The Economics, Politics, and Potential of the Alberta-federal MOU

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HERE'S MY TAKE

More than a week has passed since Prime Minister Mark Carney and Alberta Premier Danielle Smith signed their memorandum of understanding (MOU) which has provoked such a divided response in the media and chattering classes. Taken at face value, the deal will lead to four project outcomes: additional pipelines capable of sending more than a million barrels per day of Alberta oil to Asian markets, a carbon capture project, capacity for thousands of megawatts of power for AI data centres, and a network of transmission arteries to send the West’s liquefied natural gas, minerals, and agricultural goods to markets. But understanding the responses to the deal requires more than a face-value analysis.

Economics

The corporate types in the energy sector applauded the deal. The Canadian Association of Petroleum Providers (CAPP) suggested the deal puts Canada on a “path to become the world’s next energy superpower.” Canada is already the world’s fourth-largest oil producer and we have among the world’s largest proven reserves. Columnist Tony Keller noted in the Globe and Mail that “we are not trying to become an oil superpower. We are one.” He argues the agreement happened because we were “mugged by economic reality” and now see oil as “a vital national asset, not a national shame.” There are too many variables and unknowns to be overly confident, but the agreement lays out a path for investment that better defines the timelines involved. Given that markets crave certainty, there is reason to believe this deal will encourage the private sector to invest in new energy projects. I’d be surprised if the Alberta government hadn’t consulted potential investors during the MOU negotiations. Their investments would encourage broader investment in other parts of the Canadian economy. From a purely economic perspective, it is hard to see how the MOU is not an improvement.

Politics

The politics of the deal are complex and multifaceted. Public opinion seems more in favour than one would expect, given the mixed media coverage. An Abacus Data poll conducted immediately after the agreement was announced found that 55 percent of Canadians support a pipeline to the West Coast, while only 18 percent oppose it. The political fallout was far more dramatic in Ottawa. Steven Guilbeault, who had been an outspoken environment minister under Prime Minister Justin Trudeau, resigned his post as culture minister in Mr. Carney’s cabinet. In the process, he ceased to be Mr. Carney’s Quebec lieutenant. Meanwhile, some of the prime minister’s climate advisors also quit in protest. Criticism of the MOU came from both sides of the political spectrum. Some critics suggested the deal was purely political theatre that would not result in any new pipeline. The Conservatives argued that this was a reflection of the prime minister’s incompetence and untrustworthiness Some on the political left suggested Mr. Carney brilliantly tricked Alberta into claiming a false victory. So, when the process would inevitably fail to lead to new pipeline, the province would take the blame instead of the federal government.

The BC provincial government was most vociferous in its opposition to the bill, citing both environmental and Indigenous rights concerns. However, within a few days, the province shifted from absolute opposition to openness to negotiating alternative pipeline routes. It seems that Premier David Eby, his deeply felt convictions notwithstanding, is still sensitive to polls showing that the majority of BC voters support the pipeline and that the revenues BC would derive from it are too significant to ignore.

In the broader context, all Canadian politics these days revolves around the question of how any policy, program, or position equips us to deal with US President Donald Trump or, alternatively, to expand the opportunity for more robust global trade. Intuitively, most Canadians understand that having more energy to sell is better and that whether we sell it to the United States or to other countries, getting more out of our resource base to build the national economy is a good thing.

Despite the economic focus, environmental concerns remain a factor in the political calculus. The MOU includes a significant carbon sequestering program and an industrial carbon tax. Climate activists argue that these items fail to meet Canada’s climate commitments. Those on the other side are concerned these items are ineffective performative steps that just increase project costs. Mainstream public opinion seems to want some sort of balance between economy and environment, but it we’ll have to wait for actual results to see if both sides acquiesce to the compromise reflected by the Carney-Smith deal. Pundits can’t help but parse the electoral math and speculate about whether the federal Liberals will lose more support from left-leaning voters than they gain from right-leaning voters. However, I suspect most ordinary Canadians, who define politics not by strategic voting but by their perceptions of political leaders, will find the MOU gives them something to like about Prime Minister Carney.

Potential

The ultimate test for the MOU is not the immediate analysis and response, but what we are likely to be saying about it a decade from now. Speaking of which, I imagine only a few remember that Prime Minister Justin Trudeau and Alberta Premier Rachel Notley achieved some kind of understanding on pipelines in 2016. The conservative Fraser Institute was more positive about the prospects of a new pipeline at that time than they are now. They headlined their analysis a decade ago, “A Nixon to China moment for Canada.” This week, their president analyzed the current agreement in the National Post, calling it an opaque agreement that “no one can understand.” So, don’t put too much stock in the immediate analysis of the deal. It’s still early days. Even Premier Smith received a mix of boos and cheers at her party convention last weekend when she referenced the agreement.

