Does Canada Face the Threat of Western Separation?

Who Wants to Separate?
Don’t Make Quick Assumptions About Your Friends

Firstly, let’s clarify this point. Western separatism is an Albertan idea. It’s been around for some time already, most notably from the mid-1970s through the mid-1980s. At that time, there was a significant backlash against the Pierre Trudeau Liberal government and the National Energy Policy of 1980-85. Alberta claimed they were unrepresented in Ottawa, and with the resurgence of this idea now, Saskatchewan has joined the bandwagon. Saskatchewan was a “have-not” province until the late 2000s, when the oil & gas sector lifted them to “have” status along with Alberta. These two provinces elected the fewest non-Conservative MPs in the most recent election, and are the two where thoughts of separation are most tightly nestled amid the cry of their interests not being represented. Equalization payments, which determine a province’s “have” or “have-not” status, are a sore point for these two.

Meanwhile, “The “West” in the trending #wexit hashtag would include both BC and Manitoba. BC isn’t interested, and Manitoba “ain’t got no time for that.”¹ “Wexit” is an Alberta-Saskatchewan thing, not a Western Canada thing, and although it’s cloaked in terms of representation and reactionary pro-oil sentiment, it is no small factor that a Trudeau in Alberta is about as popular as a Clinton in Alabama.

Why Justin Trudeau’s Support Doesn’t Matter
What has Stephen Harper Done for You Lately?

It was election rhetoric for both Jagmeet Singh and Elizabeth May to cry “You bought a pipeline!” when saying that Justin Trudeau isn’t doing enough for the environment. Of course, this is true, but the why is more important than what in this case. The why is more complicated, and has to do with fulfilling a commitment made by the Stephen Harper Conservative government that assured China of the pipeline’s construction. Failure to meet this commitment could conceivably land Canada in international court with China.²

Trudeau has elsewhere explained his rationale that while Canada needs to wean itself off of fossil fuels, it can’t be done overnight, so the need to transport them from the Alberta oilfields will remain for some time to come. Despite oil spills in the past, it remains arguably safer to transport fossil fuels by pipeline than by rail, which passes through more populated urban centers. When the purchase decision was made, the price of oil was sitting around half what it was when the commitment to build it was negotiated, so its commercial viability was in no sense as strong as it had been. When the Trans Mountain Pipeline Expansion stalled, Trudeau’s purchase of it demonstrated Canada’s commitment to see it built. One would expect Albertans to be thankful for this, but again, see above comment on his Clintonesque popularity in Alberta.

It’s been argued that Stephen Harper’s efforts on behalf of the Alberta oil industry have essentially backfired,³ so it shouldn’t be a foregone conclusion that a return to Conservative policies will have any immediate or direct benefit to Albertan oil. The exception here is of course Andrew Scheer’s promise to scrap the carbon tax⁴ if elected. Despite his claim that carbon taxes do not work, close to 30 countries have adopted them, and a Nobel price was recently awarded to two economists for demonstrating that they do work. As well, despite alarmist claims of soaring fuel prices, we have not seen price changes significantly beyond what we already see due to seasonal, political, or other situational effects on the price of oil.⁵

Since Alberta – and the Conservative Party with it – seems poised to resist every form of climate action that negatively impacts Alberta oil exports, Trudeau is essentially considered persona non-grata. In the end, Justin Trudeau gets no credit from Alberta for rescuing Harper’s pipeline. Perhaps they still haven’t forgiven his father for the National Energy Program.⁶

Dear Alberta, Climate Action is not About You
Don’t Take it so Personally!

One thing I’ve seen several times now is the argument (typically from Alberta-based media or oil-industry insiders) that Canadian oil is cleaner than foreign oil. The idea is that due to Canadian regulations on the oil & gas industry, the crude they extract from the ground is less damaging to the environment than the methods used in other parts of the world. As such, the argument goes, we should be promoting our oil. There are a few flaws in the underlying assumptions.

The point would perhaps well-taken that Canada should rely on its own oil reserves before foreign imports, were transportation and market costs not a factor. That is, our own oil might command a higher price delivered to an outside market, or the cost of transporting it internally may exceed that of importing it from foreign sources. With strong trade relationships in place, this is particularly true for US/Canada interchanges. Then too, oil is not always imported or exported in the same state – crude or refined – so the matter is complicated a little further by the cost of refining it and of transport to and from refineries. It sounds simple, but the obvious answer isn’t always the most economically (or logistically) efficient.

