Thursday, June 14, 2012

The NYTimes Gets It Wrong: The Keystone XL Pipeline and Understanding the Canada-U.S. Energy Relationship

By Keith Edmund White

If you gave quick glance to yesterday’s NYTimes article detailing Canadian blowback from the Obama administration’s rejection of the Keystone XL pipeline, you might think that the Canada-U.S. energy relationship is now in grave jeopardy—and that the Keystone rejection has come with irreversible and grave economic costs to the United States.  But that impression has less to do with the actual facts surrounding Keystone than the NYTimes article’s poor and misleading structure, which suggests the NYTimes was more interested in getting ‘lazy clicks’ than actually informing the public on the state of the post-Keystone XL Canada-U.S. energy relationship.  

The short answer:  (1) there is no post-Keystone XL Canada-U.S. energy relationship--the southern leg of Keystone is already under construction and Keystone XL's reapplication is very likely to be approved after the presidential election; (2) the US isn’t losing energy security from its Keystone rejection; and (3) any loss of jobs from not constructing the northern portion of Keystone now seem delayed—not lost—because Canada is running into the same, if not stronger, environmental roadblocks that triggered the Obama administration’s Keystone rejection.  But even if you don't buy any of that, there's one glaring omission from Rosenthal’s article:  actually spelling out what was lost by the United States when the Obama administration rejected Keystone XL.

Yesterday, the NYTimes’ Elisabeth Rosenthal documented Canadian blowback resulting from the Obama administration's rejection of the Keystone XL pipeline.  While tightly written and not inaccurate, the article’s structure and considerable cherry-picking of facts implies the Keystone rejection has damaged America's energy relationship with Canada, a Saudi Arabian-sized energy supplier.  In fact, the real cost of not building the Keystone XL appears most likely to be only a delay in jobs related to constructing Keystone's northern portion and exporting Canadian oil outside North America through U.S. ports.

But you wouldn’t get that from reading Rosenthal opening paragraph: 
As the United States continues to play political Ping-Pong with the fate of the Keystone XL pipeline, Canadian officials and companies are desperately seeking alternatives to get the country’s nearly 200 billion barrels in oil reserves — almost equal to that of Saudi Arabia — to market from landlocked Alberta.
Six paragraphs down Rosenthal finally gets to discussing Canada’s ‘response’ to Keystone—three westward pipelines in Canada. Oh, but wait, in the next paragraph Rosenthal discusses a small problem with those plans:
Together, the new westward [Canadian] pipelines would carry more oil than Keystone XL would. But even with aggressive government backing, creating new pipelines may prove as difficult in Canada as it has been in the United States, though for different reasons.
And Rosenthal entirely omits another aspect of the Keystone XL debate: construction has already started on the Keystone XL’s southern portion. Why’s this important? Well, at the very least, it makes clear that the Canada-U.S. energy relationship isn’t fading anytime soon. From a February 2012 article:
In a move that should go a long away to relieve the oil glut in the US Midwest TransCanada said on Monday it is going ahead with construction of the $2.3 billion southern leg of the Keystone XL oil pipeline from Cushing Oklahoma to the US Gulf Coast. 
The Calgary based company said the shortened pipeline could be operational by June-July next year. Keystone XL was designed to carry 830,000 barrels per day.
Canada exports 2 million barrels of oil per day to the US and almost all of it ends up at Cushing – the pricing point for US crude – where inventories have been piling up and refining capacity is limited.
Oh, and that brings up an interesting point about Keystone XL. The additional oil that Keystone would have flowed into the United States would then be likely exported out of the United States. Why’s that? Because the United States can already take in the Canadian oil it needs—with or without Keystone. From a March 2012 MSNBC article:   
Most analysts agree that more Canadian oil flowing south would help reduce imports from other regions. Less obvious, however, is the fact that the Keystone XL pipeline is not actually needed to bring all that new Canadian oil to the US – a flow now projected to rise to 1.7 million barrels per day by 2030, according to the same DOE study. Often characterized by proponents as validating the need for the pipeline, that study actually found that Canadian oil import growth will go on at “almost identical” levels through 2030 using existing and new pipeline capacity as well as rail shipments – whether or not Keystone XL is built.
This brings us an important point: what’s at cost for the US economically in rejecting Keystone is not energy security, but--again--additional pipeline construction, refinery, and export-related jobs tied to being Canada’s access point to non-U.S. consumers of Canadian oil.

