In this episode, we discuss a new report from the World Energy Council on the current energy situation in Europe, and the potential for an energy crisis in Canada. We also discuss the impact of Canada's carbon tax and other policies on the energy sector.
00:00:00.000So, yeah, what we did in the report is, number one, to point out to people to make sure they realize this, that Europe was in an energy crisis and people were using that phrase before the Russian invasion of Ukraine.
00:00:11.160So obviously that exacerbated things. But this situation was in place well before that.
00:00:15.420Just to give you some idea, in July of 2021, right, so last summer, natural gas prices in Europe were up 670 percent just year over year.
00:00:26.460All right. Just to show you just the skyrocketing price. Electricity prices in 2021 in Germany, the UK and France were up more than 200 percent in each of those countries.
00:00:37.240Right. So like a tripling. And so, again, that those timelines were showing this was before the Russian invasion of Ukraine.
00:00:44.440And so then in the study, we say, OK, what what are the factors going on? Why is why was Europe in such dire straits?
00:00:50.300And we listed some factors, all of which are also true right now in terms of Canada and its government's policies.
00:00:57.380And so that's what the point of the report is to warn. And so it has to do with being hostile to conventional fossil fuels.
00:01:04.980And so companies aren't investing as much. And then having in Europe, they have what's called an emissions trading system, which is like a price put on carbon.
00:01:13.520And they jacked up significantly recently. And that's very similar to Canada's tax on carbon.
00:01:19.220And so our concern was if Canada is following the same policies that they had in Europe in place, you know, is an energy crisis going to come to Canada as well?
00:01:28.920Yeah, well, it seems like we're trying to legislate an alternative to hydrocarbons, but we haven't developed the alternative yet.
00:01:35.160So, I mean, it's inevitable that's going to lead to some some spikes in pricing if we don't somehow ramp up wind and solar generation very quickly and effectively, which which isn't going to happen.
00:01:46.680Right. So what seems to be happening in this, you know, this pattern is all over the place.
00:01:49.600But, you know, you see it in Europe in particular, is that certain jurisdictions, for example, Ireland, Germany and France, they outright ban fracking and they have policies in place to discourage coal fired power plants in particular electricity derived from coal.
00:02:08.040And so you're right in the short term, we can't just instantly switch over to having solar and wind fill the gap.
00:02:15.120Those are intermittent sources when the sun's not shining, when the wind's not blowing, you need something else.
00:02:18.820And so that meant the brunt of it fell on natural gas. And then for various reasons, because natural gas prices went up so much, that's why it fed into electricity prices.
00:02:27.320So that's sort of the quandary that the world finds itself in as governments push away from coal fired plants.
00:02:35.300Right now, natural gas has to pick up the slack because it's not as carbon intensive and it's more reliable than wind or solar.
00:02:41.520And so then when you have a disruption, like, for example, interruptions in natural gas exports from Russia, then, of course, that the economies are more dependent on that.
00:02:50.020Yeah. And we are seeing, I mean, similar actions in Canada. Quebec is an outstanding example.
00:02:56.680I mean, they've got some pretty good natural gas reserves there.
00:02:59.020It appears that they started with a fracking ban and now they've actually just basically said, no, we're not going to do any oil gas development whatsoever in our province.
00:03:06.160And they're leaving that in the ground. But that's not that can only contribute to higher prices then.
00:03:12.180Right. In terms to a federal policy, too, in Canada. So, for example, they've got most obviously the carbon tax that's in place that's set to get up to one hundred and seventy dollars a ton by the year 2030.
00:03:24.180They've got an outright cap they've placed on greenhouse gas emissions from the oil and gas sector.
00:03:30.380So with all this stuff, you know, it sounds good in principle. And I understand the desire that, oh, we're concerned about climate change.
00:03:37.280We want to limit those emissions. But, you know, we have to policymakers and Canadian citizens, of course, need to understand what the flip side of these things come with a cost.