The bigger error in the underlying assumptions seems to be that any increased level of climate action that impacts the use of fossil fuels is an attack on the Alberta oil & gas sector directly, and the Canadian economy indirectly. A number of other anti-climate-action arguments are trotted out at this point, perhaps chief among them the one that China puts out more greenhouse gasses than we do, so we needn’t bother to make any change⁷ because the changes we make can’t save the planet. Be that as it may, it nevertheless doesn’t excuse anyone (least of all a wealthy oil-producing nation) from at least doing their part.

Seeing climate action as anti-Albertan is a non sequitur. The two questions exist separately, and any attempt to commingle them is to create a false dichotomy asking Canada to choose between the climate and Albertans. There is no such choice: the question is actually how to reduce our greenhouse gas emissions while keeping the Canadian economy – and Alberta’s economy with it – strong. It’s not an either/or, and to insist otherwise is to refuse to see or imagine any viable economic engine for Alberta other than the oil and gas sector as it is today. Albertan separatists notwithstanding, nobody’s being forced to choose between the future of Alberta and the future of the planet.⁸

Climate action is an imperative of its own: the Alberta question is an entirely different one. In a fair hearing, Trudeau’s commitment to the Trans Mountain Pipeline would signal that this isn’t completely sorted out yet but until then, the Canadian government will make certain that Alberta oil is getting to market.

It’s the Economy, Stupid
Once Again, the Narrow View Yields the Wrong Solution

On Election night, Calgary Mayor Naheed Nenshi⁹ said that Alberta’s issue was fundamentally the economy, not the oil, not the pipelines.¹⁰ And he’s completely correct on this point. It could be forestry or fisheries or the financial sector: the only reason the cry is about oil is because that’s what’s driving Alberta’s economy, as it ever has.

In my business, people often tell me about the solution they’re after. Once I’ve listened and considered it, I will ask about their business and about the problem that this solution is intended to solve. And it turns out that many people who describe the solution first have gotten it wrong, or made it over-complicated – and sometimes they’ve even misunderstood the problem in order to arrive at the wrong solution. This is what Mayor Nenshi nails in his analysis. The problem is one level removed from the solution that Alberta is chasing.

Alberta is entirely focused on having Canada do whatever it can to promote the Alberta oilfields. There’s a lot of Albertan concern toward the sentiment that the rest of the country is ignoring its needs, but it tends not to meet a lot of sympathy from the rest of the country toward the only province without a provincial sales tax. To make matters worse, Alberta seems utterly incapable of imagining a different economic engine for itself than oil and gas – despite the fact that it also has high indicators for minerals including diamonds, gold, iron, lithium, and uranium.

Remember the Cod Fisheries?
Why a Diverse Economy is A Necessity

In the summer of 1993, Atlantic Canada’s northern cod fishery stock fell to 1% of its former levels,¹¹ resulting in the loss of 35-40,000 jobs. (Many of these workers later turned up in Alberta’s oilsands.) When the federal government declared a moratorium on cod fishing, Atlantic Canada didn’t seem to consider it an attack on them (at least it wasn’t a popular wholesale opinion), but recognized that overfishing can have a deleterious effect on the cod stock. Newfoundland’s economic and cultural identity being intricately bound up with the cod notwithstanding, natural resources tend to work this way. This is the lesson Alberta must learn. It’s also why Brad Wall’s assertion that no other region in Canada knows what it’s like to lose 100,000 jobs is a downright offensive challenge not just to the Maritimes, but to the people just of Oshawa alone.¹²

Oil is a commodity on the world market, where its price is determined by a number of factors, demand not least among them. This puts the financial viability of oil extraction outside of the federal government’s hands, so Ottawa can’t be entirely blamed if Alberta can’t get its oil to market profitably. Unlike Newfoundland’s cod fishery, oil is a natural resource we haven’t yet run out of, though some deposits are costlier to find and extract than others. Some deposits simply aren’t financially viable unless the price of crude oil exceeds a specific threshold.

As climate change awareness grows and the impetus for climate action increases around the world, the demand for oil will decrease. It must. No matter what Alberta does, no matter what Ottawa does, the world is changing, and attitudes toward fossil fuels are shifting more rapidly now than ever… more drastically and for more lasting reasons than during the energy crisis of the ’70s. It really doesn’t matter whether one believes in climate change, or even whether it’s real. The fact of the matter is that enough people are already convinced that it will inevitably change the market for oil: slowly and gradually at first, but with increasing speed and effect.

