Toronto-Dominion Bank reports that “Western Canada’s oil industry faces a serious challenge to its long-term growth. . . Production growth will become constrained unless new pipeline capacity is built to access new markets. . . . The flood of new shale oil supplies coming on stream in the United States, combined with inadequate pipeline capacity to move Canadian oil to the markets that most need it, has left Western Canada (and the Alberta oil sands in particular) with a glut of oil that has gutted prices.”
These comments highlight the totally different perspective of environmentalists and oil company executives and investment analysts who focus on this industry.
Environmentalists wish constraints on the extraction and marketing of oil. In this way emissions from fossil fuels such as oil will be reduced in time. Growth of industry profits is inconsistent with these constraints.
Oil executives regard growth as the foundation of their business. As growth has been the pattern of the industry over almost two centuries, one might say that growth is really “business as usual”.
The problem of reconciling two very different perspectives is difficult. For lack of a better solution, many environmentalists would accept reconciliation based upon market principles as this has some prospect of acceptance by the industry. This market based solution could involve carbon trading or a tax on carbon.
Oil executives would probably favour a tax on carbon. The industry would be able to pass the burden of this tax along to consumers. This strategy would force governments to propose and collect the tax. Unquestionably consumers would be far from accepting new taxes in a flat economy, although tax credits to individual tax payers could ensure that the impact of a carbon tax is neutral.
Carbon trading is a more complicated solution that must be worked out by the industry and whatever regulatory framework would be required. So far the attempts to establish a market basis for carbon trading have encountered problems, although these attempts are in the beginning stages.
So there is some progress in “experiments” with both a carbon tax and carbon trading. What consumers will accept is a “guessing game” for politicians.
One of the most successful experiments is the tax on carbon levied by the Liberal Government in the Canadian Province of British Columbia. This government is up for re-election in 2013, and the NDP opposition has made political capital out of criticisms of the carbon tax regime. Regrettably opinion polls suggest that the government will be defeated, and this may mean scrapping the tax. The opposition has not hinted what solution it would then implement.
Environmentalists everywhere, and not just those in British Columbia, who are in favour of a legislated solution should keep their fingers crossed as Election Day approaches.
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