All I Want for Christmas is an Energy Policy

“The world’s energy system is at a crossroads. Current global trends in energy supply and consumption are patently unsustainable — environmentally, economically, and socially. But that can — and must — be altered; there’s still time to change the road we’re on.”

Is this statement from a mad eco-blogger off his meds?  Or is it perhaps from the supposed terrorist guy that Obama pals around with, Professor William Ayers?

No it’s just the 2008 World Energy Outlook released by the International Energy Agency (IEA).  The agency is the energy advisor to 28 member states, mostly the industrial world.  Typically, the agency has been very optimistic but recent reports have sounded alarm bells and are very somber in tone.  The base case of the IEA shows all liquids production rising to 106 million barrels per day in 2030, which is lower than the previous production forecast of 116, absent any policy intervention.  It also shows a one third increase in coal usage.

The report has been sandwiched between a lot of bad news such as the world’s present economic meltdown, the collapse of the GM, Chrysler and Ford, and global warming and has not received the attention it deserves.  The remarkable thing is that oil is directly involved in all three.

Here’s how…
Jeff Rubin, chief economist for CIBC, argues that “In the past, oil shocks have triggered global recessions by transferring billions (or now trillions) of dollars of income from OECD economies with typically very low savings rates to OPEC economies with typically very high savings rates.”  He also speculates that “If the global meltdown is all about defaulted subprime mortgage debt, a global recovery will have to wait until we see a bottom in US housing prices.  But if the global recession is primarily about the recent oil price shock, then the subsequent halving of prices from $147/bbl to little over $60/bbl now, and not a pick-up in Cleveland property values, is the real road to recovery.”

Earlier this year GM’s president Rick Wagoner admitted the obvious, “These higher gasoline prices are changing consumer behavior and rapidly.  We don’t think this is a temporary spike or shift. We think it is permanent.”

Previously, I had indicated that bankruptcy troubles at GM and the others would happen in 2009.  It now appears that GM may run out of cash before Christmas.  After the US provides a $50 billion bailout package, then Canada will be expected to come up with $5 billion as part of retaining our portion of the integrated industry in Canada.  That’s how the branch plant economy works.

It will be amusing to see how PM Stephen Harper will spin his free market principles into a capitalism bailout package. To maintain a veneer of capitalist philosophy, the taxpayers of Canada should receive an equity share in return for their $5 billion contribution.  The US government, as the larger contributor, would get most of the pie.  After all, the existing shareholders of the automakers haven’t held their management accountable for their actions and the companies are presently worthless.  Isn’t that how it works?

Oil didn’t kill GM directly alone.  Poor management over the decades failed to control costs or recognize the end of the oil era and adapt with appropriate vehicles.

The last of the three symptoms is global warming, which is caused by the burning of fossil fuel such as oil or coal.  The IEA report indicates that converting to alternative renewable energy or conservation will be costly but provide savings in energy.   For example to cap at 550 ppm would cost $4.1 trillion but saving $7 trillion in energy.  To reduce to 450 ppm would cost an additional $9.3 trillion between now and 2030 but return savings of $5.8 trillion.

Another big issue noted in the report is the rising depletion of existing oil fields, which is presently 6.7% on average.  The world must find new output of 30 million barrels a day by 2015 to maintain existing levels of production.  That’s the equivalent of three Saudi Arabia’s.

Increases in fuel demand and emissions will occur in non-OECD countries such as China and India.  In contrast, the US demand for oil has actually decreased in the first eight months of 2008 by 5.4% or 1.1 million barrels per day, when compared to 2007.  That’s the equivalent of almost four refineries the size of the Irving complex in Saint John.  It is likely that Barack Obama will aggressively move on reduction of US oil dependence in the coming years.

What we aren’t doing very well is attacking the disease instead of the symptoms.  The disease is addiction to oil.   Curing the root problem would require an energy policy that is integrated with our industrial objectives and public works expenditures.  Does New Brunswick have such a plan that is related to the real world of the IEA?  Well, we do have the self-sufficiency plan which it is rooted in the past and the dream world.