00:03:46.280And there's a reason right now that the infrastructure was so heavily reliant on natural gas and coal and oil.
00:03:54.080And that's because they're very dense forms of energy that are very convenient, dispatchable as a term that's used.
00:03:59.780And again, just to switch over these other forms, it comes at a cost.
00:04:03.880And as you say, like a carbon tax, this isn't some undesirable side effect.
00:04:08.880The avowed purpose of that is to make electricity and transportation derived from carbon intense products more expensive.
00:04:16.880That's the whole point of taxing something is to make it more expensive, to discourage people from using it.
00:04:21.880And so, yeah, we shouldn't be shocked. Gee, how come energy is so expensive all of a sudden when the government's policies are explicitly designed to make them more expensive?
00:04:28.880Yeah, but they didn't discourage us from using anything. They just made it a heck of a lot more expensive for all of us.
00:04:33.880So, I mean, it's only having half, I think, the intended purpose, I imagine, because there's not an alternative realistically to go to.
00:04:39.880Yeah, you're exactly right. And so, you know, in fairness, the some of the people who are designing these policies and the projections they may have been relying on had optimistic assumptions built into it.
00:04:49.880To say, oh, if, you know, we keep making strides in battery power or if there's widespread adoption of electric vehicles or, you know, various things like that.
00:04:56.880If solar panels become more efficient, then, you know, oh, we could afford to move away from the current reliance on the more conventional forms of energy and it wouldn't be so expensive.
00:05:07.880But, yeah, the problem is in actually implementing that in terms of the timetables. It's it's not ready for prime time yet.
00:05:14.880And so, yes, as you say, by making this stuff more expensive, people still need to heat their homes.
00:05:18.880They still need to drive to work. And so they have no choice in the short term but to suck it up and pay higher prices.
00:05:24.880Yeah. Well, and likewise, I mean, I know it only has limited effect, but still, I mean, if we supplied more in the world market, that's going to have a degree of offsetting on world prices.
00:05:32.880But our biggest one of the biggest world consumers and our biggest export customer is the United States.
00:05:38.880But President Biden, while he's acknowledging an energy crisis, seems to we see no indication he wants any more Canadian product.
00:05:45.880He's actually going cap and hand to Saudi Arabia and Venezuela asking for more like, is there ways we can develop our relationship better with the United States to help exacerbate some of this or?
00:05:54.880Well, yeah, I mean, with all this stuff, I mean, when the Biden administration came in, of course, they were very hostile to pipeline development.
00:06:01.880And, you know, there were a lot of so-called green groups that the Biden administration wanted to placate in terms of taking action, some of which was just symbolic.
00:06:10.880So, yeah, you're right. And I I don't I guess part of that is that because they made those moves early on, they don't want to be seen as backtracking.
00:06:19.880But you're right, especially it is ironic that the United States policy, instead of building more alliances with its northern neighbor, is reaching out to areas of the world that are traditionally unreliable.
00:06:31.880And the US as well also has a lot of domestic resources that it's not tapping again because government policy either literally forbids it or makes the people in the industry realize it would be foolish enough to invest billions of dollars developing this.
00:06:46.880Because for all we know, 10 years from now, the regulatory climate is going to be different.
00:06:50.880So with all this stuff, too, it's there's a chilling effect on the private sector's development, even if the explicit government policy right now doesn't forbid some of these things.
00:06:59.880Yeah, that's what I kind of wanted to get to, because even if we wanted to ramp up Canadian production, that's going to take a lot of capital, a lot of investment.
00:07:05.880Timelines are long. And to be honest, in looking at how many projects have been canceled or delayed or regulated to death, we don't look like a safe place to invest in those kinds of projects because we don't know if you could ever get it to completion.
00:07:16.880Right. Yeah. And we have some figures there in the in the study that you may have seen that in terms of like European, the European energy mix you have in terms of R&D.