Now if you read Rosenthal’s piece that point was probably lost one you, since the entire narrative she constructs comes awfully close to:  ‘The U.S. Rejection of Canada’s Pipeline Jeopardizes the Canada-U.S. Energy Relationship.’   Sure, the Keystone rejection was driven by domestic politics, and did come at an economic cost to the United States.  But the scale of this cost seems rather minimal:  (1) Canada was pushing a pipeline in the US to avoid its own domestic opposition to westward pipelines in Canada, (2) the U.S.-Canada energy relationship (whether in terms of oil supply, refinery operations, or construction of pipelines) is still ongoing and growing, and (3) work on Keystone continues.  And the environmental concerns that led Obama to ‘cave’ to an interest group, well guess what?  They're even stronger in Canada.

And then there's the underlying point that makes most of this article, and this blog post, moot:  a modified Keystone XL pipeline will likely be approved after the presidential election--regardless of the election's outcome. A May 2012 Fox Business report states

TransCanada Corp is taking its second shot at asking Washington to approve the contentious Keystone XL oil pipeline, betting that a new route through Nebraska and post-U.S. election time frame for a decision will push the project forward.
"This project has been caught up in presidential politics long enough, it's time to get to work," Senator Lisa Murkowski, an Alaska Republican and ranking member of the Senate Energy and Natural Resources Committee, said in a statement.  
[Alex] Pourbaix said he believes the Nebraska Department of Environmental Quality will be able to decide on a new route that skirts environmentally sensitive areas by September or October. [Pourbaix is TransCanada's pipeline division president.]
Now, perhaps this criticism of Ronsenthal’s piece is asking too much for a moderately sized news article, which has to boil down complicated ideas and can’t inject every wrinkle into a story.  This posting—if it has succeeded—has brought up some nuanced--if easy to find--points, and perhaps crafting a compact NYTimes article including these points is simply impractical.  And, admittedly, she does—six paragraphs down—discuss Canada’s own challenges in getting their western pipelines off the ground.  But wait, what about this: 
As Canadian officials and companies desperately seek alternatives to get the country’s nearly 200 billion barrels in oil reserves – almost equal to that of Saudi Arabia – to market from landlocked Alberta, Canada pushes forward with Keystone XL alternatives forcing the United States to gauge the cost of Keystone’s rejection.
Now this opening paragraph, while still buying into the misleading narrative pushed by Rosenthal, at least lays a groundwork for understanding the micro-topic (Canada wants to get its oil out) without suggesting the United States is sacrificing its own energy relationship with Canada, let alone its energy security, by rejecting a portion of the pipeline. Furthermore, at the very least, it focuses on what matters to readers: spelling out the actual costs of the Obama administration's decision to reject Keystone XL.

Perhaps that type of article lacks the (misleading) black-and-white narrative that drives readership in today's newsmedia marketplace. But, at the very least, aren't these the type of topics that a world-class news organization—with their voluminous research database, rolodex-bursting access to public officials and experts, and supposed commitment to fostering informed discourse—should answer? And wouldn’t that article get more ‘clicks’ than an article that simply documents Canadian discontent
without giving readers the context necessary to assess the Keystone XL delay's impact?

Saturday, June 9, 2012

Generational Strains: Why In Canada and Not in the US?

By Keith Edmund White

Are we approaching the era of the Discontent GenY in Canada and the United States? Macleans' Emma Teitel vents about Gen-Y frustration with their boomer counterparts, but beyond the moaning of today's admittedly rough economic landscape, how will a generation of Canadians and Americans deal with an apparent lean decade--and what will their politics be?