Remember that the IEA are optimists and they say we have to dramatically change our approach.  The real situation is a lot worse than most can imagine.  Energy Minister Jack Keir, could we have an energy policy by Christmas?  I won’t specify what year because I don’t want to be disappointed when I look in my stocking.

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.

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?

Will carbon tax get more New Brunswickers off oil?

Do you think this is true? – “The price of oil will go down if we use significantly less of it.” The law of supply and demand indicates that if supply is relatively fixed, then demand will determine whether price goes up or down. So how are we going to use less? Maybe all of your neighbours will buy a hybrid or a diesel car and you won’t have to change a thing in your life.

Perhaps we can wait for the market to give us even higher prices and then we will conserve. That’s the philosophy of our energy minister Jack Keir and he’s not entirely wrong. However, in a case of inelastic demand and fixed supply or worse, then the market will raise prices until demand is destroyed. A friend told me that even when it costs $300, he’s going to fill his gas tank. Naturally, those who have the means will be able to maintain their lifestyle. The price of gas has almost doubled in the past year but how many people have really changed their driving habits to conserve?

The market can be rough on fishermen, farmers, and truckers who use large quantities of fuel and who sometimes get squeezed between rising fuel and low prices for their products. We can expect to hear screaming from those sectors in the near future. Unfortunately, the average Jack and Jill will have to make unpleasant choices in the near future, and that may include parking the car.

With the recent increase in gas prices, Canadians are feeling a little economic stress. We’re paying $55 billion more per year (or $1700 more per capita) for oil based products since last year. That means less money for consumers to spend on restaurants, vacations and other discretionary items.

Historically, the price of carbon based energy has been cheap and has been taxed at a low rate in North America. Economists argue that the market price for fossil fuels doesn’t account for external factors such as pollution and CO2 gases. Carbon taxes are intended to rebalance the business equation – to add a penalty for pollution, discourage greenhouse gases, make renewable energy more competitive, and also encourages conservation of fuel.

What would be the impact of a carbon tax and is it necessary?

British Columbia is the first in North America with a comprehensive consumer based policy, starting with a 2.4 cent increase at the pumps and $10 per tonne of CO². These amounts will gradually increase until 2012 at which time the gas tax will be 7.2 cents and the CO² will be $30 per tonne. The tax is revenue neutral although the provincial budget has increased expenditures to reduce the effect of climate change. The cost to the consumer at the gas pumps is expected to vary between $20 and $65 dollars per year based on vehicle efficiency.

The BC legislation increases the cost of gas only 2% initially with a total of 5% when fully implemented in 2012. The Green Party suggests a more aggressive 12-cent hike as their policy. To put this into perspective, a 10-cent increase in the cost of diesel happened in mid May in New Brunswick. After a few days of discontent, it was back to business as usual for most people.

Quebec introduced a carbon tax in 2007 on oil and gas companies at the wholesale level to finance a green fund to reduce CO² emissions. As the majority of electric power in Quebec is from hydropower, there is little effect on electric prices.

Carbon taxes have existing in Finland and Sweden since the early 90’s and those economies are doing well. It has been demonstrated by the European example that higher fuel prices help people choose vehicles that have excellent mileage. Fuel including taxes in Europe are about $2.10 a liter as opposed to $1.32 in Canada.

The BC Liberals, federal Liberal, or Green Party have implemented or propose systems that are revenue neutral (easier to sell). This means that for every $100 in new tax, $100 is returned to Canadians in reduced personal, corporate tax, or other method. Prime Minister Stephen Harper seems to skip over the revenue neutral part and paints a carbon policy as a tax grab. His approach to reducing emissions has been to build a regulatory environment so complex and mysterious that greenhouse gases will give up out of frustration – far in the future, of course. The NDP is opposed to a carbon tax and favours the cap and trade model. Ontario and Quebec just announced a plan to implement a cap and trade system for their two provinces, which was immediately denounced by the federal minister, John Baird.

So we have ideas floating all over the map. Perhaps we need have a reasoned discourse on the subject of greenhouse gases and peak oil and determine what we need to do to be effective. Taxes at the right level are only a small part of the solution. I like the simplicity of a carbon tax and believe that as proposed, it is harmless to the economy but won’t do much for peak oil as well. “Much ado about nothing” as Shakespeare would say.

