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Saskatchewan’s energy issues in the federal election: Wall

Why is petroleum factored into equalization but not hydro?
Brad Wall
Brad Wall spoke at the Saskatchewan Oil and Gas Show in Weyburn on June 3.

ReginaThe day after the first leaders debate in the 2015 federal election, Pipeline News spoke to Premier Brad Wall about the energy issues important to Saskatchewan in this election. Wall spoke by phone with Pipeline News on Aug. 7.

Pipeline News:What issues, particularly with regards to energy, are important to Saskatchewan in this federal election?

Brad Wall:The transportation of energy is right at the top of the list. There are a few others, but we’ve got to be able to get our product to tidewater. We’ve got to start acting like a country that has the third greatest oil reserves on earth, because we don’t (act like it). If we did act like a country that has that quality and quantity of reserve, we would be doing whatever we could to get to tidewater and maximize value for the oil. We wouldn’t have just one customer.

I think we all understand where Keystone XL is at; on the desk in the White House. We can’t really control that one. Gateway has obvious sensitivities. Energy East is a conversion for the most part – two thirds of it. It replaces the need to import foreign oil There’s a long list of things that commend this pipeline to approval. That’s a big issue, and what I’m hearing so far in the election is not that hopeful. I’m hearing at least two of those wanting to be prime minister, not unequivocally, but are leaning towards concerns about the pipeline.

The other issue is the intersect between energy and the environment. We all need to do our part with respect to climate change. But if we’re going to talk about a national cap-and-trade plan, as one party, I think the New Democrats are proposing, I think there should be a worry in Western Canada about it being, on a de facto basis, another transfer payment. Another redistribution of national economic capacity and fiscal resources from one part of the country to another. Again, the devil is in the details, and we don’t know that yet.

Those would be a couple of concerns with respect to the federal election and energy issues. 

P.N.: Can you elaborate on your recent comments on equalization, its treatment of hydro versus petroleum, and possible payment through a pipeline?

Wall:The latter was kind of to make the point, and it was pretty blunt, I admit. But I certainly stand by it. If you do the math, Saskatchewan taxpayers pay about a half billion dollars into the $17 billion federal equalization program. Alberta residents pay about $2 billion.

By way of background, we looked at the federal government. Almost all their revenue comes from taxes, whereas provincial governments have other revenues. So a per capita analysis got close to the numbers, the basis of a half-billion from our taxpayers and two billion from Alberta. Those payments have been made on the strength, to a great degree, of the natural resource economies of the West and specifically oil and gas.

In order for us to continue to do that, to continue to contribute the way we want to contribute to equalization, to stay have provinces; well, we’re going to stay have provinces, to be able to nationally do these sorts of transfers, part of that formula has to be maximizing the value for the oil, moving oil across the country.          

In any given year we can lose in the budget up to $300 million because we sell at West Texas (Intermediate) versus the Brent price, because we have the one customer and we can’t get it to tide water. It was a way to say look, equalization payments are a huge program, $17 billion, is funded in part because of a strong natural resource economy. Maybe that can be recognized by provinces in supporting Energy East.

With respect to the hydro piece, this isn’t new. I’ve been saying for some time it is unfair hydrocarbons are very much part of the calculation for equalization, oil and gas, obviously, and hydro, which is increasing in terms of value because it is a green source of energy, is not. So provinces like Manitoba and Quebec and others that have a lot of hydro, that’s not included in the calculation of their economic capacity. To me, that’s a fairness issue. It’s a form of energy, gaining in value, it’s exportable, those jurisdictions can sell that electricity across the border, and they should. It’s a good thing they have it, I’m glad they do, but it should be part of the equalization formula. That’s one improvement we could make to the program.

P.N.: Isn’t it curious the have provinces all produce petroleum, be it natural gas, primarily in B.C., or oil in Alberta, Saskatchewan and Newfoundland? And yet the ones with the highest hydro capacity happen to be the ones that happen to be the long-term have-not provinces.

Wall:It is. You’re exactly right. Having hydro is valuable for a jurisdiction because it offers a low-cost energy for their respective economies, and that’s a good thing. I’ve had people point out to me the equalization is there because we want to equalize things across the country. It’s not like the government put the oil and gas in the ground. It’s the good luck that we have. They’re absolutely right.

The same argument can be made for those that have a lot of hydro. It allows them to have a lot of low-cost energy. It allows them to sell that energy interprovincially and across the U.S. border. This is a good thing for them, but surely it’s got to be part of the calculation. The name of the program is equalization, which speaks to me as an equal treatment of different forms of energy, whether it’s fossil fuels or hydro, and that doesn’t happen today.

P.N.: There was a lot of talk of “carbon pollution” during the federal leaders debate, but not a lot of talk of carbon capture. Should carbon capture and storage be an issue in this election?

Wall:It should be, and here’s why. Canada’s responsible for something less than three per cent of global emissions. We can talk about carbon taxes here in Canada, pricing and levies, cap-and-trade as Ontario and Quebec are talking, but were we even to completely eliminate all CO2 emissions, which of course wouldn’t happen, we would have dealt with three per cent of the world’s problem.

Meanwhile there are 500-plus coal plants on the books in India. Meanwhile China’s building a coal plant every 13 days at about 600 megawatts. Meanwhile Japan is reanimating coal and building new coal to replace nuclear production. Germany has reanimated coal. The United States is still using coal.

In carbon capture, and we really have demonstrated it at Boundary Dam 3, which is still working, in quote-unquote clean coal technology, we’ve got something to offer for a big part of the problem.

Forty per cent of energy production worldwide, and it’s likely more than that, is from coal. If Canadians want to be serious about contributing to the fight against climate change, we would actually do more for the worldwide problem by focusing on technologies that can be applied in these economies. Getting the price down so they make sense, we’d be better off focusing on them than shifting around and moving around the three per cent of emissions we’re responsible for. Not that we shouldn’t all be doing our part internally, I’m not advocating that, but carbon capture should be part of the debate around the post-carbon economy. It gives us a chance to actually do something about a huge part of the problem world-wide.