Canada needs lower interest rates

If you look around you can always find someone worse off, and by comparison, you’ll feel better about your own situation. The New York Times recently borrowed $250 million dollars from the Mexican billionaire Carlos Slim. The interest rate: a whopping 14 per cent. Times are tough for the newspaper business, with ad revenue down considerably in the recession and challenges from the Internet. Carlos Slim is betting that the better brands will survive.

Fortunately, the average cost of borrowing for the province of New Brunswick is lower than that, presently 8.3 per cent, down about half a per cent from several years ago, due to the trend of lower interest rates and the rise of the Canadian dollar. Former Premier Bernard Lord isn’t happy with the rising provincial debt strategy taken by Premier Shawn Graham’s government, according to a recent news report. A combination of higher capital spending and lower personal taxes will be financed by debt. The auditor-general indicated in March that the province’s debt could surpass $10 billion by the end of 2013. That’s approximately 52 per cent higher than the legacy of the previous administration.

If the interest rate on the provincial debt remains the same, the annual payment for that $10 billion debt could be $830 million annually, or $253 million more than 2008. To be fair, a higher debt is not necessarily a bad thing, if the money borrowed results in future increased revenue to pay the higher debt interest. For example, if the spending increased economic prosperity, or if our population would increase to provide higher tax revenues – not likely based on our recent history.

There is an historical precedent for this strategy that comes to mind. What country consistently deficit-financed budgets, lowered taxes over the past 30 years and now finds itself in a financial minefield? While Zimbabwe may have a terrible debt to GDP ratio at 240 per cent, the country I was talking about is the United States. It’s at 85 per cent and will hit 97 per cent in 2010.

Canada’s ratio is slightly less than 30 per cent but will rise in the next few years as we follow the Keynesian expenditure bandwagon suggested by the Obama administration.

So where is these story going? Well, the U.S. makes a link between oil prices and the economy. “Another spike in oil would have consequences in terms of world recovery…” explained Steven Chu, the U.S. energy secretary in Rome at a meeting of energy ministers.

Italian Economic Development Minister Claudio Scajola called for an alliance between the private sector and governments to spur investment. “When the crisis is over, the risk of insufficient energy supply exists, and as a result high and unstable prices.”

From these statements, it appears that some governments finally recognize a precarious situation in oil pricing and supply when they see one. There’s a book that just went on my must read list, “Why your world is about to become a lot smaller – Oil and the end of globalization.” Jeff Rubin, formerly CIBC’s chief economist, foresees future recessions caused by oil price spikes in triple digits.

We’ve seen that recessions lead to reduced government revenues. A logical thought progression would suggest that provincial governments could benefit from lower borrowing rates to help adjust to difficult times in coming years. How could this be done?

The mandate of the Bank of Canada could be enlarged to include purchase of provincial bonds as deemed advisable. Perhaps these funds could encourage an off-oil agenda by conservation and green power construction. At the moment our central bank provides assistance to chartered banks and administers national monetary policy. The short term funding to chartered banks can be as low as the bank rate, presently .25 per cent.

One intent of monetary policy is to limit inflation to around 2 per cent and definitely avoid deflation. Over the past few years, the growth in the money supply has varied between 7 per cent and 12 per cent and depending on which money supply indicator you use, it increases by a double digit and sometimes triple digit billions each year. A portion of this money could be used. The key question is, how the chartered banks would view this type of change?

Simply reflecting on a statement from Senator Dick Durbin of Illinois brings doubt: “we’re facing a banking crisis that many of the banks created..  are still the most powerful lobby on Capitol Hill. And they frankly own the place.”

In Canada, Finance Minister Jim Flaherty’s proposed revision of credit card law doesn’t lay a glove on the chartered banks. There’s no cap on maximum interest rates.

Let’s see if I’ve got this right. The banks have access to billions of government capital at .25 per cent, your deposits for virtually nothing, and they loan it out to us at 19 per cent interest? That’s quite a spread to work with, Jim.

The banks may not own Jim Flaherty or Stephen Harper, but they certainly have a good hammerlock going and didn’t someone just cry uncle.

Can our society avoid the next ‘Black Swan’

We’ve been getting a little refresher recently on what an economic contraction feels like.  Canadian figures show that our GDP increase dropped from 2.7% in 2007 to .5% in 2008.  The US economy contracted by 5.9% and Japan felt a staggering 12.7%.    We can expect further contraction in 2009 based on job losses and declining consumer confidence.

The optimist in me believes that the economy will recover as the toxic loans and derivative products are spun out.  In 2010, confidence could return and people may open their wallets for purchases.  But is there a perfect storm waiting for us after that?

Nassim Nicholas Taleb describes black swan events in his book entitled naturally “The Black Swan”.  World War I or the September 11 attack, are examples of how unexpected events can dramatically change human history.  Taleb suggests that a black swan is a complete surprise but afterwards is ‘explained’ by hindsight.  Wouldn’t it be nice to predict a perfect storm / black swan event and hopefully divert the course of history.

