy U-turn and cancel all federal measures founded upon any claim of impending climate catastrophe. This would give new meaning to the term “Net Zero Policy”: a government whose climate change policy is to have no policy. Enthusiasm for such an approach must, however, be tempered by the recognition that it runs counter to the position held by all the main political actors in Canada, including notably the mainstream media. Policy, like politics, best evolves in the realm of compromise and consensus.

“Axe the Tax” has its limits: Conservative Party leader Pierre Poilievre (top) has pledged to get rid of the hated consumer carbon tax and eliminate comprehensive electric vehicle mandates, but he’s expected to maintain the pricey “producer” carbon tax on industrial emitters. (Sources of photos: (top) The Canadian Press/Paul Daly; (middle) WSDOT, licensed under CC BY-NC-ND 2.0; (bottom) Shutterstock)

Thus, one should consider where might lie a “middle ground” that could garner the support not only of those strongly opposed to all elements of current policy – which can loosely be described as Conservative leader Pierre Poilievre’s core base – but also of moderates, i.e., people who do not doubt the general notion of climate change but who shy away from radical or ruinous policies to deal with it. This disparate category likely includes much of the business community, what used to be called “Red Tories”, some centrist Liberals disaffected with Trudeau and some working-class NDP voters suspicious of that party’s current direction.

Politics at its most basic will require that the Conservatives have something to put in their campaign platform entitled “climate change”, “emissions” or, more broadly, “the environment”. So far, Poilievre has been cobbling together policy ideas seemingly ad hoc. As practically every Canadian knows, he pledges to get rid of the consumer carbon tax – the one everyone pays at the gas pump or on their natural gas heating bill.

Less understood, however, is that Poilievre is widely believed to intend to maintain the “producer” carbon tax on industrial emitters – an equally steep, equally escalating levy that is burdening industry with billions of dollars in additional taxation. Additionally, Poilievre has promised to get rid of some major Liberal-imposed regulations – like the mandate to transition to entirely electric vehicle production by 2035 – but would rely even more heavily on other technocratic regulations at the industrial level.

Some of these policies make sense on their face; some might not make sense at all. What is clear, though, is that the Conservatives do not have a complete climate change and/or environmental policy – at least not one they have shared with the public. Eliminating the consumer carbon tax as an unfairly imposed cost and needless drag on the economy as well as a symbol of climate policy over-reach would be an important and politically popular way to demonstrate a more common-sense approach.

It is not enough, however, and it would leave a new government vulnerable to the accusation that it lacked a coherent and well-considered approach. Attempting to govern without a clearly articulated overall policy on climate would politically damage even a solid majority government; in a minority situation, it could be enough to destabilize the government altogether and prompt an early election.

A Better Way

There is a better way – a middle way between the current ideological approach and a no-policy-policy. It is inspired by the work of the Copenhagen Consensus Center. This ongoing project seeks to establish priorities for advancing global welfare in a range of areas, from battling diseases like malaria to advancing national economic development to addressing climate change, through methodologies based on welfare economics, which centres on cost-benefit analysis.* The Copenhagen Consensus was conceived and launched in the early 2000s by Bjorn Lomborg, the famous Danish environmentalist. In each policy area examined, subject matter experts present potential policy solutions, which are evaluated and ranked by a panel of economists, thus emphasizing rational prioritization through economic analysis.

Of 15 possible policy measures to respond to climate change, the Copenhagen Consensus panel ranked carbon taxes the very worst – something that’s of obvious relevance to Canada. Also of interest in the Canadian context was the experts’ strong endorsement of research into carbon storage.

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In 2009 the Copenhagen Consensus assembled an expert panel to consider the best responses to climate change and rank them as priorities. The panel was asked to answer the question: “If the global community wants to spend up to, say $250 billion per year over the next 10 years to diminish the adverse effects of climate changes, and to do most good for the world, which solutions would yield the greatest net benefits?”

