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ENERGY & SUSTAINABILITY

Analysis, Thoughts and Conversations by Dan Zilnk

The US Election: Implications to Canada‘s Energy and Environment Direction

Dan Zilnik

Yesterday Donald Trump was officially declared US President-Elect after an election that rewrote the US’ political rules. The election highlights a new political faultline: not between the traditional left and right, but between open and closed. By electing Mr. Trump the US pivoted away from a multi-decade campaign of opening its economy and supporting globalization. President-Elect Trump summed it up three months ago when he declared, “Americanism, not globalism, will be our credo”. The US’ pivot toward becoming a more closed nation will have ripple effects that circle the world in security policy, trade policy, climate policy and America’s relations with its allies including Canada. It is hard to imagine a larger apparent gap in substance and approach than Justin Trudeau’s open global perspective (welcoming Syrian refuges and pushing for more global trade deals) and Donald Trump's closed Americanism. This briefing note focuses on how Mr. Trump’s election may impact Canada/US relations when it comes to energy and environment.

1. Building a Canadian oil or gas pipeline into the US may get easier. The terms will likely get tougher.

It is expected that President-Elect Trump will spend a part of his first 100 days in office “unsigning” many of the orders, laws and global agreements made by President Obama and his administration.

Former Canadian Prime Minister, Stephen Harper took to twitter immediately linking Mr. Trump’s election to the “unsigning” of the President Obama’s decision to reject the Keystone XL pipeline.

It is very likely that Mr. Trump will reopen the decision around the Keystone XL decision, but with “Buy America” caveats. As President-Elect Trump noted on the campaign trail, “I would absolutely approve [Keystone XL], 100 per cent, but I would want a better deal. I want it built, but I want a piece of the profits…That's how we're going to make our country rich again.”

This approach will likely cut both ways when it comes to Canadian energy. Canadian oil producers will be excited that Mr. Trump is likely to support more Canadian energy flowing into the US to decrease US dependence on Middle East and South American oil supplies. But, Americanism will also complicate the terms of any agreement as a “Buy America” and/or “Pay America” provision will likely be built into many international agreements going forward. This approach to international agreements “would start a ‘me too’ [movement]” notes Jackie Forest, VP at ARC Financial. For example the US exported 5,027,379 MCF (million cubic feet) of natural gas through pipelines to Canada between 2010-2015. If Canada is charged for exporting oil into the US through the Keystone XL pipeline, will Canada try to charge a tariff on imported natural gas? There is the potential for a negative domino effect from the Americanism approach.

2. Momentum to tackle climate change will be setback. So will the push for more innovation.

President-Elect Trump has a less favourable attitude toward climate change policy, decarbonizing US energy production and expanding renewable energy compared to President Obama and his administration. In fact, Mr. Trump is notorious for stating that climate change is conspiracy to make US manufacturing non-competitive.

Consistent with his Americanism, Mr. Trump has railed against the Paris Agreement and it is likely he will not support further participation, particularly if the US is involved in underwriting a clean energy transition for developing nations, which is a tenant of the agreement. Other bilateral deals, such as the US/China climate

Consistent with his Americanism, Mr. Trump has railed against the Paris Agreement and it is likely he will not support further participation, particularly if the US is involved in underwriting a clean energy transition for developing nations, which is a tenant of the agreement. Other bilateral deals, such as the US/China climate

agreement will be brought into question, meaning that the two largest emitters of greenhouse gases in the world may claw-back their climate ambitions simultaneously. Mission Innovation, a 20 country initiative to accelerate clean energy innovations, could also be damaged as the US will likely reconsider its participation in the initiative. Global innovation, under the new administration, will not be deemed as supporting local American economic growth.

3. Canada has its own drivers.

While the change in US position is likely to be dramatic, Canada will probably continue on its current Pan-Canadian Climate Framework because Canada has its own unique drivers. For the fifth year in a row Canada’s growth rate has been slowing more dramatically than most other developed countries. The limited growth Canada has experienced has come through workplace growth (new workers and new work occurring in Canada) not from labour productivity. Workplace growth is a problem since Canada is the fastest aging population in the OECD, a club of mostly rich countries, and is likely to have fewer workers in the workplace in the upcoming decades. Prime Minister Trudeau notes that Canada needs value adding innovation to reignite the economy, and needs to make labour more productive. With this driver in mind it is hardly surprising that Canada’s Pan-Canadian Climate Framework contains so much more than pricing greenhouse gases. The Framework includes pricing greenhouse gases, developing clean technology and associated jobs, reducing emissions, and climate adaption. This Pan-Canadian Climate Framework is seen as a key lever in accelerating Canada’s flagging labour productivity and reigniting economic growth; a more closed approach to global climate initiatives take by the US will not significantly change this Canadian driver. 

There may even be some alignment in Canada/US energy perspectives. Prime Minister Trudeau has noted that today’s fossil energy will be a key tool to transitioning to clean-growth economy. He notes “[w]e must continue to generate wealth from our abundant natural resources to fund this transition to a low-carbon economy”, so Ottawa may support the reexamining of the Keystone XL decision.

The new Americanism means that the US will not adopt a carbon price anytime soon. Therefore, the Canadian government will need to consider how trade exposed sectors will be affected by Canada’s unilateral carbon policies. That being noted, Canada’s Pan-Canadian Climate Framework will likely remain intact even with a pivot toward a more closed, Americanism approach south of the border.