Fact 1 – The population of the world is increasing at slightly over 1% per year or roughly 80 million new inhabitants crowding onto the planet every year.  These people all want the good life with a car and other typical consumer items. Greater population with level or declining oil production means 1% more competition for that oil each year.

Fact 2 – The president of Total Oil, Christophe de Margerie recently predicted that world oil supply will peak at 89 million barrels per day, a rather astounding admission from an industry source.  A significant number of analysts think that production has either peaked or will in the next few years.  At the very least, everyone agrees that the era of cheap oil is over, with new offshore developments costing between $60 to $80 dollars a barrel.  Although $40 oil helps our present economic woes, the low price forces cuts in oil discovery and development budgets and also renewable energy projects.

Over the last few years production capacity has flattened out at roughly 86 million barrels / day so his views seems closer to reality than most oil company leaders are willing to publicly admit.  The International Energy Agency now predicts a production peak 10 years earlier in 2020.  Expect further adjustments to their prognostications are reality shakes their irrational exuberance.

So why does world oil production matter anyway?  Very simply, oil equals economic growth.  Without oil, there is no economy.  We can print all of the dollars we want, but they won’t power a car or a backhoe, or a ship to deliver goods around the world, unless oil is available and at a reasonable price. Declining oil means economic contraction with higher oil prices – the worst of all possible worlds.

A possible black swan starts after an economic recovery in 2010 when oil demand recovers and supply tightens.  By 2011 a rapid price spike similar to 2008 occurs.  The economy weakens again and the oil price slips briefly.   Supply, weakened by under-investment and natural depletion, no longer meets demand.  This cycle of spikes and economic slippage proves fatal for our economy.  Our growth economy changes to a continual decline economy.  Further stimulus programs are out of the question as no willing lenders such as China can be found.  Our 2009 stimulus funds were spent on frivolous issues like four lane highways.

As with any sad story, there is a happier version where the wise leader directs and encourages a transition to a sustainable localized resilient community.  Significant investment is made in localized food production and manufacture of goods.  Conservation of energy in homes and business is made a priority, and shifts off-oil to other renewable supply is promoted.

Is it already too late to save our society? The list of missed opportunities is endless.  The Lower Churchill hydro project would take six years.  Photovoltaic cells won’t be ready for prime time economically for several years.  The present rate of retrofitting our existing homes could take 50 years.  We don’t even insist on an energy code for new buildings.

England now requires that all homes being sold have an energy performance certificate and by 2016 all new homes must be zero carbon.

In the courtroom drama “A few good men”, the lawyer Tom Cruise interrogates the Colonel, played by Jack Nicholson shouting, “I want the truth.”  Jack responds “You can’t handle the truth.”

Are we ready to understand a truth that globalization without adequate oil is almost impossible? Unless we’re ready with sailing ships, nuclear powered or coal burning ships.  Approaching is the perfect storm of population growth, energy decline and economic fragility, but our leaders won’t tell us the truth or help us get ready.  Perpetual economic growth requires increased supply of oil.  That party is over.

Could we adapt prior to a “declining oil / permanently contracting economy” black swan and avoid the end of our modern society? Maybe. Try renewable energy and extreme conservation.  If spent wisely, stimulus funds or routine capital expenditures could begin that transition.  At the moment, only Barack Obama “gets it” to the extent of spending billions on rail transit.  For Canadian politicians like Stephen (energy superpower) Harper, it’s just business as usual. Energy leadership in New Brunswick is equally unimaginative and bleak.

Invest in the right stimulus: Energy Independence

Stimulus is one of the buzzwords for 2009.  Every country that can afford it will be borrowing money to jump start the economy.  Canada is no exception.  You can be sure that when politicians try to spend money quickly, a considerable waste of your tax dollars will follow.  The ill-considered ideas will not be malicious; our esteemed leaders just don’t realize that the world has changed.

The economic problem facing us has its origins in financial weapons of mass destruction and the cost of oil.  Economists estimate the benefit of the recent drop in oil prices to the US at over $300 billion dollars.  That’s quite a stimulus package that Saudi Arabia has arranged for George Bush and his successor.  Our oil shock in 2008 is not the last one or even the worst that is coming.  We should expect another in 2010 or 2011 as soon as the economy revives.  Where will we find the funds for another multibillion stimulus program then?

Oil prices at $40 don’t support the kind of capital exploration budgets that are required to maintain supplies of oil and natural gas that are sapped by annual depletion.  A number of exploration companies are either selling for a loss or have shut down some production.  Most oil producers in Western Canada have cut their exploration budgets severely to survive.  The results of this under-investment will come back to haunt us.  The International Energy Agency warns that much larger investments are required to forestall disaster looming in the near future. Banks, being risk averse, remove credit where there is evidence of financial weakness caused by lower prices.

One of the things we seldom talk about is energy return on energy invested (EROEI) when contemplating investments for the future.  Looking back to the early days of oil production, it took one barrel of oil to bring 100 barrels of oil to market.  Today the ratio is much lower, so that the same barrel now only brings 10 from Saudi Arabia and probably only 3 barrels on average from the Alberta tar sands.  As we move into deep offshore wells like Brazil, we get costs in the $80 a barrel range.

