Alberta’s business community worries UCP sovereignty talk will put off investment in energy transition

Alberta’s business community worries UCP sovereignty talk will put off investment in energy transition

Alberta business leaders are not all on board with the energy transition.Ian Martens/The Globe and Mail

Alberta’s transition to lower-carbon energy will require billions of dollars in outside capital, and members of the business community worry that growing talk of sovereignty in political circles jeopardizes that investment.

Front-running candidates in the continuing United Conservative Party leadership race are focusing more on sharpening battles with the federal government, some say, than concentrating on energy transition. The most contentious idea is a plan to bestow the provincial government with power to supersede the federal legal system.

However, many in business, long a dominant force in Alberta conservative politics, are concerned that this approach is counterproductive. In the energy sector, investors and corporate leaders see a need now to put expertise gained over decades in oil and gas to work on draining carbon out of energy systems.

To do that, they say, Alberta needs to collaborate with the rest of the country and the world to develop and share technology and talent. Their aim is to position the province as a favoured place to invest the capital that will be required for breakthroughs in renewables, energy storage and scaling up such other innovations as hydrogen and carbon capture, utilization and storage.

“If we want to solve some of the grand challenges we all face, it will be through collaboration, not through putting up walls,” said Deborah Yedlin, president of the Calgary Chamber of Commerce. “Capital goes to where it can get the best return, and that includes whether there are barriers, real or perceived, to investment.”

Opinion: Danielle Smith’s push for provincial autonomy in UCP leadership race driving astounding political rehabilitation

Opinion: UCP leadership race incites fresh enmity toward Ottawa

A study commissioned by the economic development agencies of Calgary and Edmonton last year concluded that the province’s cleantech industry could generate $61-billion in gross domestic product by 2050 and create 170,000 jobs in renewable technology and decarbonizing fossil fuels.

For that to happen, the industry will need $2.1-billion in investment annually by 2030, increasing to $5.5-billion by 2040, the report predicted. It warned that “less positive signals” from the provincial government could hinder the inflow of capital.

UCP leadership hopefuls are waging campaigns that target the federal government over jurisdiction. This includes resuming opposition to federal carbon taxes and other environmental policies they see as detrimental to Alberta’s prosperity.

Presumed front-runner Danielle Smith’s marquee plank is her Alberta Sovereignty Act. The plan would give the provincial government power to override federal law. Other candidates are proposing various twists on an anti-Ottawa position in their bids to win over supporters.

Jason Kenney, who steps down as Premier when a new UCP leader is chosen in October, has often railed against Ottawa, and last year his government held a referendum on whether to opt out of the federal equalization program and waged court fights against carbon levies. He contends that federal approvals for oil pipeline proposals became too onerous, and that has limited the industry’s ability to export crude to the United States and abroad.

However, Mr. Kenney hasn’t minced words regarding Ms. Smith’s proposal, calling it “nuts.” He says investors will pass the province by if they can’t trust that its government will obey the rule of law.

The sovereignty proposal would clearly be unconstitutional, said Kristen van de Biezenbos, law professor at the University of Calgary’s Haskayne School of Business. Uncertainty over which laws and regulations could be cast aside will increase political risk in Alberta.

“This is one of the reasons that certain countries are unattractive from a capital standpoint – they don’t have a strong rule of law, meaning that things could change from a regulatory standpoint very rapidly. That is, in fact, the kind of business risk that companies seek to avoid,” Prof. van de Biezenbos said.

Many business leaders are taking a different tack. In late June, New West Public Affairs, a firm founded by former Conservative cabinet minister Monte Solberg, held a conference in Calgary called Alberta Relaunch 2022. Speakers debated how the province’s energy wealth could be directed to building up leadership in a host of technologies that could help meet global ambitions to get to net-zero carbon emissions by 2050.

Banker and former Conservative MP Lisa Raitt, UN Special Envoy for Climate Action and Finance Mark Carney and others spoke to a crowd interested in attracting major investors at a time when environmental, social and governance (ESG) objectives are almost as important as financial returns.

Companies have had to devise strategies to deliver on the requirements for navigating the push to decarbonize, and many in the province are being recognized as leaders, said Scott Crockatt, vice-president of the Alberta Business Council and a speaker at the event. “We are looking for productive public policy that helps businesses, government and people work together to achieve our collective goals in these areas,” he said.

But Alberta business leaders are not all on board with the energy transition. Some assert that Ottawa keeps imposing restrictions on the energy industry, using the environment as a way to wrest more control. There remains strong belief across Alberta that Ottawa played a role in hindering the industry’s access to capital.

One bone of contention today is the government’s latest proposal to impose either a cap-and-trade system or higher carbon price on large emitters as a way to reduce emissions from oil and gas by 2030, a key part of achieving the national target.

For now, one investor says it is crucial that Alberta finds a way to manage the current windfall in the province’s coffers with the recovery of oil and gas prices. It has led to a return to massive budget surpluses, and Alberta must resist the temptation to pour money into unproven technology, said Rafi Tahmazian, portfolio manager at Canoe Financial.

He said any of the potential new leaders of the UCP will develop policy for what he prefers to call the energy evolution, rather than transition. Government is not the issue some think it is, he said.

“We matured an industry that became world class and it’s paying off for us and Canadians in massive taxes and royalties,” Mr. Tahmazian said. “No reason why we can’t do that in the area of the evolution.”

Oil and gas prices have surged in Canada after for more than half a decade of malaise, with demand spiking because of the war in Ukraine. But there is no guarantee that the current boom will last as climate-related fundamentals come back to the fore.

In past decades, the industry expanded with billions of dollars in foreign capital, and that is what is required again for the next stage, Ms. Yedlin said.

Numerous energy-related businesses have made changes to operations related to sustainability, and that includes implementing a range of ESG measures, said Ryan Mooney, an investment banker with Echelon Wealth Partners who works with both traditional oil and gas and cleantech companies. Indeed, the oil sands industry’s dominant companies have set their own target to get to net-zero emissions by 2050, a costly undertaking.

Alberta’s business and political worlds need to find common ground to maintain access to the funding necessary to make the shift to lower-carbon energy, Mr. Mooney said. “It’s real, it’s going to be around for a very long period of time – longer than any of us are involved in the capital markets,” he said.

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.

CBD Oil, 9 Must-haves Before Embarking On Cannabinoid
Find out more