End NAFTA’s mandatory energy exporting rule

Gordon Laxer

We’ve heard lots of good reasons to fix or end NAFTA, but the most important one has been ignored. It’s the energy proportionality clause, a rule like no other in the world. Under it, Canada must make available for export to the US three-quarters of its oil production and over half its natural gas. If left in place in NAFTA 2.0, the rule can single-handedly prevent Canada from achieving its Paris climate promises.

Proportionality’s rule really only applies to Canada. Mexico got an exemption and is still a full NAFTA member. Proportionality doesn’t really apply to the US either because it imports much more oil than it exports and will continue to do so. Canada exports seven times as much oil to the US as flows the other way.

Locking Canada into making a majority of our carbon fuels available for export is bad enough, but the proportionality rule has a little known clause that makes it much worse. Exporters can’t disrupt “normal channels of supply” or “normal proportions among specific energy” goods. This means that although bitumen (oilsands oil) is one of the most carbon-intensive, and locally damaging fuels on the planet, and fracked gas can be a worse emitter of greenhouse gases than coal, Canada cannot phase them out faster than conventional oil or natural gas. Canadians will need the less damaging conventional oil and gas, in steadily diminishing amounts, as we transition to a post-carbon future by mid-century.

What’s really galling about the proportionality rule, is that big oil corporations can make any decisions they want regarding the amounts and kinds of oil exported for profit reasons, but governments are hamstrung from making such decisions to serve the public interest, although it is they that are elected by citizens.

Oil interests underplay the global impact of Canada’s carbon emissions and from Alberta’s oilsands in particular. Both are important and growing. Canada is the 38th most populous country in the world, but its ninth greatest carbon polluter. With a mere 0.49 per cent of the world’s people, Canada emits 1.54 per cent of global carbon emissions, three times its per capita fair share. This heightens Canada’s climate challenge. To reach international climate equity by 2050, Canada must make more far-reaching changes than most countries.

That includes quickly limiting and reducing the production of oil and natural gas because they are Canada’s largest and fastest growing source of emissions. Both carbon fuels are mainly produced for export to the US. All of Canada’s natural gas and 99 per cent of its oil exports head south of the border. Thirty per cent of Canada’s gas is used up to make oilsands oil. Jim Dinning, a former Treasurer in Ralph Klein’s Conservative government in Alberta likened this to turning gold into lead.

The Ministry of Environment and Climate Change forecasts that Canada will fail to meet its Paris climate promises of a 30 per cent reduction from its 2005 level. They single out Alberta’s oilsands as the main problem. “The growth in emissions to 2030 is driven largely by growth in the upstream oil and gas sector and, in particular, from the oilsands.”

In a report I’ve written on NAFTA and climate change, to be released next month, the research shows that Canada can reduce emissions much faster by 2050 if it goes proportionality-free than it can if it remains bound by NAFTA’s proportionality straitjacket. Remaining bound by proportionality requires more oilsands oil, more fracked oil, more fracked gas and more oil exports. As well, the rule virtually prevents Canada from diverting domestic oil that is currently exported to the US, to eastern Canadians instead, to replace all oil imports and give them energy security.

At the Paris climate talks two years ago, Prime Minister Justin Trudeau and Environment Minister Catherine McKenna proclaimed that Canada is back and pushed other countries to aim to limit global warming to a tougher 1.5-degree Celsius rise from pre-industrial levels, than the two-degree rise developed countries were committed to. If Trudeau’s government is serious about its Paris promises, it must be bold and put ending the proportionality rule at the top of Canada’s NAFTA demands. If Mexico is not subject to proportionality, why should Canada be?

[ Note for Feb. 6, 2018 Vancouver event with Gordon Laxer organized and supported by the Council of Canadians, the Canadian Centre for Policy Alternatives, the Corporate Mapping Project and West Coast Environmental Law.:

When Donald Trump approved the Keystone XL pipeline to bring tar sands oil to U.S. Gulf Coast refineries he showed he considers Canadian oil to be American. It will “reduce our dependence on foreign oil”, he opined. In this rare case, perhaps inadvertently, Trump’s assumption is based on fact. NAFTA’s energy proportionality rule gives the U.S. virtually unlimited first access to most of Canada’s oil and natural gas even if some Canadians are running short and freezing in the dark. Not only that. Ottawa must not alter the proportion of tar sands oil in its export mix, nor the portion of exports from fracked oil and natural gas. This means that although bitumen is one of the world’s most carbon intensive fuels, Canada can’t phase it out faster than conventional oil.

Gordon Laxer, author of a forthcoming report “Escaping Mandatory Oil Exports”, outlines how and why Canada needs to dump NAFTA’s energy proportionality rule, like Mexico did in 1994. If left in place during current NAFTA negotiations, the rule will hinder or prevent Canada from quickly phasing out the production of the dirtiest oil and gas. This is a serious impediment because oil and natural gas are produced mainly for export to the U.S., and are Canada’s largest and fastest growing source of greenhouse gases, cause of coastal destruction and trampling of Indigenous rights. Canadians must remove this obstacle to our transition to a socially just, low-carbon future.

Gordon Laxer, PhD, is the founding Director and former head of Parkland Institute (1996-2011). He is a Political Economist and professor emeritus at the University of Alberta, and is the author or editor of six books, including “Open for Business: The Roots of Foreign Ownership in Canada”, which in 1991 received the John Porter Award for best book written about Canada. His latest book “After the Sands: Energy and Ecological Security for Canadians”, was a finalist for the 2016 John W. Dafoe prize in non-fiction books and winner of the Errol Sharpe book award. ]