So, our economy is increasingly being drawn into more investment for less energy output.  A blog entitled Calculated Risk http://www.calculatedriskblog.com/2008/07/us-energy-consumption-as-percent-of-gdp.html estimates that in 2008 energy costs jumped to 14% of US GDP as compared with a low of 6% in 1998.  A logical next step for Canada would be to actually invest in projects that would reduce our dependence on oil and other energy to the tune of 8% by conservation and substitution as a minimum starting point.  So far, one of the “replacements” for oil is corn-based ethanol.  Analysts unfortunately have concluded that with an EROEI of roughly 1.3, it takes almost a barrel of oil to produce a barrel of ethanol.  That’s hardly an investment strategy to get us off oil.

What about electric power generation from wind turbines?  They give roughly a 20x average return on energy.   For a coal-fired power plant, it’s 7.5 and a nuclear powered unit is just over five.  Hydro power plants are over 10, according to the Encyclopedia of Earth.  Photovoltaic is still expensive with a questionable return at the moment.

So, if you had $40 billion to spend, how would you create the most energy independence and oil immunity for Canada and as a side benefit create jobs?

As a longer-term strategy, how about re-building a railway freight and passenger service?  We could sure use a new national energy standard for new homes and a serious upgrading program for existing homes?

How about a national direct current electric power transmission line to efficiently move hydro power from BC, Manitoba, Quebec or Newfoundland to other areas.   What about a strategic oil reserve of perhaps 100 million barrels?  The purchase of oil with deferred delivery from hard-pressed Canadian producers would ease the pain in the Western oil patch from volatile prices.

Would we be better off with a national program of wind power development and support of hydro plans in Manitoba, Newfoundland, Quebec and BC?

I like to believe that our leaders will make choices that have an excellent energy return.  However, isn’t there a “Murphy’s law” about decision making time being inversely proportional to the cost of the project?  With $40B in play, we can expect some pretty dumb ideas in the near future.  When your local politician trots out the perennial choice of widening roads or building bridges to nowhere, one might ask them about the energy return on these $100 million a pop boondoggles.  Obviously, there is none.  In fact, the future of the personal automobile is in serious question if we don’t dramatically raise fuel efficiency.

But as a wise politician once said, “I’ll double cross that bridge when I get to it.”

New Brunswickers deserve a leader like Obama

The Obama phenomenon is mesmerizing to me. Few are left indifferent.

That “vision thing,” that George W. Bush admitted to be out of his intellectual reach, is the fuel that makes Obama soar into spatial territory. The millions of believers, who have contributed almost $650 million to his campaign, love to watch his verbal poetry and hope that leadership will take their country to a better, sweeter place.

For a short time, we can all believe that one person can make a huge difference. But the world is headed for a rough economic landing with little money left in the pot for policy changes. Lax regulatory philosophy let the dogs out and the damage may take several years to repair.

While the billion-dollar campaign to win the U.S. Presidency may seem expensive, it is peanuts compared to the cost of bad judgement by an incompetent leader. By the way, the salary of the President is a measly $400,000 a year, plus some excellent perks.

Here in New Brunswick, the Progressive Conservatives chose a new leader recently. Did they choose the right one?

David Alward was first elected to the legislature in 1999 and served as minister of Agriculture, Fisheries and Aquaculture from 2003 until the defeat of the Lord government.

During the campaign, he indicated that the party would provide the platform. Very democratic, but definitely lacking in “the vision thing.” He did indicate that he “wants to build bridges between the north and the south, between urban and rural, between anglophone and francophone… to build prosperity and opportunity… to listen to the people.” One supporter calls him “honest, a man of the people.” Time will tell whether he suffers the fate of the latest honest politician who failed to inspire and communicate well – Stéphane Dion.

David Alward is positioning himself as the anti-Graham or the Goliath slayer. Shawn Graham’s first two years have left fertile ground for opposition forces to prosper. So we’ll give David Alward the benefit of the doubt and hope that his leadership skills will give rise to a valid alternative to today’s Liberal government.

In cynical moments, I consider the alternating Liberal and Conservative governments in New Brunswick as the political equivalent of the film “Dumb and Dumber.”  Replacing one with the other still leads to the same conclusion.  Are New Brunswicker’s settling for less than we deserve?

The NDP has not yet recovered from the loss of Elizabeth Weir’s seat in the legislature.  A recent convention elected Roger Duguay as the new leader and he has a significant task of rebuilding for the next election. Roger is a former Catholic priest who was forced to make a choice between religion and politics when his interest in improving the worldly lot of his parishioners became important to him.

New on the scene and still flying below the radar is the Green Party of New Brunswick. The Greens are now organizing to be ready for the next provincial election in 2010. The party should prove popular with those who expect their politicians to “walk the talk,” and want to see the environment on an equal footing with economic development.