We haven’t seen the last of the energy file. Next stop will be panic driven interventions in energy conservation and off-oil efforts. Fatih Birol, chief economist of the International Energy Agency urgently recommends to the world “leave oil before it leaves us. The really important thing is that even though we are not yet running out of oil, we are running out of time.”

Do you think we’ll be ready?

Can OPEC save the world from oil addiction?

The word “cartel” has been used to describe OPEC, a union of some oil producing countries. Perhaps a better word would be “association” as the effectiveness of this “cartel” over the years is questionable.

From a low of $10 in 1999 to over $100 a barrel today, price stability has not been one of its success stories. There are good reasons why this has happened – The close relationship between the Saudi Arabian and US governments, and the lack of a long-term vision and solidarity of the member states. There are recent indications that OPEC is becoming more effective and gaining more respect.

The oil age started with discoveries in 1859 and will be effectively finished by 2059, a period of only two hundred years. Even if we go along with the optimists and give it another 50 years, perhaps to 2109, the era of abundant oil will have only been a blink in the history of mankind.

A common human quality around the world is to search for peace and prosperity. Those with a long-term view can see dark clouds on the horizon. Unfortunately, the coming years will be a time of war and deprivation unless we find an efficient way to reduce our usage of oil and transition to other forms of energy in a calm and well planned sequence. Lately, oil has risen to $110 a barrel but still provides great value to customers. There are some preliminary indications that price has slowed the growth of oil usage. One of the contradictions of life is that a lower price of a product makes life easier but will lead to increased usage.

In the case of oil, do we still have the option of wasting this resource on SUV’s, poorly planned communities, and huge homes? How will our morality be judged when we utilize a valuable resource and leave nothing for future generations – our children, grandchildren and beyond? Can we find a way to decrease our usage to a “sustainable” level?

The nature of capitalism is to utilize all resources that are available without regard for the longevity of the reserves. We only have to look at the fish stocks in the world’s oceans to understand the dangers of uncontrolled harvesting. In the same way, we need a method to reduce the volume of oil usage such that efficiency is encouraged and the resource will last for centuries instead of decades.

Good long term planning is generally undertaken at the nation-state level. We would like to think so. In certain cases involving multiple countries, the United Nations can be useful. However, in a case as delicate as the price of oil, there is some doubt that the UN could act effectively when the short-term effects on multiple states, including the US would be negative.

The only group with the necessary tools is the Organization of Petroleum Exporting Countries (OPEC). To undertake such a mission would require vision and solidarity on the part of its members. It would also require an education campaign on why decreasing production is an environmental necessity – to reduce CO2 and to provide long-term resource planning for future centuries, avoiding “generational injustice”.

A reasonable target might be a reduction of 1% of the daily production of roughly 86 million barrels of liquids. This means that a cut of roughly 860,000 barrels a day would come from the OPEC members.

While OPEC would cut production, OPEC members would not lose overall revenue as the price would drift upwards to $150 a barrel or perhaps higher on a transitory basis. Obviously, rationing by price is not the ideal solution as those least able to pay are forced out of the market. The ultimate goal is to drive efficiencies into and wastage out of energy processes. At some point, countries will realize the necessity of cooperation in energy use by rationing on a country by country basis.

Why should OPEC be asked to show leadership at this particular moment?

First, the world is addicted to oil and no effective remedy is presently underway. Both OPEC and non-OPEC countries are the suppliers of the product going into the world’s veins. As addicts, we will exhaust the supply and future generations will be deprived and impoverished. Reduction of oil supply is the only sure way to ensure that CO2 levels will decline.

Secondly, OPEC is the only organization that has actually cut supply in the past, admittedly for much different reasons, in 1973 and 1979. There are excellent prospects for success today as little surplus supply capacity exists, public support for environmental initiatives can be found and a 1% reduction is a fairly mild cut.

George Bush is now playing the “economic” card to place blame on OPEC if they don’t raise production levels and therefore cause an economic slowdown in the US. Luckily, King Abdullah and other OPEC spokesmen aren’t buying into the guilt fantasy. George’s management of the US economy speaks for itself. Deficit spending due to tax cuts and an expensive war in Iraq are just the tip of the iceberg.