For this reason alone, Alberta needs to diversify its economy.¹³ The threat to them is real, and significant: it’s foreseeable, and on some level, it’s inevitable. Rather than expend such significant effort propping up their claim to oil – even if its wrapped in their social and cultural identity – Alberta needs to develop strong economic stimuli from outside of the oil and gas sector. Investing in this now while they still have those revenues could make them (or keep them as) a powerhouse province and ensure their economy remains strong no matter what happens to worldwide oil prices or demand.

Unfortunately, sometimes focusing on a single solution for too long can make you forget what the actual problem is.

Now About Those Transfer Payments…
How the Addressee on the Bill is Misunderstood

Western populism at times like this tends to cry foul when referring to equalization payments.¹⁴ These are a form of transfer payment from the federal to the provincial governments, but the two terms are not synonymous. One can easily be forgiven for assuming an understanding based on rhetoric in the separatist West that the “have” provinces must cut a cheque every year to prop up the “have-not” provinces, however, that’s not how equalization payments work.

Equalization payments are granted to the provinces from the federal government’s general revenues. For this reason, it’s no more true to say that Canada is giving Albertans’ tax money to, say, Manitoba than it is to say that Canada is giving Manitobans back their own tax money. While there’s a grain of truth in both, it’s too thin a slice of the whole story to leave it at that, which is what happens when Albertans whine about their money propping up Quebec. It’s an over-simplistic rant.

Consider that Saskatchewan had no issues with equalization payments before their oil reserves were developed. Now that they’re a “have” province, they suddenly object to equalization payments. The insidious thing about the objections of both provinces is not that they’re contributing elsewhere, but that the complaint is that they aren’t receiving something they don’t need. They conflate equality of grant with equality of need.

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By design, equalization payments are intended to minimize economic differences between provinces: when one does well, it props up the one in need, and vice-versa. Think of it as an interprovincial “we’re-in-this-together fund.” That’s what it means to be part of Canada, to help your neighbours. When you drive through some US states, you can see a very clear economic disparity compared with certain other states. Canadian provinces don’t have this to anywhere near the same extent, and you can thank equalization payments for having no small part in that. They express a Canadian value, so I suppose it’s no coincidence that it’s the separatists that have a problem with them. In Alberta’s case especially, the separatist bent takes it as a special affront that Quebec receives equalization payments: there’s a kind of longstanding unforgiving rivalry between the two.

The population of Quebec is slightly less than double that of Alberta’s, while Alberta hold’s 11.5% of Canada’s population compared with Quebec’s 23%. For their part, Saskatchewan’s population is only a quarter of Alberta’s, or 3% of the Canadian population.¹⁵ This doesn’t seem immediately relevant until you realize that Quebec equalization payments are largely a return of the income taxes paid by 23% of the national population. Moreover, using 2006-7 figures for equalization payments,¹⁶ Quebec received $5.5 billion in equalization payments, or half the total of all equalization payments made in Canada that year, which seems egregiously irresponsible to Western Separatists. On the other hand, these figures represent $725 per Quebec citizen, which is half of what Manitoba received on a per capita basis for that same year. So not only is the Albertan (and now Saskatchwanian) complaint – and I say this again because I can’t say it loud enough – is that they aren’t getting something they don’t need, but the outrage is based on a selective (or incomplete view) of the facts.

Now, Scott Moe and Jason Kenny are smart enough to know how equalization payments work. They’re also politically savvy enough to know it’s not in their best interest to educate their base on the matter. They gain much more political traction by saying Canada is unfair toward them without offering too many specifics, because this riles up the grassroots where the populists live. Enough of this will keep them in power while they reap the populist whirlwind without fully understanding what such a sea change could mean if it gets out of hand. Even Preston Manning recognized the dangers associated with populism when it’s not held in check.¹⁷

Pipelines & the Price of Oil:
Why Nobody Remembers Recessions When Arguing Historical Deficits

I’ve seen both “sides” do this. Who racked up more debt, or carried a greater deficit, Brian Mulroony & Steven Harper, or Pierre Trudeau & Jean Chretien? Honestly, it doesn’t matter so much as people make it sound. The reason is that they all did what they felt was most prudent during the time they governed, which is precisely what each of them was elected to do. The real problem of comparisons is that they governed during different times. Events like a global financial crisis, a recession (major or minor) or even stagflation, or an OPEC oil crisis all have an impact on budgets, and in turn, upon deficits and the resulting debt they incur. Some Prime Ministers governed before NAFTA, others after. Some oversaw major military deployments, others did not.