The deal is significant not because of what it achieves in itself but because of the potential it provides. Still, given the complexities involved in any infrastructure project of this size, complicated by the overlapping federal-provincial interests, Indigenous rights as defined by the courts, and changing global energy markets, seeing actual results is far from a sure thing. There is only the next step to take with a view to the destination down the road.

While it's naïve to argue that this deal makes a pipeline a certainty, opposing it seems like rejecting an opportunity just because the first step doesn’t get you to your destination. The deal is an ambitious compromise that exposes, rather than heals, Canada’s longstanding divisions over energy and the environment, with federal-provincial-Indigenous relations further complicating it all. In the context of separation talk in both Alberta and Quebec, these are challenging matters for leaders to navigate and much of the black-and-white responses provided by some leaders this week, while perhaps effective in rallying their base, do little to advance our national prosperity.

Today’s headlines don’t really tell us about the significance of this week’s agreement. Only the political, economic, and environmental consequences a decade from now can do that. Between now and then, there will have to be many other deals. As recently as a few weeks ago, few would have predicted that Mr. Carney and Ms. Smith would find common ground. Having taken a significant step toward cooperation, we should all watch to see how economic imperatives shape the politics and momentum to take the next steps.

WHAT I’M READING

Censoring Sacred Texts

Significant controversy erupted this week on reports that the governing Liberals had struck a deal with the Bloc Québécois to remove the religious exemption from hate speech laws. Many fear this could mean that reading a sacred text containing language the courts deemed hateful would result in a criminal conviction. The status of this remains unclear as I write this. The Liberals cancelled the scheduled committee meeting at which MPs were expected to vote on the Bloc’s amendment. The Canadian Conference of Catholic Bishops, the Christian Legal Fellowship, and the Canadian Constitution Foundation—among many others—have all provided helpful commentary on what is at stake.

Understanding AI Algorithms 

A regular reader forwarded this email, which contained a helpful explanation about the logic large language models (LLMs) use and why chat inquiries often produce less than reliable results. The argument is that effectiveness and creativity are mathematical opposites, forcing programmers to prioritize one over the other. The argument concludes that whether choosing an AI program for usage or investment, it’s essential to prioritize accuracy and efficiency over creativity. As the Insights reader summarized in his cover email, “The power of LLMs is in their encyclopedic ‘knowledge,’ not in their ‘reasoning.’” Worthwhile advice. 

Blowing Up Drug Boats 

The developments in the seas around Venezuela, with the US military killing close to 100 people in small boats in their war against the illegal drug trade, raise all sorts of questions. I’m not informed enough about the complex interplay of the alleged corruption of the Venezuelan government, the export of narcotics from Venezuela to other countries, and Venezuela’s strategically important reserves of oil and other natural resources. Estimated at 303 billion barrels in 2023, Venezuela has among the world’s most significant oil reserves. It also sits on substantial deposits of iron, bauxite, gold, aluminium, sulfur, and other critical raw materials, which various countries covet. Yuan Yi Zhu’s essay on this matter helpfully points out that Venezuela’s political, security, and trade significance does not explain Washington’s apparent disregard for due process and the severe legal issues the situation raises. 

MAID in Canada Problems 

John Ivison used his National Post platform to note that the current euthanasia regime in Canada is “a ticking time bomb.” Citing both official and polling data, Ivison argues the current trajectory toward further expansion could change in light of legal challenges as well as MP Tamara Jansen’s private member's bill that would block the provision of euthanasia for mental illness. Ivison concludes that the euthanasia regime’s “demise may rely on Carney realizing that Canadians’ support for granting a compassionate end to those consenting adults facing intolerable pain and imminent death does not extend to the poor, the sad, the isolated and the emotionally distressed.”

MEANINGFUL METRICS

Involved in More than Religion

Cardus released another dataset this week emerging from our partnership with the Angus Reid Institute. As part of a survey of more than 5,000 Canadians, we asked about eight activities: volunteering time, donating to charity, helping those in need, using local community centres or libraries, socializing with neighbours, participating in neighbourhood community or hobby groups, and attending religious services. We created an index of community involvement based on the cumulative responses to these eight questions. The data shows a correlation between religiosity and community engagement, with 65% of those most religiously committed exhibiting “very high” or “high” involvement and only 25% of the irreligious “non-believers” engaging their community at a similar level.

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TAKE IT TO-GO

Returning to Calgary

I spent most of my week in Calgary, a place I called home for more than a decade. So you’d think I would be familiar with its snow-cial norms. But Calgary’s weather loves to keep you on ice. December darkness drops in so early it feels like the city is running a night shift. The days were so short they practically cut daylight savings altogether, and the sun set boundaries faster than I could dawn a coat. But credit where it’s due—Calgary always knows how to snowcase its charm while keeping former residents like me perfectly, predictably, and pun-derfully off balance.

I’m about to board a plane, hopefully safely back home before you read this. Looking forward to being back in your inbox next Saturday morning with more reflections on the week that was.