I recently spoke with two of the organizers of the upcoming founding convention in Moncton on Nov. 15. Mike Milligan, who was a federal candidate in the Beausejour riding and presently interim leader, and Marco Morency, see the convention as a beginning of policy development and grass roots organization.

The Green Party looks at policy development through a number of filters. Does it advance the common good? How about the needs of children? Does it make New Brunswick families more secure and maintain quality of life? Is there a conflict with the ecosystems of the planet?

Further information on the upcoming convention can be obtained by e-mailing lecoude@gmail.com

What impact could this new party have in 2010? After seeing the vote split on the federal scene, will this new party help the PCs or the Liberals? At the moment, we have Liberals at the right of the political spectrum at the same place as the Conservatives. Will the Tories make a left turn under David Alward?

The Green Party brands itself as fiscally responsible (right wing) but more aggressive on the environmental front.

Are New Brunswickers interested in a significant change in politics? Will David Alward, new leader Roger Duguay of the NDP or the new Green leader turn out be an Obama-like inspirational leader?

Let us hope so.

We all have Alzheimer’s when it comes to health care

Each time I go to a medical clinic, it’s like they don’t recognize me and have never seen me before.  And the hilarious part is I don’t know them either.   This is not a huge problem as I’m an extravert and make friends easily.  However, I really do feel strange asking someone I don’t know to give me a prostate exam but that’s your life when you don’t have a family doctor.

Today, I can’t say the health system is working for me.

The documentary by Michael Moore entitled “Sicko” compares the health systems of the US, Canada, the UK, Cuba and France.   Moore’s analysis makes for good entertainment and perhaps opens the eyes of a few American viewers on the deficiencies of their health system.  His portrayal of the Canadian system is generally on the mark although there are inaccuracies with emergency room wait times and access to primary care.

Statscan figures show that 8.2% or 61,500 New Brunswickers don’t have a family doctor.  We presently have 700 family doctors or 1 for every 983 people.

The Minister of Health Mike Murphy plans to hire another 15 doctors, which would be 1 doctor for each 4100 of the 61,500 citizens presently without medical representation.  Hey, what’s wrong with the math here?  Are we hiring enough to solve the shortage or just enough to lower the political heat?

The annual health budget for New Brunswick is $2,933 per person or $2.2 billion.  As a country, we spend about 9.8% of the Gross Domestic Product (GDP) on health care (NB is 8.8%).  We’re in the middle of the pack when looking at what some countries spend; Ireland –7.2%, France – 11.1%, Germany – 10.7%, with the US being considerably higher at 15.3%.

What has concerned all national governments over the years has been the continual increase in the cost of health care above the rate of inflation.  In other words, the health budget chews up more of the government revenue leaving less for other departments.  The US system is trending towards 20% in coming years and I don’t think that country or New Brunswick can or will accept costs of that magnitude.

The increase in costs comes from more high technology (MRI’s, etc) and what is often called “mission creep.”  That’s a change in our expectations of what the system can provide.  Only a number of years ago, open-heart surgery or hip replacement wasn’t that common.   Longevity of people is on the rise and a significant portion of the budget is spent on people who will live less than a year.

Even though the Canadian system has a lower cost due to reduced administration, it is encouraging to see the Health Departments 2008 – 2012 plan.  It’s a road map for providing better health care with less cost.  A notable initiative is the use of computer technology to manage patient care (one patient, one electronic record).
Consolidation of regions and non-clinical services should provide less back office cost and focus money back on patient care.  This saving is approximately 1% of the total health budget or $20 million per year.

It appears that efficiencies can give us some respite in increasing costs, but it will not be enough.  Are we prepared to set an upper limit on our health costs to perhaps 11% of GDP?  That would be another $550 million per year in New Brunswick.  It might eliminate wait times for surgery, provide more MRI’s and the like, but what else in the overall provincial budget would we cut?  Or would we be prepared to raise taxes to live longer, healthier lives?

But perhaps our future won’t be increasing budgets for health care but cutting them.  The fragility of our financial system to something as ridiculous as sub-prime mortgages shows that the economist’s assumptions of perpetual growth is not entirely certain.  The decline of the world’s commodities like oil production in the near future will have a profound effect on GDP.  It will shrink the tax base that supports the health care system we so cherish.

Should we be planning for a future that is less rosy than the optimists of this world predict?   As an aside, there are 45 million Americans who could be looking for a family doctor in Obama’s insured world.  Maybe I’ll get a doctor before they come looking for 45,000 doctors north of the border.  I doubt they’ll be talking to Raoul Castro about Cuba’s surplus medical talent.

Why the Green Party is out-greening the NDP

I didn’t know jack about Jack Layton and that’s not right.  A citizen should make an informed decision on who’s right for them.  At least that’s the theory.  But I float over the surface of life because there is so much information to absorb.  Jack, I did like your “new kind of strong” advertisements.  It brought me back down to earth and I’m listening.

The 2008 NDP platform proposes the development of high-speed train links in the populated corridors like Quebec to Windsor and Edmonton-Calgary.  Wonderful!   He also supports better public transport through a 1-cent gas tax.  Sounds like a carbon tax to me.  Not that there’s anything wrong with that.