Today Emma Teitel writes on Gen-Y's frustrations with the dwindling economy and a seemingly lack of empathy from their baby boomer counterparts:
Unfortunately not everyone has such generous sponsors, parents or otherwise (or a sponsor who can afford to be that generous). In fact, most people don’t. Yet our elders in the Conservative party (ahem: “There is no bad job”) and the media (isn’t it awesome when Globe and Mail columnist Margaret Wente writes a column railing against Gen Y kids for not finding jobs followed by a column about how she’ll never retire?) point to ambitious grads like Smulders, or the Toronto girls who pitched a tent at a busy intersection to attract potential employers—in order to illustrate their allegedly simple and logical point: times are tough and us kids need to get off our butts and just work a little harder. In a recent column, the National Post’s resident killjoy, Barbara Kay, went to town on my generation after a twentysomething waiter knocked over a glass of water in her lap and didn’t apologize (which Kay immediately interpreted as, “Because being Gen Y means never having to say you’re sorry”). She was equally shocked and appalled that according to an October 2011 National Report Card on Youth Financial Literacy (which I have now seen cited in at least three Gen-Y bemoaning editorials) 70 per cent of high school students “erroneously assumed they’d own their own home in 10 years,” and “the average respondent overestimated his future earnings by 300 per cent.” Wow. Breaking news! Teenagers have dreams. Apparently it has become a crime to think beyond your means. 
The anti-youth, “kids these days” attitude of many older people today, in reference to the ongoing student protests in Quebec and the Occupy movement, is cynical beyond belief—especially coming from a generation that in their youth could afford to be protesting about “big” things like the military-industrial complex, and not “little” things like tuition hikes and unemployment. When Margaret Wente was 23 years old, a chocolate bar cost 10 cents and a box of Corn Flakes cost 25. Tuition at the University of Toronto was well under $1,000. My father, who is roughly the same age as Wente, says he could make enough money at his summer job (he was a camp unit head) to pay for his tuition at U of T in the fall. And his books.

But, one question: is this strain a bump in the road--after an admittedly painful and long economic contraction--or is it the beginning of a new generational split?

Yes, the United States has the occupy moment, which is dominated by young voices. But you don't see American students or U.S. youth protesting at their universities or, like in Spain, rallying in anger.

Part of this, of course, has to be that Americans have gotten used to ballooning economic costs, that where any discussion of actually dealing with it are considered pie-in-the-sky thinking. But if Canada and the United States have to grow accustomed to low-growth, long-term economies, I think there's something the new generation of political leaders have to learn: as the 20somethings turn into 30 and 40 somethings, their collective past and current desires of government are going to be incredibly different from liberal/conservative debates in each country; debates that appear increasingly irrelevant to addressing the issues facing each country and the global economy.

But, while Canada as the ascent of the NDP to perhaps deal with this realignment, the United States has no such luck. In any case, it will interesting to watch the ascent of the Ys.

And, as a small counterpoint to Teitel editorial: at least in the United States, every generation is guilty of rationalizing the intractable problems of economically suffering groups. In the 90s the lament was globalization and its discontents, with NAFTA destroying industrial jobs, but pumping up middle class 401ks and raising American GDP--while lowering the prices of goods. There are always winners and losers, and with no simple solutions, we can't blame the 'winners' with not sending us their checks or giving us sympathy. Instead, the challenge is how to unite the underlying economic challenges facing all generations and make a coherent platform that gets us out of the 'win-lose' paradigm.

But that question is considerably easier to write than to answer.

Friday, June 8, 2012

The Beginning of the NDP Era?

By Keith Edmund White

A recent poll finds that the NDP would win, albeit only with a minority government, if a federal election were now held in Canada. Is Canada's Liberal Party gone? In any case, the NDP--whose charismatic leader Jack Layton only died last year--is continuing to gain strength and might just be Harper's main worry at the ballot box in 3-4 years.

There might be a reason Harper is pushing for quick economic growth: his approval rating is in the 30s. But, perhaps, even more troubling is this: a recent poll not only gives the NDP leader Tom Mulcair an approval rating in the 40s, but finds if a federal election were held now in Canada the NDP, yes the NDP, would win with a minority government.