The real issue with comparisons of deficit spending is that if the truth be told, the other party may not have acted all that differently. Nobody tells you this, but it’s true. For one party to say they wouldn’t have subscribed to the Keynesian doctrine of spending their way out of a recession, but without a plausible alternate plan, it’s still an untestable hypothesis – a hypothetical that cannot be proven one way or another.¹⁸ It’s equally plausible that the alternate solution would have made the situation worse. The only question is whether they exercised the best option available at the time, and that’s a much murkier answer.

The notion of deficit spending being subject to the context of its time is relevant here because of fluctuations in the price of oil over the past half-century.¹⁹ The inflation-adjusted price of crude oil broke $100/barrel in 1980 and 2008, and hovered in the $90s from 2011-14 before losing half its value to now be at or below what it was in the mid/late 1970s. The upshot of this is to say that the Alberta oil boom of 2010-14 is done, and while the Great Recession²⁰ and to a lesser extent provincial and federal policies are significant factors, the end of Alberta’s oil boom basically boils down to one single factor: oil commodity pricing.

Predicting the future is a cloudy business, but this is where climate change returns as a major factor. You don’t have to believe in it, and it doesn’t even have to be true. The mere fact that the world is beginning to shift away from fossil fuel sources – at any pace – is enough to tell you that even if the price of oil recovers somewhat, it cannot remain at “boom-sustaining” levels for any significant period of time.

Alberta and Saskatchewan, your major separatist beef isn’t with the Government of Canada. It’s with the future. Your political leaders presumably know this (astute ones, at least deep down), but I don’t expect them to tell you until they have a plan to diversify their economy in a sustainable way, and not until they need populist sentiment singing a different message. Until then, they have their own kind of internal unity in blaming Ottawa in general, and Justin Trudeau in particular.

1. CTV: Good relationships aren’t built on threats to leave: Pallister on #Wexit
2. The Canada-China Foreign Investment Promotion and Protection Agreement (FIPA) was negotiated by the Harper government and ratified in 2014 without a vote in Parliament. “FIPA, which remains in place until 2045, was signed to ensure that China got a pipeline built from Alberta to BC, among other benefits.” See The Guardian, Did Canada buy an oil pipeline in fear of being sued by China?
3. MacLean’s: Stephen Harper: Oil’s worst enemy – By trying to protect and promote the oil sector, the Harper government effectively shackled Canada’s pipelines in purgatory
4. Wikipedia: Carbon tax
5. Not to mention that carbon taxes have broad support not just among environmentalists, but also among economists and even some oil industry executives. See Support”>Wikipedia: Carbon Tax > Support. In a 2018 survey of leading economists, none favoured cap-and-trade systems over carbon taxes. In short, economists aren’t buying the economic argument against carbon taxes.
6. Wikipedia: National Energy Program (1980-85); we’ll come back to this in a bit.
7. Response: true when measured in terms of total emissions, but China’s per capita emissions are half of Canada’s. Also see “How Much of an Emergency can the Climate Actually Be?“
8. If such a choice were possible, someone would undoubtedly be quick to assert the “greater good,” so it’s a loosing argument on all fronts.
9. Wikipedia: Naheed Nenshi
10. Interview question response on one of the national television election night coverage specials; I saw the interview live and unfortunately couldn’t track down a clip.
11. Wikipedia: Collapse of the Atlantic northwest cod fishery
12. A note to Western Canada: The rest of the country understands tough economic times By the way, Mr. Wall, if you’re feeling alienated from the rest of the country, look no further than statements like this as significant factors.
13. After 50 years of trying to diversify its economy, Alberta is still stuck on oil
14. Wikipedia: Equalization payments in Canada See also Trevor Tombe, “Final, Unalterable (and Up for Negotiation): Federal-Provincial Transfers in Canada” (PDF); CBC: Bringing clarity to the sometimes murky world of equalization payments, and Canada’s Equalization Formula (Federal Government)
15. Population statistics via Wikipedia
16. Wikipedia: Western alienation
17. MacLeans: Q&A: Preston Manning on Canadian populism in the age of Trump; also see The Walrus: The Prophet of Populism Although current manifestations are overwhelmingly right-wing, past populist movements in Canada have included not just the Reform Party, but also NDP-predecessor the CCF on the left. Astute politicians have been able to reign in populist extremes while still riding its wave. As the latter article cited notes, this includes Jean Chretien. I would note that it does not include Donald Trump, who has made no effort of any significance to limit populist sentiment. Indeed, any such effort appears to have been not only after the fact, but also under duress. The norm there is to stir it up even more.
18. As such, it makes the classical list of logical fallacies.
19. Annual Average Domestic Crude Oil  Prices
20. Wikipedia: Great Recession