00:07:25.880There was a lot more over the last 10 years that's been pumped into, you know, so-called renewable sources, things like battery power, things like that, not very much into more conventional forms.
00:07:37.880And you can understand why, again, from an individual investor's point of view, it's a rational decision to make that you don't want to spend a bunch of money investing in a coal fired power plant.
00:07:47.880If for all you know, eight years from now, they're going to come out and say this is illegal or they're going to put in place such a punitive carbon tax that it's no longer profitable to run.
00:07:56.880So you can see why they would get out of that. And that's partly what you see is the contribution to the energy mix coming from coal is way down in various jurisdictions.
00:08:08.880And again, that's because they read the writing on the wall and they know it would be foolish for us to invest in this.
00:08:13.880Yeah. So getting another aspect of things, too, we saw from Minister Reagan the other day was labor, a shortage of skilled labor.
00:08:22.880Like if we do want to ramp it up, we're also down on a lot of energy related labor.
00:08:26.880I mean, they've been told for years, get out of this. It's going to transition. Don't join this labor force.
00:08:31.880And now that even if we want to ramp it up, we don't have the skilled people really to push in there fast.
00:08:38.880Right. Yeah. So this a lot of this, I think, is you can interpret it as sort of like the chickens coming home to roost that things that have been in place for years are now finally rearing their ugly head that it's as you say.
00:08:50.880So, yes, up till now, we've been focusing on this conversation on like the physical capital that, hey, if you haven't been building the pipelines, if you haven't been developing the oil wells and things like that,
00:09:00.880then it's hard just to turn on a dime and say, oh, because the supplies from Europe are low, you know, now we need to ramp up or the Canadian context now because the European exports are in trouble.
00:09:10.880Like, you know, Canada can fill the gap. It's hard just to turn that on a dime.
00:09:14.880But you're right. There's the human element as well, that if you were somebody, a 20 year old going into engineering of some form that, yeah, you would have also thought, oh, the wave of the future.
00:09:24.880I want to get into the renewable sector because that seems to be promising and that's where the future lies.
00:09:29.880You wouldn't necessarily be going into these old what you think are now obsolete technology.
00:09:34.880So, yeah, at this point, if we need more of that, there's there's a shortage.
00:09:39.880Yeah. So, I mean, we know that the problem is kind of acute and we seem to be on a similar trajectory to Europe right now.
00:09:44.880And we got another winter approaching in a few months. Like, where are the solutions, though?
00:09:48.880What can we do conceivably to ease this if we could coax the government to want to address it?
00:09:54.880So, I mean, I think the obvious thing would be to rethink the policies that, you know, Canada, that the federal and provincial levels, depending on which province we're talking about, has that are quite analogous to what they had in Europe.
00:10:06.880So clearly, you know, I and we've written at Fraser Institute on this more like the federal carbon tax.
00:10:13.880For one thing, even if you stipulated, you know, the conventional theory about externalities and how you need to have a tax in place to get firms and consumers to take into account their greenhouse gas emissions and the effect it has.
00:10:26.880Even so, the Canadian version of that is much higher in terms of, you know, where it's projected to go by 2030 than what the conventional estimates are of the of the impact of a marginal ton of emissions.
00:10:38.880So that's clearly not calibrated at the right level. So at the very least, you'd want to rethink that policy.
00:10:43.880And then just more generally, the hostility to conventional oil and gas development, you know, again, that has a chilling effect on investment.
00:10:53.880So I think policymakers should clarify and say, look, if we recognize this is an important part of the energy mix, then we're not going to take actions down the road to penalize this.
00:11:02.880And so, you know, investors can be assured that if they go ahead and build something that they'll be able to recoup their investment.
00:11:10.880Yeah, well, that hostility, a lot of it has more, you know, ideological underpinnings than than legislative, I guess you could say, or policy.
00:11:17.880I guess, you know, I'm asking you to get a bit speculative.
00:11:20.880Do you think there's much chance of this government wanting to bend on a bit of that?