We all need OPEC to put a heart de-fibrillator on the speeding world economy and restart it at a slightly lower rate. Would this be an act of brotherly love for the planet and its inhabitants? Absolutely.

The price of oil has to remain high on a permanent basis if we are to find productivity or technological solutions to our energy problems. Countries who prosper will be those who use oil wisely and with more efficiency.

Oil Crisis calls for innovation

In previous articles of this series, I suggested that high oil prices are a significant danger to electrical rate stability and we need to take energy self-sufficiency seriously. A big tilt towards high efficiency, low emission wood burning is a start. There are many other ideas, some with little or no cost that can make a big difference. You may find some items a little boring and technical so just skip over any items that don’t interest you.

2) Institute a province wide changeout of Christmas lighting to LED technology. Based on the figures in my article of January 07 entitled “The value of thinking small”, NB Power could save up to 35,000 barrel of heavy fuel oil a year ($2.8 M @ 80 / barrel). In addition greenhouse gases are reduced by 18,000 tonnes a year (worth $450,000 @ $25 / ton)

The cost of a changeout program would be about $5 million with a payback of less than two years. Saint John Energy made a start in this direction in November 2007

3) Advance legislation on light efficiency from 2011 to 2008.
Going from incandescents to higher efficiency lighting isn’t rocket science. It doesn’t cost a lot to government either. The government of Shawn Graham has indicated that it will legislate the issue in 2011. Why wait for 2011? Ireland is implementing legislation in 2009.

The value of conversion to higher efficiency lights is probably in the range of 188,000 barrels of heavy oil but could be more or less. The annual fuel savings to NB Power could be as high as $15 million. Subtract lower kWh sales of $9.3 million and you have a net benefit to NB Power of $5.7 million.

4) Introduce Electric Thermal Storage (ETS) furnaces or heaters similar to those used in Nova Scotia or Quebec. Supplying electricity poses some difficulties because the demand changes greatly over the course of 24 hours. There is very little demand at night when people are sleeping and much higher when everyone showers or is getting ready for work in the morning. Peak load timing may vary depending on the components of commercial or industrial load.

Utilities meet the varying load curve with the lowest cost generation first, such as nuclear or hydro, followed by coal, with natural gas, oil and diesel being the last to run. The sequence may vary somewhat depending on the cost structure of each utility. Not surprisingly, flattening the load curve can pay big dividends. The ETS device turns on and stores heat in a ceramic brick core during the night when the electrical load is low and releases heat as required during the day. Nova Scotia has implemented a time of use scheme where the power rates are much lower at night facilitating these devices.

Not every building will be converted off electric heat. This technology has a place in the mix of solutions. This EUB may wish to investigate.

5) Revisions to demand charges on commercial and industrial customers.

Utilities like NB Power introduced a demand charge to certain classes of customers to entice customer to flatten their load. In most cases the result has been less than satisfactory. The demand meter records the monthly peak and a charge per kW is added on the bill. Although the customer cannot mathematically reduce his demand below the average demand he is charged between 0 kW and the average demand.

A better approach would be to charge demand on only the difference between the peak and average monthly demand because that is what the customer could actually affect. Done with a higher $ / kW and a revenue neutral approach, it would actually encourage more customers to invest in load control. This may interest the EUB.

6) Review the specifications for wind turbines supply contracts.
The use of wind turbines has the potential to reduce the use of heavy fuel oil in the province. However, there are some technical problems to overcome before more than 10 or 15% of the system load can be supplied by this technology.

First, most types of wind turbines are induction motors, which cannot supply “vars” to the system and create stability problems under certain conditions. One company at least, Enercon, builds a synchronous generator with no direct coupling to the power system. Power electronics simulate the attributes of a typical power generator including var supply. This might permit higher system participation assuming the other issue of scheduling of the wind can be resolved to some degree.

Not the last or the least of ideas is the use of combined heat and power (CHP), which will be the subject of an article soon. But the journey of a thousand kilometers begins with the first step. We are ready to take that first step but in what direction? The Department of Energy has, as its prime function, the security of supply and the reasonable cost of the energy supplied to the citizens of New Brunswick. There is little spare oil production capacity in the world according to some OPEC sources.

