C.D. Howe sets out four pillars for ‘reviving’ Canada’s energy sector

TORONTO—Trouble in Canada’s energy sector is about more than just low oil prices, the C.D. Howe Institute says.

A new report from the think tank has set out four priorities for the once high-flying industry struggling to keep its head above water.

“Few in the Canadian energy sector—as well as the many Canadians who depend on it—are sad to see 2015 move into the history books,” the report’s author, Benjamin Dachis, said. “In 2016, the energy sector will be nervously watching government policies.”

As oil prices continue to fall, Dachis says getting the country’s energy policy right should be a national priority. Meanwhile, the institute has set out four key factors for the industry in 2016:

• Global competitiveness of Canada’s energy industry: Top of mind for most stakeholders in the Canadian energy industry in 2016 will be the global competitiveness of its oil and gas and electricity sectors. With Alberta’s resource royalty review about to conclude in early 2016, it should recommend that the province adopt the international best practice of cash-flow tax design. As for competitiveness in electricity, Ontario should consider the implementation of a capacity market, where generators would compete to offer supply at a lower price than they do now.
• Social acceptance to enable market access for Canadian energy: Getting Canadian energy to world markets will remain a key priority in 2016. Having a robust regulatory approval system is critical for governments—and the energy sector—to ensure that Canada’s energy products get to world markets safely and in environmentally friendly, socially accepted ways. When it comes to the pipeline review process, however, the federal government should focus on minor changes, not major reforms, and should be especially wary of changing the review process for pipelines already underway. But social acceptance entails more than the regulatory process, and requires governments to take the lead in areas outside the remit of regulators.
• Collaborative governance: Carbon pricing will likely be the key collaborative governance issue in 2016, and the new federal government will need to tackle a provincial policy patchwork on climate issues. Energy producers and transportation companies will also need to look at their own practices to improve their chances of getting project support. Both federal and provincial regulators will need to examine how their securities and competition policies will affect potential mergers in the energy sector.
• Innovation: Rather than focus innovation and diversification policies on what is physically produced in Canada and its provinces, governments should focus on how to enable Canadian companies to become global leaders in the specific technologies they are best at applying.