Jack suggests that a Canadian Renewable Energy Agency would promote 35% renewable energy by 2020.  This includes “new financial incentives for clean power, including from solar, wind, water, biomass and other renewable sources for electricity production and from industrial co-generation and small-scale, sustainable community facilities.”  Also, the NDP suggests promoting the zero emission and high efficiency cars by working with manufacturers.

Another interest of the NDP is energy security and environmental considerations being number one priorities in any new trade negotiations.  They also want to slow down development of new tar sand projects until the environmental problems and CO2 considerations are dealt with.  The New Democrats would promote the processing, refining and petrochemical development of oil in Canada for job development.

From their platform comes a remarkable statement. “We must plan now for a future where our energy consumption is drastically reduced and where all our energy comes from renewable sources.”  This is a politician telling you the truth about your energy future – oil will decline and we need to adapt.

Of course, it makes perfect sense that non-renewable sources will eventually decline.  But few politicians want to be the bearer of bad news or to utter that incendiary four-letter word “peak” when describing oil.  Jack Layton gets a “B+” rating for his energy platform that confronts directly the challenges we will see in coming years.  Jack said no to a carbon tax in favour of a cap and trade system.  Some call it an opportunistic approach to vote getting.

Can you identify what party makes this statement?  “We acknowledge that human society depends on the ecological resources of the planet, and must ensure the integrity of ecosystems and preserve biodiversity and the resilience of life supporting systems.”  If you thought Green Party, you would be right.

The Green party, in 70 countries around the world, has some similarities with the NDP but the Greens go back to the basics of life and develop policy through a number of basic principles (Social justice, ecological wisdom, non-violence, participatory democracy, sustainability, and respect for diversity).

The leader since 2006 is Elizabeth May, a longtime environmentalist, writer and lawyer. On energy, the Greens favour a carbon tax like the Liberal plan. The green vision includes cuts in income, payroll taxes and provides rebates to make the tax shift fair to various sectors.  Corporate tax is reduced when companies reduce carbon emissions, which provides them a double benefit. A cap and trade system is implemented for large emitters.

She supports increased rail and green urban transport, promotes local agriculture and the 200-kilometer diet as well as community gardens.  Her party would “launch a plan for Canada’s Green Century, with a commitment to make Canada one of the most energy-efficient, sustainably powered nations in the world.”

All buildings in Canada would have an energy retrofit by 2025 and new buildings would net zero energy construction after that date.

The Green party positions itself as being fiscally conservative with a goal to eliminate the national debt.  According to May, it is the only party that “grasps the future… at the end of the Fossil Fuel Era, we are emerging to a new reality….that the greatest threat to our security does not come from foreign terror cells and criminal elements, serious as they may be, but from our addiction to fossil fuels and the clear and present danger presented by the climate crisis.”

Elizabeth May’s straight honest approach attracts me.  I would give her an “A” rating for the very detailed Green energy platform.  Although I may not agree with every item they propose, the website makes fascinating reading.  Her rise to prominence has been due to her performance in the debates and is an indicator of dissatisfaction with the present government.

Polls show only a little better than a third of Canadians want Stephen Harper, which means a clear majority of Canadians do not want Stephen Harper.  Together the Greens and the NDP have almost a third of the voters.  Our electoral system ensures that the split among the opposition is of advantage to the Conservatives in the same way that the PC’s and Alliance split the right wing vote in years prior to the 2003 merger.

As difficult as it may be to contemplate, there are some ridings (closely contested in 2006) where voters, who want a better energy policy than the Conservatives offer, may vote strategically.  This include Tobique-Mactaquac, Fredericton, Madawaska-Restigouche, and Miramichi.

The people of Canada have several credible choices this year with respect to solving our energy problems.  Recent events in the financial world indicate how fragile our global economy is.  It’s evident that different policies are required to make our system more resilient and stable.  Review the platforms.  Your vote on October 14 is important to your future.  Can you afford to miss it?

How do the Liberals rate on Energy Policy?

Looking back in history to December 1979, Joe Clark was the leader who introduced a tax of 4 cents a litre as a measure to balance the budget.  His minority government lost on a non-confidence vote and the Tories are defeated in the 1980 general election.  The lesson is burned into the political brain trust of all parties … must not have tax increase just before election.  And sometimes, smart governments cut taxes to win votes.

Fast forward to 1996, when Stephane Dion transitions from university professor to minister of intergovernmental affairs.  One of his accomplishments was the “clarity bill” setting the conditions for Quebec referendum questions and separation negotiations in clear and unambiguous terms.    From 2004 to 2006, he was environment minister and from accounts of independent observers, did a credible job.    Recently, he became leader of the Liberal party.

The 2008 Liberal platform consists of some interesting energy commitments – to retrofit 50% of all homes by 2020 and 100% by 2030.  Provisions for doubling financial incentives and a zero interest $10,000 green mortgage for major energy improvements like geothermal and solar are all good steps.  They want higher energy standards for the National building code and for all appliances to ensure that “all new builds are green builds.”