Our department seems to hold the belief that the near doubling of crude oil prices has little significance and that the market system will soon correct the temporary supply problems. From the outside, it appears that the principal departmental activity is marketing the energy hub concept – exporting of power or energy.
The recent appointment of Shelley Rinehart, whose expertise is in marketing, would seem to confirm that.

The government is 17 months into its mandate without an up to date energy policy. The issue of rising oil prices and particularly heavy oil cost for NB Power may become an albatross around the neck of Shawn Graham, his own “Hurricane Katrina” on a scale that will mark his legacy.

Get your free car

After you’ve made your car mechanic a rich man and terminal rust is devouring the metal frame of your car, it may be time to re-evaluate your “investment” in your car. Statscan figures there are 1.6 million commercial and passenger vehicles sold annually in Canada. There are roughly 20 million on-road vehicles registered in Canada, which means that the average vehicle life is 12.5 years.

Collectively we burn 55 billion liters of gas and diesel.   At $1 a liter, we spend $55 billion per year to keep our tanks with fuel.

A rough value of Canada’s vehicle fleet is $560 billion if we assume an average value of $28,000. Remember that trucks are included in this total.   Each year we spend $45 billion on new vehicles.

My ailing vehicle is 12 years old and has six months to live. The tedious process of finding a replacement speaks volumes about the state of my finances. The rich write a cheque for the new car of their choice. The “financially challenged” agonize over mileage ratings, the sound of an engine, the slip of a transmission or the colour of exhaust. Options are weighed as salesmen spin their stories and our heads.

But there is a glimmer of hope in the distance. Perhaps you’ve read about the new low cost cars being built in Romania, China, Brazil, India and elsewhere. Some of these cars may cost as little as $3000. On the higher end is the Renault Logan, which costs roughly $8600 and has sold over 300,000 units. It has mileage ratings of 40 mpg (6.8 L/100 km) with a gas engine.

 

Where this car becomes very interesting is combining the low initial cost with annual fuel savings by replacing gas-guzzlers in Canada. With an average 20,000 km annually, the fuel used would be 1360 liters or $1360 dollars. Large numbers of Canadian vehicles are getting less than half the mileage rating of this car (20 mpg or less) and would use $1360 more. Over a 12-year life, the present value of gas savings for those people changing to efficient vehicles would be $10,802 (based on 7% interest).

This means that a new low cost car would be totally paid for in less than 12 years with the money that is saved on gas, with benefits of reduced CO² emissions and reducing national oil consumption. The annual benefit of taking a gas-guzzler off the road and replacing it with something like this is 3600 tonnes per year. If ten million vehicles were replaced and efficiency doubled, then we have reduced CO² by 36 Mt per year and that is 20% of the required Kyoto reduction. And it doesn’t have to cost the government any money to accomplish this.

So, could we turn this idea into a practical program without costing much government money? The key is to use the existing financial institutions as the administrators and source of funds. A minimum program would see loans of $10,000 at commercial rates to every person who wishes to replace their vehicle with a new vehicle that gives double the gas mileage. It is necessary that the previous vehicle be certified as scrapped / recycled off the road to derive the maximum benefit for the environment. The loan is repaid from cash available from fuel cost reduction. When fuel prices rise, the business case just gets better.

Not all people would want a Renault Logan or similar low-end vehicle.  Some individuals would purchase vehicles of greater cost and absorb the repayment costs above fuel savings via income, as is the case today.

We should expect that as world oil production tends toward a decline, the status quo will become unacceptable.  I got a chuckle hearing that GM is building a Yukon / Tahoe hybrid in 2008 that will take it’s average fuel rating from 18 to 22 mpg.  Minor tinkering with fuel consumption is unlikely to save the SUV models and won’t stop GM from bankruptcy in the near future.

Automakers can’t immediately change course without large retooling costs but is there a really a choice if Ontario wishes to retain an auto industry?  Witness the rise of the Japanese, Korean, and soon the Chinese automakers.  What future exists for a Canadian industry that is anchored in the past and doesn’t provide vehicles that we will need in a post oil society?