So, no idea who Tom Mulcair is? Well, here's an provocatively titled MacCleans piece (Mr. Mulcair is Mr. Angry) and quick rundown from the Huffington Post. Some interesting highlights: Mulcair's short-fuse has cost from $95K, he's voted in French elections, and was a one-time Liberal party member. I think more prescient are these concluding paragraphs from the Macleans piece:

Beyond ephemeral questions about the NDP’s reason for being, Mulcair, as leader, would have to grow into the new role as the face of the party, becoming both a unifying, consensus-building presence within, and a strong, assertive figure on the public stage. Concerns about his aggressive style will have to be assuaged. Former Winnipeg North NDP MP Judy Wasylycia-Leis wouldn’t comment on Mulcair’s temperament. “We had a good working relationship,” said the long-time Manitoba MP, who resigned in 2010. When asked why she is supporting Brian Topp, the former MP said, “Brian Topp can take on Harper in a style similar to Jack, that is not personal, ugly or distasteful.”
But the case for Mulcair is that however controversial his presence, he is also the most obviously ready to fill the chair directly opposite Stephen Harper in the House of Commons. “Leaders have to carve our their own way of doing things,” says Davies. “And I think Tom’s ability to be smart and articulate and direct and to present a clear alternative—and he’s absolutely got steely resolve to take us to government—I think is carrying on Jack’s tradition in a different sort of package.”
Clearly, in only two months on the job, Mulcair--short-fuse or not--is gaining on Prime Minister Harper, whatever murmurings he makes about shifting Canada more towards European welfare model. Then again, when the number one issue in Canada is healthcare and not jobs, perhaps this line doesn't hurt poll numbers as much as it would in the United States.

In any case, the once-dominant Liberal Party has a tough--but perhaps not insurmountable--path to political relevancy.

Ottawa Citizen Highlights: Canadian and U.S. Productivity Difference, Harper's Green Isolation

By Keith Edmund White

Harper deals with the internal strife any governing party faces. For now, with a federal election 3-4 years away, Harper's position and Conservative governance are assured. But Harper's aggressive natural resource development push and resulting tone-deaf appearance to environmental concerns is bringing divides to the party. But is this green divide really just about the environment, or could be also be the economic trade-offs that have come with Harper's push to make Canada an increasingly resource-based economy? Whatever the cause, Harper's push for resource exploitation--while perhaps needed to buffer a fragile global economy--could come at a big political and economic costs down the line.

Two interesting articles, one new and one from last week, from the Ottawa Citizen.

First, while the U.S. and Canadian economies are inextricably linked, the Ottawa Citizen points out the interesting and profound productivity difference between the two neighboring economies. Before highlight sections from the article, why does this matter?

Well, because it shows the contradiction that is keep Canada's GDP--in the short-term--trucking (albeit slowly) along. Canada has pushed its economic growth through expanding its labor market (good for employment numbers!), but this has come at a cost: worker productivity. In the U.S. the opposite trend line occurred. The culprit (perhaps): the strong Canadian dollar, that allows its economy to be relatively inefficient owing to strong demand for its commodities. The interesting effect: this probably isn't a good long-term strategy: with a declining labor market (people are getting old!), labor market expansion can't push up the GDP. Also, Canada's manufacturing market may become increasingly unable to compete with other nations.

From the May 29, 2012 article by the Financial Post's Ian Martin:
“Canada should actually be celebrating this remarkable balancing act,” Mr. Lascelles said. “As much as we all would love the Canadian manufacturing and resource sectors to be firing on all cylinders at the same time, the reality is, it’s usually one or the other.”

Either way, prices have helped to ensure Canadian economic health.
But given demographic trends, Canada can’t just rely on shifting fortunes to level out growth prospects, Mr. Cross argued. 
“We’ve gotten away for 20 years in this country with not-great productivity because we’ve had offsetting developments in the price mechanism. Can you count on that forever? Probably not,” he said. “It’s hard to imagine how you’re going to get another break in the price mechanism that will help you offset the aging of the population.”
What makes this more interesting? Harper is doubling down on the natural resource-focused Canadian economy. Why? Well, this keeps the Canadian going in the right direction. And, arguably, dealing with other economic sectors weaknesses is easier to do with a raising GDP than a falling GDP. Furthermore, with Europe's economic woes, its probably best to push off dealing with Canada's delicate balancing after Europe gets his house in order. And, anyway, Harper has time (3-4 years) to revisit the issue, hopefully when the international economic picture looks a bit rosier.