In the resulting report, the top priorities generally focused on investments in scientific research and technology development and commercialization, while measures to reduce CO2 emissions using currently available technologies were ranked lower, because these were found to incur high costs in relation to the expected environmental benefits. Of 15 possible policy measures to respond to climate change, the Copenhagen Consensus panel ranked carbon taxes the very worst – something of obvious relevance to Canada. Also of interest in the Canadian context was the experts’ strong endorsement of research into carbon storage (something that Alberta and Saskatchewan are very enthusiastic about), planning for adaptation and the expansion and protection of forests.

A better way: Founded by Danish environmentalist Bjorn Lomborg, the Copenhagen Consensus Center uses rational economic analysis to advance global welfare in areas from battling disease to addressing climate change. (Source of left photo: TED Conference, licensed under CC BY-NC 2.0)

The Copenhagen Consensus approach to climate policy presumes that human-induced climate change is occurring and that it probably will have adverse effects, but it contends that other social and environmental issues are more serious threats to humanity and should be addressed as higher priorities. Its careful analyses came to recognize the limitations of currently available technologies in achieving a cost-effective transformation of the global energy system. This is why it advocates prioritizing a significant increase in funding of basic science to accelerate the discovery and commercialization of new emission-reducing technologies. It also places priority on measures taken to adapt to (rather than seek to prevent) potential climate changes and to enhance the overall resiliency of the energy system.

Climate Change Policy Implications for Canada

The Copenhagen Consensus’ cost-benefit-based prioritization of climate change policies is applicable to Canadian policy-making and governance approaches in several important and broad areas, at not only the national but international and inter-provincial levels. What follows is a brief, simplified discussion of the most important aspects, keeping in mind that some of these are large issues in themselves and not resolvable overnight.

Remove the Pressure of Overly Ambitious and Arbitrary Targets

Canada has never met any of the targets set at the international or national levels regarding either the magnitude of emission reductions or the arbitrary dates by which these would be reached. The use of such arbitrary and unrealistic targets should be reduced or avoided. A first step in applying the Copenhagen Consensus’ recognition of the immense difficulty and complexity of achieving an energy transition, along with the need for new technologies whose development does not occur according to a government-controlled timetable, would be for Canada to postpone the “Net-Zero by 2050 goal” to at least 2070 if not 2100.

Adopt a Multi-Goal Framework

Canadian climate policy would henceforth be developed within a multi-goal public policy framework. Rather than making emission reduction the preeminent goal, the federal government would seek to optimize climate policy alongside multiple other public policy objectives including economic prosperity (growth, employment, investment and trade), social harmony, environmental quality, financial responsibility, energy security, defence and promotion of good federal-provincial and international relations, among others.

“Arbitrary targets”: Applying Copenhagen Consensus rational analysis would mean abandoning or postponing Canada’s “Net-Zero by 2050” goal and focusing instead on practical environmental improvement projects. Shown at bottom, the Gold Bar Wastewater Treatment Plant in Edmonton, Alberta. (Sources of photos: (top) JessicaGirvan/Shutterstock; (bottom) Urban Edmonton)

Prioritize the Real Environmental Problems

Despite what one reads and hears in the mainstream media, Canada has very high environmental quality and the areas that need improvement are relatively few. These include solid waste management, sanitation/wastewater treatment and sulphur dioxide emissions per unit of GDP. Most of these are provincial and/or municipal responsibilities, but the federal government can play a role in funding capital investments. Where the federal government has jurisdiction and must regulate, regulatory efforts should focus on addressing tangible environmental problems with practical, cost-beneficial, affordable solutions to further clean up the air, water and soil, and the results should be measured and tracked by comprehensible and publicly available metrics.

Adhere to Technological Realism

A common-sense approach would recognize that energy transitions take a long time. The pace of transition away from fossil fuels must, accordingly, be guided by the rate at which new scientific discoveries can be applied to the development of new products and services and then commercialized to the point of true economic viability. A common-sense policy approach in Canada would abandon the presumption that governments can and should attempt to hasten the technology commercialization process by “picking winners”, granting large subsidies to favoured firms or otherwise trying to centrally plan the changes in the energy economy. Instead, the new approach would entail higher levels of government funding for basic research and development.