A Stephane Dion government also proposes strong enforcement of the post 2010 fuel efficiency standards and improvements in car-scrapping programs to increase efficiency of existing cars.  $250 million is suggested for a Green fisheries and Transport fund encouraging public transport initiatives.  In addition, he proposes a 10% reduction in the carbon content of fuel by next generation bio-fuels.  Unfortunately, this part of the program to be weaker and less defined than I would have liked.

The amount of electricity generated by low impact renewables would rise from 5% to 10% by 2015 and to 15% by 2020 causing large investments and 10’s of thousands of green energy jobs.  But these items have not been getting as much attention in the media as the “greenshift”.

The leader of the Liberal party has suggested a remarkable change in the way that Canada views pollution. This is proposed by a reform of tax policy – increasing taxes on carbon energy sources and lowering income taxes.

In the past, companies have caused pollution without penalty or in the worst cases, were ordered to install pollution abatement equipment.  With this change, a stronger link is made between corporations and the environment.  Pollute with carbon energy and you will pay a fee.  The fee is then rebated to citizens and this makes alternative renewable energy more competitive.

The Conservatives have been accused of confusing Canadians about Stephane Dion’s “green shift” which transfers taxation from income to carbon.   The Tory “tax grab” attack seems unusual in light of the plan’s promise, “ putting it into law that every dollar raised in pollution taxes be returned to citizens in tax cuts.  The Auditor General will ensure the Green shift’s revenue neutrality.”

A second Tory theme, that the plan will destroy the economy, seems exaggerated as well. One blogger humorously notes that if the “greenshift” plan would destroy the economy, then the opposite, to raise income taxes and lower carbon taxes, should create a boom.

Lowering corporate and personal taxes, as the “greenshift” suggests, is similar to the Conservative mantra.   Taxes on fuel in Europe are $1 a liter higher than here without serious harm to the economy.  This plan leaves the gasoline tax without change.  Furnace oil would increase gradually and be a total of 8.5% higher by the fourth year. Diesel would increase 7 cents by the fourth year, a 5% increase.   Finally, it is likely that a world cap and trade system will eventually surface with all countries participating.  Trade sanctions will ensure that all play their part.

Canadians seem to want leadership to reduce global warming and to adjust to higher energy prices as peak oil arrives.  But is reality different from the perception?  The Liberal plan is actually quite modest in comparison to the size of the economy or the government’s operating budget.  Are Canadians ready to accept real change, however gentle it may be?  Stephane Dion has proposed wide-ranging solutions that rate a “B” on my energy scale.  The plan is incomplete in terms of national energy security, but it is courageous and forward-looking.

There are real differences being offered to Canadians this election.  Voters can easily compare the platform of all parties directly off the Internet and should do so.  Stephane Dion’s clarity in energy policy is one of his advantages in this campaign.

His refusal to follow Harper’s lead and spend huge sums on Arctic patrol vessels is an example of the different thought process among leaders.  As he noted “We can’t win against the Americans, we can’t win against the Russians, and we’re too civilized to shoot the Danes.”

Prior to George W. Bush’s tenure, the United Nations was the primary arena for discussion or international arbitration of differences.  When common sense returns, the UN will regain an important role in meeting the challenges to come.  World co-operation on adapting to declining energy supplies and carbon reduction steps are the answer.

How do the Conservatives rate on Energy Policy?

Political campaigns are remarkably like war.  Lots of resources and blitzkrieg attacks disorient the other side.   To re-phrase von Clausewitz – “politics is war by other means”.   And it’s starting to get rough out there.   Political opponents are demonized (scary, not ready to lead, etc. ) so that any tactics are permissible.

But let’s look at energy policies.  What are the leaders of each party thinking about?

Stephen Harper is a master tactician of the political game.  Some say he’s got control issues or perhaps he just uses “enhanced management tools.”  He spots weakness and dive-bombs the opposition with attack ads, campaign or no campaign.  Take no prisoners is a description that comes to mind.  Hey, who knew that Karl Rove lived at 24 Sussex Drive? But you can’t argue with success.  He’s had the opposition on the run for some time.

Energy costs are the sword of Damocles hanging by a horsehair, and will have serious consequences for each of us.  However, this is not apparent when viewing the Conservative website. Of the eight key priorities on the Conservative website, energy doesn’t make the list.

Our PM has been using short-term tactics and guerilla warfare to build support and destroy enemies.  His long-term vision is less clear.  One of his greatest successes has been the fee on gas-guzzlers and the ecoAuto rebate.  The rebate was cancelled after the 2008 model year.  The relatively low program cost of $150 million couldn’t have been the cause of its demise.  Was it GM unfriendly and had to go?  Luckily, he retained the fee on gas-guzzlers.