But whether or no Harper's economy strategy may be tipping Canada's "remarkable balancing act" closer to its inevitable tipping point, one things for certain: the now-majority Conservative government lead by Harper , as is common with long-standing administrations, is facing internal dissent. The focus: environmental concerns over Harper's natural resource push.

Side-note: Though, again, note that the environmental murmurings find political strength in the Canadian Atlantic coast, which is also an area that relies on manufacturing--a sector that is not enjoying the natural resource-fueled high Canadian dollar.

From today's article (Harper's new enemy: conservatives, by Susan Riley) that highlights progressive Conservative unease with Harper's all-out push for natural resource expansion:
There is a new front opening, as opposition to Stephen Harper’s budget — and his broader agenda — gathers strength. Increasingly, criticism is coming from dismayed conservatives offended by Harper’s hostility, or indifference, to the environment. And to democratic tradition. 
The dissidents are mostly Progressive Conservatives, but not exclusively. This week, for instance, former Alberta Reform MP Bob Mills joined Green Party Leader Elizabeth May in decrying the elimination of the National Roundtable on the Environment and the Economy (a Mulroney-era initiative).
There have even been rumblings in the mostly docile, Conservative-controlled Senate. Senators Nancy Ruth and Hugh Segal, a Red Tory stalwart, have both strongly objected to the government’s crackdown on environmental charities. 
Credible criticism of other aspects of the omnibus bill — notably the weakening of the fisheries act — has come from Tom Siddon and John Fraser, Mulroney-era cabinet ministers. Siddon, now 70, lambasted the government for undoing decades of environmental progress, returning Canada to the status of “hewers of wood,” and for ramming changes through Parliament. “This is unbecoming of the Conservative party I belonged to,” he said.

To some, this will sound like the grumbling of old warhorses, but, elsewhere, Progressive Conservatives are enjoying a moment. Former Alberta premier Peter Lougheed, now 83, was feted in Calgary this week. Lougheed — who serves as a role model, and influential cheerleader, for Redford — reminded his audience, pointedly, that he always put Canada first. 
Harper wasn’t feeling much love from Atlantic Canadian conservatives this week, either. New Brunswick’s David Alward and Kathy Dunderdale, of Newfoundland and Labrador, questioned federal EI reforms that, they argue, fundamentally misunderstand and devalue the Atlantic Canadian economy. 
Premiers will always put regional loyalties before party, but there is little evidence of kinship between Harper and Atlantic conservatives. They don’t even seem to belong to the same party.

Monday, June 4, 2012

Canada Shares In U.S. Economic Woes, But Is Canada's Response of Pushing Energy Development Going to Push Divisive Political Regionalism?

By Keith Edmund White 

The global economy slowing, and the United States economic motor slowing too.  One result:  Canada’s economic growth has stalled as well.  But is Canada, with its low-debt and resource-high economy, more able to respond to troubling economic times?  Perhaps.  But a year-long study by a environmental thinktank shows that Canada’s conservative government active support for resource-development comes at a cost—and could sharpen Canada's regional tensions.  Then, again, anything that gets Quebec and Ontario on the same side can't be all that bad...right?

Already hobbled by Europe's debt crisis, the world now risks being hurt by slowdowns in its economic powerhouses. 
 The U.S. economy, the world's largest, had a third straight month of feeble job growth in May. High-flying economies in China, India and Brazil are slowing, too.

Naturally, news of the U.S. jobs data has dominated the news coverage.  But it also bears mentioning that Canada’s relatively well-performing economic has hit a snag too.  Canada's economic growth last quarter was a meager .9%, well below the government forecast of 2.5%.