The federal government’s 2030 Emissions Reduction Plan could add about $55,000 to the average cost of a new home built in Canada. A new Canadian climate policy would abandon this plan and leave the establishment of building codes, zoning and construction approvals in the hands of provincial and municipal governments.

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Promote Energy Security and Reliability

A new Canadian climate policy would repeal or substantially amend the Clean Electricity Regulations that mandate the elimination of hydrocarbon-based electricity generation by 2035, a goal that this recent study concludes is completely unfeasible. It would also require that future federal or provincial regulation of GHG emissions be based upon a systematic review of the potential impacts on the viability and competitiveness of Canadian industry. Finally, it would eliminate the impending federal cap on oil and natural gas industry emissions (which was unveiled on November 4 and imposes a 35-percent rollback in GHG emissions by 2030) and take other measures to ensure that Canada, which has the world’s third-largest crude oil reserves as well as world-scale natural gas reserves, can continue to increase energy production to meet the needs of domestic and export markets.

The steep cost of compliance: The Justin Trudeau government’s 2030 Emissions Reduction Plan will add an estimated $55,000 to the average price of a new home, pointing to the need to eliminate costly and pointless regulation. (Source of photo: pnwra, licensed under CC BY 2.0)

Reduce Housing Costs

According to the Fraser Institute, the federal government’s 2030 Emissions Reduction Plan could add about $55,000 to the average cost of a new home built in Canada. Even more stringent and costly regulations would undoubtedly follow after 2030 to meet the net zero target. A new Canadian climate policy would abandon this plan and leave the establishment of building codes, zoning and construction approvals in the hands of provincial and municipal governments. This would contribute meaningfully to addressing Canada’s housing affordability crisis.

Legislate Wisely

A new policy would include amending or repealing the Canadian Net-Zero Emissions Accountability Act. The entire law is a litigation “trigger” because it gives climate activist organizations weapons that they can use to engage in “lawfare” – the strategic use of legal proceedings to hinder, intimidate or delay an opponent.

Depoliticize the Regulation of Energy Infrastructure Projects

A new policy would return the regulation of energy infrastructure and rate-making to one that takes place at arm’s length from government political and policy direction. This would require changes to the federal minister’s control of the Canadian Energy Regulator. It would also be highly desirable to reform the system of environmental assessment and review by placing strict time limits on the duration of infrastructure project reviews. Today, regulatory reviews of major energy projects often take five years or longer to complete, and some have taken over 10 years.

The federal Impact Assessment Act (having last year been found largely unconstitutional by the Supreme Court of Canada) would be substantially amended so that the resulting federal law returns to being a review of the national environmental impacts (and any local impacts as these pertain to areas of clearly federal jurisdiction) rather than an exercise in jurisdictional duplication and an assessment of consequences for the entire planet.

A common-sense climate change policy would also streamline, limit the scope of and quicken the currently often 10-year-long environmental assessment process. Shown, the LNG Canada project in Kitimat, B.C. under construction, January 2024. (Source of screenshot: Northcoast Drone/YouTube)

The principle of “whoever hears the evidence should decide” would be brought back into the law, with an appeal to the courts on a question of law only and an appeal to the federal Cabinet on a question of policy. This is how the Canadian Radio-television and Telecommunications Commission (CRTC) has worked for several decades.

The arbitrary and harmful bans on oil tanker traffic on the Pacific Coast and on new hydrocarbon exploration and development in Canada’s Far North would be removed.

Promote Federal-Provincial Harmony

In the pre-2000 period, federal climate policy explicitly recognized that measures should not entail undue costs and burdens on any region or province. This went out the window in the Trudeau era and became a leading cause of federal-provincial discord. A new policy would re-institute this as a cardinal principle. Among other things, it would also be essential to ensure that there was ample coordination and consultation with all affected provinces before any new international commitments were made.