The annual purchase of $45 billion worth of vehicles has an enormous impact on Canada. Our choices are influenced by auto industry spin (advertisements).  It would be interesting to see an effective long-term liquid fuels strategy by the federal government. At what point will Stephen Harper inform Canadians that we urgently need vehicles with superior mileage ratings? His mantra that control of CO² emissions is either impossible or requires enormous tax dollars wears thin.

Capitalism and the Environment

If you saw the Live Earth concerts recently, you may have an opinion on the value of the effort to save the planet. Certainly, there is skepticism whether progress was actually made by this approach which differed from the documentary film “An inconvenient truth”. Although I am not a Metallica fan, some of the artists were great (according to my taste) but perhaps the ultimate benefit of the concerts will be greater than most people understand. Political change happens when ideas percolate throughout society and become commonly accepted as the only way to proceed. This was a major event where leaders of the entertainment industry reached out to millions of fans, who otherwise might not been receptive to an environmental sermon.

No, we will not see any substantial changes this week or the next. The value of this event is more symbolic, hopefully being the date when capitalism got an invitation to the chiropractor for a major adjustment. In the past we have had to send capitalism out to the woodshed to stop child labour abuses, legislate safety regulations to prevent worker deaths, and begin the first waves of environmental regulations to slow down the abuse of this planet where we live and breathe.

Capitalism is celebrated around the world as being effective in producing goods for the masses at affordable prices. It’s tremendous force is related to the way that it marches over all obstacles, whether human or environmental, to achieve its prime objective – profit. Classical economics use supply and demand as its primary tools of analysis. Environmental damage is just part of externalized costs that are pushed off onto society in general to look after. Think about the individuals who are affected by severe air pollution. The degradation of the air and the health costs are borne by individuals and healthcare programs but not by the company who has avoided the cost of proper pollution abatement equipment.

A number of ecological economists have observed that the typical models proposed have not properly described human economic activity. In the view of Robert Costanza who set the annual net worth of nature at $33 trillion, the costs related to the destruction of “natural capital” or the value of nature are an intrinsic part of the economic equation to be considered by government decision-makers.

Today’s serious environmental issues of climate change, global over-population and the resultant decline in world resources such as oil and natural gas are still actively opposed by a majority of the business community and their linebackers, the politicians. What Al Gore has done with his film “An inconvenient Truth” and Live Earth is to throw millions of footballs over the heads of this defensive line and ask the entire world to catch the pass and run with it into the end zone. He has asked millions of people to play on his team in order to win quickly and decisively. Not your typical representative politics.

In the near future, the business community and the existing political chameleons will have to make a decision whether they want to participate in the decision to restrain the rapacious assault on our environment or to watch from the sidelines when a new government does it.

Although there are some technological advances and product efficiencies (like compact fluorescents) that can help the situation, it appears likely that industrial type solutions requiring restraint will be required. One example implemented in Europe is carbon trading, where emitters of CO² are given limits beyond which they must buy credits from those who have not used their quota. Those companies who build energy efficiency into their operation will profit. Limits will decrease annually to meet target for CO² reduction. But carbon trading has its down side and other options are possible.

A second option, suggested by David Fleming, is called the Tradable Energy Quota (TEQ). This is a debit card where industry and individuals are given energy credits for the year. When they purchase energy, they must show their card and it is electronically subtracted. If they exceed, they must purchase other credits. If this sounds like a modern day rationing system, it is. The alternative to reducing demand for oil when the production of oil declines is continual high prices which is just rationing by economic wealth. Like or not, our future is bleak unless we act.

Capitalism harnesses the greed of humans and transforms that force into a self-adjusting production system that has no equal. The question is whether capitalism can adapt to the new reality of diminished natural resources, less growth, and the requirement to reduce the CO² levels. Can planet Earth really afford capitalism as it is presently operating? On the political level, can we afford the do-nothing policies of Stephen Harper? Here in New Brunswick, we have the façade of an energy and environmental policy. Can the Graham government provide us with a rational “road map” to survival or will it always be useless expenditures on more new roads?

Personally, I don’t have a ticket on the space shuttle to another planet so I would prefer that we save this one from the myopic management presently at the helm. How about taking a serious look at our leaders and giving the boot to those who aren’t “getting it on the environment” and real sustainability at the next election?