His need to retain or increase his power will always trump good policy. The diesel tax cut is a good example.  Stephen is an economist and knows that lowering the price of a product encourages the use of it.  Two cents will lower the cost of fuel by 1.5%.  Since fuel is only one third of transportation cost, the actual reduction in product cost will be ½ of 1% if it’s passed on to consumers.  Since most food comes from the US, this only affects transport within Canada.  So, there’s virtually no effect on your head of lettuce from California.

If you own a diesel car, it will save you $24 a year. This policy will cost the treasury $600 million a year, have questionable results, but it will buy votes.

The National Energy Board recognizes that conventional oil is declining in Canada and that imported LNG will have to take the place of domestic natural gas production in coming years.  Export applications do not have to consider whether Canada has adequate natural gas reserves, as was the case before 1985. Only tar sand development, which has a low net energy output, is on the rise.  Should we be proud of the ecological fallout in Alberta?  Will other countries eventually ban the import of these products or penalize us for carbon output?

Does Stephen still believe that Canada is an energy superpower? What was his purpose to promoting this view of Canada’s energy resources?  Should Canada have a national security policy on energy with actual physical reserves?  Should there be an east-west pipeline through Canada?  What about an east west DC electric transmission line?

An important question remains unanswered: How will we heat our homes in the future at reasonable prices? Those with oil heat in the Atlantic Provinces are in for a rude awakening.  Quebec has cheap electricity and Ontario has natural gas, for the moment.  The votes of Atlantic Canada make little impact on the national scene.

Although the price of oil is now lower than its peak in June, it will rise again in the near future as world production starts a decline in roughly 2010.  The investments required to meet the energy challenges of the 21st century will take a significant number of years to achieve.  We should have started decades ago.

How will we get around as fuel becomes very expensive and is rationed?  How will our economy and jobs survive the shock of energy shortages and prices?  How does Stephen feel about conservation of energy?  Ignoring the problem of peak oil doesn’t make it go away.

My rating given to Stephen Harper for a lackluster energy policy – F.    His lack of attention and understanding of important energy issues is counterbalanced by his desire to spend money on boondoggles like patrol vessels for the arctic.  And $490 billion over the next twenty years for the military to participate in overseas adventures with the US.

Maybe Canada should opt for Free Trade in Cars

Are Canadians paying too much for their cars?

Last year the US dollar lost considerable value in relationship to the world’s currencies.  When the Canadian dollar hit parity and indeed rose above the US dollar, it became strikingly apparent that cars were still considerably cheaper south of the border.  It became an embarrassment for the car manufacturers and some announced reduced “Canadian” pricing.  Like the innocent soul that I am, I went back to sleep assuming that the problem was solved.

Wrong!  A little research on the websites of various automakers shows a different story.

Honda sells vehicles that range from 7% to 48% more expensive in Canada.  Lower end cars show less difference.  For example, the Fit is close, coming in at 7% higher in Canada.  The Civic hybrid is 17% higher ($22,600 vs. $26,350).   The S2000 sportscar is 48% higher, about $16,000 more expensive here. The Toyota Prius is 24% cheaper in the US ($22,220 vs. $27,600). And I could go on and on but you see the tendency.

GM and Ford seem to have closed the price differential by marking down the differences with discounts.  GM has a “pricing allowance” of $16,000 on the Cadillac Escalade.  Ford uses the terms – “family pricing and delivery allowance”.  It looks like they don’t actually want to lower the higher price on a permanent basis.

What I find incredible is that cars can be sold cheaper in Alaska than in New Brunswick.  The Mazda 6 sport sedan is 25% ($5,400) more expensive in Canada. In fact the destination charge is only $700 versus over $1200 for Canadian locations.  Are we overcharged by auto manufacturers?

Some of the reasons tossed around for the difference are a bit strange.  Are Canadian interest rates really lower?  Do we get more incentive deals than the US?  Could we really negotiate a better deal because there is more profit than south of the border? Do cars sold in Canada have different warranty coverage and different features? One thing is certainly true. Exchange rates vary from week to week.

We spend roughly $53 billion on new vehicles each year and if we’re paying roughly 15% too much, it’s costing us $8 billion extra each year.  Wouldn’t this be a fair job for the federal government to investigate and act? Obviously, we have to consider the exchange rate and other valid costs that could be proven by the manufacturers.

What has been Ottawa’s response so far? Mr Flaherty suggests that we shop around.  Well it’s presently quite difficult to import a car from the US, thanks to our government bureaucracy.   Real “free trade” in cars would allow Canadians to buy a car in the US and bring it into Canada paying only the sales tax.  Anything more is a trade barrier that ensures higher prices in Canada.  When enough cars come across the border, the prices at Canadian dealers will migrate towards the same level as in the US.

During research, I came across a recent article in MACLEANS magazine by Colin Campbell that indicated the same tendency is showing up in all consumer goods, not just cars.   A couple of interesting quotes  “The reality is that what you can buy in the States for a dollar costs $1.35 up here. That’s the reality they should be facing, not this other smoke and mirrors.”
From Professor Avi Goldfarb quoted in the article “It’s not so much that the Canadian consumer is willing to pay higher prices. It’s much more that the Canadian consumer doesn’t have a choice,” he says.