Focus on harmony: To promote more efficient cross-border trade, Canada’s regulatory standards should align with those of the U.S. The incoming Donald Trump Administration is likely to discard electric vehicle mandates and “clean” fuel standards, policy shifts that will affect Canada. (Sources of photos: (top) AP Photo/Evan Vucc; (bottom) Sundry Photography/Shutterstock)

Harmonize Canadian and United States Regulatory Regimes

It would be recognized that to facilitate more seamless cross-border trade with Canada’s largest trading partner, the United States requires that regulatory standards and codes developed in Canada, especially involving the regulation of fuel efficiency/emissions intensity of vehicles and appliances, be closely aligned with U.S. federal standards. It is widely expected that the incoming Trump Administration will discard electric vehicle mandates and “clean” fuel standards, policy shifts that clearly will affect Canada. Although this is not to suggest that Canada allow its policies to be dictated by the U.S., close attention should be paid.

Facilitate Truly Responsible Investing

Canada has committed to adopting the new Sustainability Disclosure Standard under International Financial Reporting Standards (IFRS), which imposes mandatory sustainability-related disclosure and climate-related financial disclosure. These and similar regulatory initiatives are increasing the burden on Canadian firms to report not only their own estimates of GHG emissions but also to try to guess those of their suppliers and customers. This is absurd on its face and creates another trigger for endless litigation when such guesses turn out wrong, prompting accusations of fraud. A new Canadian climate policy would severely restrict the use of such accounting measures.

Fairly soon, the current Official Opposition is likely to take on the responsibility of actually governing. To respond effectively to the economic and political threats posed by climate catastrophism, advocates of policy change must go beyond merely targeting individual policies for cancellation based on complaints about the harm they do.

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Build Adaptation and Resilience

A new Canadian climate policy would place greatly increased, perhaps primary, emphasis on measures to increase the resilience of Canadian infrastructure and economy to future climate changes. Adaptation measures can avoid or reduce adverse future impacts by, for example, changing human behaviour in advance, such as land use rules that prohibit construction of buildings in flood-prone areas, or by taking actions to protect valued resources, communities and landscapes. Many adaptation measures also increase resilience towards climatic variability such as droughts and storms, making them potentially attractive policies even in the absence of long-term human-induced changes. They can pay dividends to society even if all the concerns about climate change turn out to be greatly exaggerated.

A new climate change policy should include measures to increase the resilience of Canadian infrastructure and the economy to future climate changes. Shown, (at top) a storm in coastal Nova Scotia; (at bottom) flooding in B.C.’s Lower Mainland. (Sources of photos: (top) The Canadian Press/Andrew Vaughan; (bottom) The Canadian Press/Jonathan Hayward)

Who Might Implement the Copenhagen Consensus in Canada?

It is clear that the Trudeau government is incapable of such a significant policy reform as summarized above. It is at least conceivable that, were Trudeau to be replaced before the next election, his successor might consider some of these measures; conceivable, but not likely. Most probably, the task of implementing such broad policy changes would fall to a new Conservative federal government. The party’s promises to “Axe the Tax” correctly address the mounting public concern about the impact of carbon taxes on the cost of living and competitiveness of Canadian business, as well as the unfairness with which they have been applied.

Fairly soon, however, the current Official Opposition is likely to take on the responsibility of actually governing. To respond effectively to the economic and political threats posed by climate catastrophism, advocates of policy change must go beyond merely targeting individual policies for cancellation based on complaints about the harm they do. They must think through what a realistic, credible, politically palatable – and cost-effective – climate policy framework would look like. The time to start is now.

*Cost-benefit analysis is a tool economists use to compare the estimated costs and benefits (or opportunities) associated with a proposed undertaking. It involves tallying up all the current and projected long-term costs and benefits, estimating the financial equivalent of those for which dollar equivalents are not available, and converting everything into present-value terms using discount rates. If the costs outweigh the benefits, then the decision-makers should rethink whether to proceed.

Robert Lyman is a retired energy economist who served for 25 years as a policy advisor and manager on energy, environment and transportation policy in the Government of Canada.

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