When Irish eyes are smiling!

Brian Mulroney’s legacy lives on. Our present day energy policy dates to his government. The bad new is that we are running out of natural gas and conventional oil. The good news is that it isn’t going to happen right away. If we set aside the serious pricing issues from a decline in world oil production in the coming decade, and concentrate only on the role of the federal government and the National Energy Board (NEB) in protecting reserves, the future looks quite difficult.

The NEB defines its role as “an active, effective and knowledgeable partner in the responsible development of Canada’s energy sector for the benefit of Canadians. The NEB’s purpose is to promote safety and security, environmental protection and efficient energy infrastructure and markets in the Canadian public interest within the mandate set by Parliament in the regulation of pipelines, energy development and trade.”

Normal wisdom would be to retain sufficient natural gas and oil for the benefit of future generations of Canadians. But the Auditor-general of Canada indicated in a report to Parliament that -
“Up to 1985, long-term gas exports were approved under section 118 of the NEB Act only after the NEB was satisfied that Canada would still have a strategic reserve. Since price deregulation in 1985, procedures for assessing long-term gas export licences have changed three times. In particular, the NEB Act was amended in 1988 to reflect the Canada-U.S. Free Trade Agreement (FTA). The FTA made it more difficult for the Board to intervene in the free flow of energy commodities across the Canada-U.S. border. Now the NEB approves export licences provided that Canadians have access to the oil and gas at competitive prices. In 1997, sales under export licences, typically lasting for 10 years, represented about 35 percent of total export gas sales compared with 78 percent in 1987. The balance of 65 percent represents exports under short-term orders, which apply for a period of up to two years and are renewed automatically upon request.”

It appears that the federal government has set the National Energy Board (NEB) into a straight jacket based on a trade treaty (NAFTA). I actually had the perception that the National Energy Board was looking after the energy security of Canadians. How foolish was that?

The NEB indicates that conventional oil production in Canada is declining but is more than offset by oil sands production increases. Conventional established oil reserves are 1600 million barrels with an ultimate recoverable figure at 4500 million, giving between 7 and 20 “years to depletion” at present day production levels of 219 million barrels per year. Unconventional oil (Oil sands) production is being ramped up to meet the shortfall but mostly for export. What is the cost in term of environmental and social damage of this gold rush mentality? The development of oil sands also uses up large quantities of natural gas to detach the oil from the sand.

The NEB prediction for conventional natural gas production shows a decline but suggests that coal bed methane production will make up the difference for the short term. From Alberta government figures, there are between 8 and 20 years of conventional natural gas left, given annual production at 5 trillion cubic feet (Tcf) per year, proven reserves at 40 Tcf, and ultimate reserves at 100 Tcf. The wild card is recovering natural gas by drilling into coal seams, called coal bed methane (CBM). This method is more costly and the ultimate production level is unknown at this time.
So, if roughly 53% of Canadian natural gas production and 65% of oil production is exported and we are faced with rapidly increasing costs of the replacement supply, wouldn’t it make sense to reduce our exports and defer that date with higher costs?

Oh, but wait a minute. That won’t work because our domestic price is the same as the world price since the 1980’s. Secondly, NAFTA trade rules don’t allow the reduction of export levels to the US unless we share in the reduction of supply.

So, we are locked into an integrated North American energy policy where we depend on roughly $70 billion of hydrocarbon exports a year to maintain our boiling economy in the west. This takes no account of its effect on climate change, the Albert environment or our children’s future in this cold land.

The NEB website contains some good information but they don’t talk a lot about the reserves of hydrocarbons and what levels are reasonable to ensure energy security in Canada. The NEB is just following policy direction and they do that well. The government of Canada develops our energy policy and they have made up their mind – full speed ahead. Why do I get the impression that Steven Harper’s eyes glaze over when people talk about conservation, energy policy and the associated environmental issues in Canada? Does his interpretation of Canada as an energy superpower bear any resemblance to the facts? Why will an energy superpower have to start importing LNG from other countries to meet natural gas demand beyond 2015?

The government we deserve?

