Why The Future Of Canadian Energy Investments Hangs In The Balance

Over a month after Canada’s federal elections, the country is still trying to sort out exactly who won and by how much. If this sounds eerily familiar to Bush vs. Gore in 2000, there is a good reason for this. Much like a quarter century ago in the United States, the recent Canadian election, basically a series of over 330 separate elections in each legislative “riding” (equivalent to an American legislative district), has produced numerous results that were so close to call that a number have already been overturned in recounts and others simply remain unsettled. The situation is so fluid that Canada’s Governor General, Mary Simon, has had to state that no official transfer of power shall occur until after the recounts are completed.

Canada uses a parliamentary system, so that whichever party has gained a majority of seats in the House of Commons has, therefore, the right to name a Prime Minister and form a new national government. Unfortunately, no party won a majority in April, with the Liberals coming very close. That meant that they had to negotiate with smaller parties to form a government, but each small party had to be wary of not overplaying its hand as it could easily be replaced. The recounts, however, have now shrunken the Liberal total, resulting in that party needing more seats from any coalition partner to form a government. There have been no “butterfly ballots” or “hanging chads,” which famously affected the 2000 American elections, but there have been elections so close in Canada that in one case in Quebec a single vote seems to have determined the winner. (Source). The impact of the shrinking Liberal total is to mostly freeze out the smallest of the coalition parties, such as the Greens with their one seat in Parliament, but to energize others, such as the New Democratic Party, to drive a harder bargain with the Liberals in order to work together.

All of this puts the Liberal presumptive Prime Minister Mark Carney in a bind. Canada has become very regionalized, with the Liberals winning mostly in Ontario, the largest province, and the Conservatives sweeping much of the West, especially in oil rich Alberta and Saskatchewan, the wheat basket of Canada. Canada has a system of “equalization payments”, in which richer provinces pay to subsidize poorer ones, and that flow has gone mostly West to East. (Source). But the East, featuring liberal Ontario and Francophone Quebec, has taken a strong stand against fossil fuels, which generates so much of Canada’s economic growth, and which allows those equalization payments to be paid largely from the West to the East in the first place. (Source). In fact, things have now gotten so tense that it is even conceivable Canada may split, with the four Western provinces of British Columbia, Alberta, Saskatchewan, and Manitoba attempting to separate from the rest of the nation. (Source).

Prime Minister Carney, who was born in Saskatchewan but has spent much of his life abroad, now is seen as being a driver of the Liberal ideal of net zero and no further fossil fuel infrastructure development. Already he has had to establish a crisis working group to try to head off western separation.

Meanwhile, the uncertainty about finally forming a government is causing a drag on foreign investment into Canada, as nobody really knows what the status of the country will be in one or two years. It also is raising immense constitutional issues, as much of western Canadian land is subject to treaties between the federal government and indigenous tribes known in Canada as “First Nations.” The First Nation people already are making noises about what would or should happen in the event any provinces really do try to separate from the rest of the country.

In the end, the bad feelings engendered by the energy arguments occurring elsewhere around the world are now being magnified tenfold in Canada. The continuing presence of these unresolved issues have already brought famine to nations like Sri Lanka, rural strife to France, and massive price shocks to many countries in Europe and to California. It is Canada, however, that truly bears the brunt of these arguments now. Energy, which historically has been seen as a way to stitch the nation together, now is driving it apart. The entire future of the nation may depend on the still ongoing recounts and how they affect the ability of whatever government finally develops to mesh the interests of the disparate geographic parts of the second largest nation on earth by land mass.