00:11:25.880I mean, again, I can engage in the cold hard analysis here. You're right.
00:11:29.880You're right. But right. I I am doubtful.
00:11:32.880It's partly, too, because, you know, certain political officials, if they made a career out of certain types of right, it would be hard for them to turn on a dime.
00:11:40.880And but, you know, there always is sometimes there is a case where when when something really is a crisis situation that they are willing to rethink and to realize, OK,
00:11:50.880maybe our plans before a bit too aggressive and, you know, what we're trying to do right now is too painful to our constituents.
00:11:56.880So, yeah, there is room for that. And I think both sides should be forgiving.
00:12:02.880You know what I mean? Like if some side is willing to sort of make concessions and realize, OK, maybe what we've been trying to do is too aggressive and it's having unintended consequences.
00:12:10.880Then the other side should welcome that and not say, oh, but it's this is all your fault that, you know, say, OK, well, thank you for seeing the light finally.
00:12:17.880Yeah. Well, there are some pragmatic people in government, even if it doesn't feel like it at times.
00:12:21.880And I'm sure they're hearing from their constituents, you know, they're having trouble paying the rent, having trouble getting to work or paying the utility bills that, you know, something's got to ease.
00:12:29.880So maybe they'll be more receptive to reevaluating, I guess, the way the policy has been.
00:12:33.880Yeah. Yeah. And I would and I would say, too, just, you know, I'm in the US and Canada and I see the difference in the in the debates there.
00:12:39.880And in the US, it does tend to be more ideological, whereas in Canada, there's more of an emphasis on the actual data that, you know, the Canadians seem at least relative to the American political debate.
00:12:50.880It's more pragmatic. Like, is this working or not? And if it's not working, then we need to rethink this.
00:12:55.880Yeah. Well, and I appreciate that. And, you know, with with what you put together, because it's saying, can Canada avoid it?
00:13:01.880I mean, you know, there's you're saying there's room to avoid this crisis. We might be moving towards it.
00:13:05.880But if we pay attention, perhaps, and use the data and look ahead, we don't have to suffer quite the energy price shocks that they did.
00:13:12.880Well, yeah. So that's definitely it's not a doomsaying document. It is more just of a warning.
00:13:16.880And yes, there is time for the Canadians to react to the situation and to try to avoid suffering the similar fate.
00:13:23.880And, you know, at the end of the day, obviously, Canada is in a much better position sitting on all of those resources as opposed to like Germany,
00:13:32.880which was so reliant on Russian exports of natural gas. And so now they're really in a tight spot.
00:13:36.880Yeah. I mean, if you don't have the resources, there's nothing you can do.
00:13:39.880It's it's you're going to be relying on somebody else providing. So we're fortunate that we have it.
00:13:43.880We just have to make sure we're properly utilizing it, I guess.
00:13:46.880So that's where the discussion's important.
00:13:49.880Well, I appreciate you coming on to explain that and you're putting out that that report.
00:13:53.880Where can we find more information about what you've done and where the report is in full?
00:14:00.880And I guess just look for the can. Well, it's I think it's right up top in the reports there and then releases anyways,
00:14:08.880that this one and among other things, right? Yeah, exactly.
00:14:12.880OK, well, in closing, anything else you'd like to add before I let you go, Mr. Murphy?
00:14:16.880Well, again, I just would like to encourage Canadians to not take the media's treatment of these issues at face value.
00:14:22.880And that, again, it's not a matter of all this is what the oil sector says or whatever the even in terms of the conventional economic analysis.
00:14:29.880A lot of these policies don't make sense and that they're being overly punitive on traditional forms of energy.
00:14:36.880And we're seeing this crisis play out in Europe and hopefully we can avert it in time so it doesn't come to Canada.
00:14:42.880Yeah, well, we can keep encouraging a nuanced, rational discussion on it and hope for better outcomes.
00:14:47.880So I thank you for your contribution and for coming on to talk to us today.