It has been said that we get the government we deserve but there is only a grain of truth in that old saying. By assigning the responsibility equally to everyone, those most responsible for the dysfunctional aspects of our government escape scrutiny.

We believe that we live in a democracy but it has all the characteristics of an oligarchy with crony capitalism mixed in.   An oligarchy is rule by a small elite group.

Certainly, this starts with the complexity of modern government where the decisions are often vested in bureaucrats and the difference between political parties is minor indeed. How often do we see a government elected with a promise to change directions, only to see them continue with more of the same?

Steven Harper, with his populist roots of the democratic Alliance party, has become the “undemocrat” holding all power very tightly in his hands, as Garth Turner and Bill Casey have realized. As Trudeau used to say, “an MP is a nobody 50 feet from Parliament Hill”.

Many of us swallow the spin that we are fed, and we vote for a mirage. New governments are elected when a former government self-destructs. This is related to the “best before date” of roughly 8 years unless the leader is an exceptionally gifted showman in responding to the moods of the general populace.

When devising an election platform, it may be necessary to include programs with the knowledge that some will be totally ineffective, or will have to be put on hold once the “real state of government finances” is discovered.

Once elected, the party in power responds to the demands placed on them from corporations, also known as “political entrepreneurs”. In New Brunswick, the political entrepreneur class is well developed and regularly influences governments to subsidize industry, or to enact beneficial legislation or regulations. (LNG tax break, Bill 55 on Rockwood Park, shortline railway Act, Gas distribution act, etc.)

Political parties have fund raising dinners. After all, it takes money to run a political party and prepare for the next election. Who has more money than a road builder who wants the road construction boom to continue? When party fund raising dinners are sold out at $5000 a table, the admission ticket buys more than a meal that is worth perhaps $75 a plate. It buys access to political decisions.

Some of our political leaders have found that the salary allowed is not high enough and ask the party for a top up fund to make ends meet. Shawn Graham indicates that $135,000 a year is enough but David Hay of NB Power makes roughly $360,000. Would it be fair to say that David Hay is doing the work of 2.6 Premiers or could we say that Shawn Graham has 37% of the value of David Hay?

Both are management jobs of considerable responsibility where the key component is the ability to lead strategically. When either individual actually starts doing that, there should be no objection to a very attractive salary.

There is a good argument that can be made for paying excellent wages to attract the very best leaders. In addition, public financing of that salary reduces the needs of political parties to seek financing with strings attached.

What concerns me is not pocket lining that exists, has existed in the past and will likely exist in the future. This is part of human nature that could be reduced but never totally eliminated. The influence that the business as usual crowd has on government policy and expenditures is a lost opportunity to set a change in course to meet the word oil decline expected to begin in the next decade.

Let’s imagine our lives as a bus trip with the Premier being the driver and we are the passengers, along with a group of self-absorbed businessmen huddled around the Premier doing the navigation. A few passengers are talking about CO² emissions, peak oil, and sustainability of our society, but most of the people are just enjoying the scenery. When questioned about the cliff and the sharp corner just ahead, the businessmen are dismissive and talk about jobs, profits, shouting “Pedal to the metal, Shawn.” When the bus runs off the cliff and crashes, many will be hurt seriously. The Premier will have a surprised look on his face, “How could we have known?” Unfortunately, this story is about the lack of a strategic vision to lead us to a safer sustainable energy environment.

Let’s take a look at several recent examples: The first is an investment of $1 million in government funds for the development of standard bred horse exports and increasing purses at races. One could understand if the investment was in the development of workhorses for the farming or the forestry industry that will be useful as fuel becomes very expensive and agriculture has to change.

Have you noticed how money spent on new highway construction is always linked to self-sufficiency and improvement to economic performance? This reminds me of the way that George Bush linked al-Qaeda with Iraq even though there was no proof. Repeat a lie often enough and people will buy it.

With transportation fuel poised to become extremely expensive, money spent on new highway construction is like buying an obsolete product. We will never get full value for this money. These hundreds of millions each year could be better invested in getting off oil, in supporting high-tech industries, in conservation or anything but new highways.

But don’t worry, you have only four more years of oligarchy before your 12 hours of democracy at the ballot box.