The immediate result?  Canadian interest rates will not raise .  And while low rates can help spur growth, there is a price—taking money away from safe investments bonds and into the equity market to have investors achieve their desired rate of return.  And, as documented in the Globe and Mail, this has a particular impact on soon-to-be retirees:

It was just the latest sign that the new retirement would not be like the old: Defined benefit plans have given way to less generous defined contribution plans, stock market losses have pushed out many people’s retirement horizons, and the huge run-up in home prices that translated into a retirement bonanza for retirees will likely not be repeated – in fact it has meant bigger mortgages and less for retirement for follow-on generations.

But when it comes to responding the a possible double-dip, Canada does have one important advantage over the U.S.:

He said Canada, with its solid domestic economic fundamentals and its majority government, is "in a position to act" on the economy.
"Our fiscal situation is sound," he said, and Canada has fiscal "room to move," should a downturn encroach on Canada's relatively robust economy.
But will Canada's Conservative actually push a stimulus if the economic dips back into recession.  Sure they have the fiscal space to pursue such a strategy, but will a government that's pushing controversial cuts to government spending be willing to reverse course?

For right now, Conservative Prime Minister Stephen Harper does not see public spending as the way to spur growth in Canada.  Instead, Harper is pushing resource development—an understandable strategy, since it offers growth and minimal political blow back in the short-term.  (Note:  Environmental groups are up in arms, but it doesn't look like environmental concerns are going to sway Canada's national politics in the near-future.)

But will there be a steep economic and political price to Harper's energy push in the medium or long-term?  Yes, according to a recent study by the Pembina think tank, a Canadian energy think tank. reports on the study that emphasizes the costs of quickly--if not hastily--turning Canada into a resource-heavy economy

The symptoms are an inflated dollar and provincial tensions caused by a national economy that is increasingly tilted toward supporting the resource boom in northern Alberta.
It is a grave condition, but it is treatable if the federal government acts soon, says the Pembina Institute, an environmental think tank.
It also follows NDP leader Thomas Mulcair’s charge that Canada is suffering from “Dutch Disease” — a 1960s phenomenon in which the Netherlands invested heavily in offshore oil and suffered devastation in its manufacturing sector.
Similar problems are occurring in Canada’s manufacturing sector — particularly in Ontario and Quebec — but Mulcair’s simplistic diagnosis ignores the impacts of a weak economy in the United States and rise of China as a global manufacturing hub, the Pembina report says. 
 “It’s raised this issue to a level of both political and public prominence that is necessary. It has triggered a divisive debate that’s premised more upon rhetoric on both sides as opposed to really digging into the details of what’s happening and what can be done,” said Dan Woynillowicz, co-author of the report.
Coupled with the collapse of manufacturing jobs in Ontario and Quebec, the booming oilpatch, backed by a supportive federal government, threatens to cleave the country in two, Woynillowicz said.
It is not hard to envision a reverse of Alberta’s grievances of the 1980s over a National Energy Policy that subsidized western energy to support the needs of the rest of the country, he said. The western alienation phenomenon gave rise to a political protest movement that, years later, landed Prime Minister Stephen Harper in power.
“I actually think right now we’re potentially seeing that exact same dynamic setting up, but with the roles reversed — with the West being seen to be supported by the federal government in pursuing their interests at the expense of central and eastern Canada,” Woynillowicz said.
He said Wednesday that what he would like to see is a more sustainable development of Alberta’s bitumen, with a strategy that would bring jobs and money to other parts of the country rather than simply shipping the raw products to refineries in other countries.
Natural Resources Minister Joe Oliver said Mulcair’s “real agenda” is to introduce a carbon tax, stop development of the oilsands and put thousands of jobs in jeopardy.
The Pembina report makes what the authors described as modest recommendations, including eliminating subsidies for the oil and gas sector, studying the impact of the oilsands on the Canadian economy as well as the problem of regional competitiveness under a high Canadian dollar, creating a national energy strategy and using the corporate taxes collected from oilsands operators to ease the transition when the resource is used up.

I would  link to Pembina’s website for more information, but Pembina is participating in an internet blackout to protest against the proposed Conservative budget.