Canadians don’t make higher salaries than in the US yet we pay more for everything we buy.  The answers being given to us are inadequate and unacceptable.   We are paying probably hundreds of billions of dollars in excess of fair prices.

It’s time we ask Stephen Harper what he plans to do about this gouging machine supported by his government.  And the next time you go to Chapters to buy a book, bring along some American money.  If there is a US price listed, you might get a bargain.

here’s a website I ran across after writing this article.  it’s great for those who want to take real action and save money by importing a car from the US.    http://www.carswithoutborders.com/

Where is New Brunswick’s Green Vehicle Policy?

These are interesting times.  A remarkable historical event is unfolding before us at breakneck speed – the beginning of the end of the oil era and the gasoline car.  On a superficial level we get emotionally involved with our cars and it’s such a pain.  Either there’s a repair bill, or higher operating expense these days with gas going through the roof.  It makes you want to reach out and sign on the dotted line for a new shiny reliable model.  But wait a minute.. Let’s think about this a little deeper.

My car just cost me $73 to fill up and it isn’t a large tank.  My sister’s van with a 90-liter tank costs $125 to fill each time.  She recently bought a small car.  The saving in gas bills makes their payment.  The older van sits in her driveway and is used sparingly.  Such is the discipline of higher prices.

The Federal government introduced the ecoAUTO Rebate program for two years.  Penalties are being levied on big gas-guzzlers and bonuses given for vehicles that sip fuel.  Looking closely, it seems to have been the proverbial horse designed by a committee (ends up as a camel).  It has selections that are totally illogical unless one realizes that the domestic auto industry has a powerful lobby.

Take the example of the Honda Fit, 6.6 L/100 km, not being included in the 2007 Federal government ecoRebate program by .1 liters / 100 km.  Honda was not impressed as it’s competitor, Toyota’s sales took off and their figures dropped.  As a result of quick re-engineering by Honda, it now qualifies for 2008.

Under the flex fuel category, the Chevrolet Impala at 12.3L/100 km, and the Chrysler Sebring, at 13L/100 km, is eligible for a $1000 rebate.  The Sebring uses double the fuel of the Honda Fit.  Impala is made in Oshawa, Sebring from Illinois, and the Fit is from Japan.

The federal program ends in December as Transport Minister Lawrence Cannon indicates that “it has served its purpose in raising consumer awareness of fuel-efficient models”.  Can you follow that reasoning?  A recent CBC story says higher than expected buyer interest will result in overspending of the program budget.

There are five provinces that offer a sales tax rebate for hybrids – BC ($1,000) PEI ($3,000), Quebec ($2,000 for vehicles under 6L/100 km), Ontario ($2,000), Manitoba ($2,000).  A number of these programs will be phased out in coming years, presumably as the technology evolves and price differentials decline.  If you buy a hybrid in Ontario, the combined rebates are $4000.

The rationale for these programs had been primarily reduction of greenhouse gas, and not peak oil.   In the last year, the peak oil theory has made the jump from blogosphere to some main stream media.

As gas price rises, all of the usual suspects (declining US dollar, speculation, and instability in oil producing countries) have been rounded up but will be eventually released.  The idea that we are at the peak of oil production will eventually gain credence in the general population.

The International Energy Agency (IEA) recently indicated that world oil prices were “justified by fundamentals…  Often it is a case of political expediency to find a scapegoat for higher prices rather than undertake serious analysis or perhaps confront difficult decisions.”   It’s very startling to hear such clarity from that organization.

In a column last October, I indicated that when gas rose to about $1.60 a liter, replacing a gas guzzler vehicle with an efficient model would pay for itself from reduced gas bills.  Well, we are almost there!  If the tendency continues we could be there within several months.

If you have to buy a new car in the near future, you might consider the future cost of fuel.  It could be at $3 a liter in the next several years or even higher.   We just don’t know.   Consider the case of a full size vehicle like the Dodge Avenger, or the Chevy Impala.  At roughly 12 L / 100 km, that’s 2400 liters for the average driver (20,000 km).  Annual fuel cost of $7200 a year ($600 per month) is higher than your car payment.

The alternative would be something like the Toyota Prius or Honda Civic hybrid at roughly 4.5 L / 100 km. Only 900 liters are used annually, which translates into $2700 ($225 / month).

The former CIA chief James Woolsey drives a hybrid and compares the local gas station cash register to a collection box for al-Qaeda.  Whether a link as direct as that can be drawn is difficult for me to say.  However, the best way to moderate prices for gas will be for all people to use less.

Do we have a plan in New Brunswick to ensure that most vehicles sold have excellent fuel economy? The life of vehicles is typically 12 years.  Are we planning for a transportation alternative after the personal car era is finished?

We’re about two years into the mandate of Shawn Graham’s government but I haven’t seen an energy policy and little transparency.   We do hear the phrase “Energy Hub” quite often, describing private sector energy investments for export.  At what point will “peak oil”, a once in the lifetime of this planet event, sink into the consciousness of this government?