Singing a Different Tune and Embracing the Unknown

Cape Breton Island has a rich culture and fascinating history, matched only by its scenic routes and picturesque landscapes. The Island is highly sought after by vacationers searching for a new spot and golfers looking to play a few rounds at the famous Highland Links Resort. In addition, it is renowned for delicious seafood, hearty people, and, perhaps most importantly, the infamous “East Coast Kitchen Party,” which is an organization that promotes Atlantic Canada’s art scene.

Tourism Nova Scotia and the Government of Canada touts this embellished description of Cape Breton Island, however, it conflicts with a harsher reality: 16 per cent unemployment rate, reliance on government transfers, and a median income well-below the national average–in 2012, $26,160, compared with $31,320 nationally. Furthermore, several rural towns have disappeared, poverty is on the rise, and thousands of Nova Scotians have left the province for a better future.

Fixing these issues requires a momentous shift in the mindset of Nova Scotians and their elected officials. A different approach to natural resource development, for instance, may be the most helpful.

Cape Breton Island, and, in general, Nova Scotia, have a tremendous supply of natural resources, from oil in George’s Bank to natural gas in the Lake Ainslie area, not to mention coal deposits spread throughout the province. There are multiple local groups, however, that have convinced the public that natural resource development is not worth the risk, culminating in the decision to extend the moratorium on hydraulic fracturing indefinitely. Prohibiting all things that carry risk is a dangerous mindset, though. On one hand, residents of Nova Scotia demand jobs, and on the other, shun opportunities that would produce them.

Cape Bretoners must begin to sing a different tune. Industry experts suggest that hydraulic fracturing–colloquially known as “fracking,” could generate nearly $1 billion annually in the province. Former “ghost towns” in Pennsylvania, for instance, have begun booming due to natural gas development in recent years: the unemployment rate in the state is 5.6 per cent, compared with 6.1 per cent nationally, and as a whole, the industry supports roughly 1.7 million jobs in the country. Moreover, natural gas is a much more sustainable and environmentally-friendly alternative to coal and oil. Lastly, the correlation between fracking and earthquakes is weak and instances of pollution occurred due to breaches of government regulation.

Although there are risks associated with fracking, as is the case with any venture, those who are concerned about them exaggerate their scale and probability. Instead of banning the practice, the sensible approach would have been to mitigate the chance of disaster through sound regulation. Furthermore, natural resource development can provide support for local communities. In the United Kingdom, for example, the chemical firm Ineos offered local communities 2 per cent of profits from wells in the area to support hospitals and parks, and 4 per cent of profits to residents who own land near drilling sites. Greenpeace described this practice as a “bribe,” however, it is a common one in the United States that has delivered massive benefits to local communities. A similar approach in Cape Breton Island, and in Nova Scotia, could benefit communities tremendously, and a sound regulatory regime would reduce the risk of environmental damage.

In addition to the picturesque landscapes in the Tourism Nova Scotia commercials, the province should hoist an “Open for Business” sign. At least we could then start to improve the lives of Nova Scotians. In the meantime, however, shunning all, and every, opportunity to create jobs and generate economic growth will reinforce the status quo.

Corey Schruder is an AIMS on Campus Student Fellow who is pursuing an undergraduate degree in history at Cape Breton University. The views expressed are the opinion of the author and not necessarily that of the Atlantic Institute for Market Studies

Atlantic Canada must make tough energy decisions

Over the course of the past decade, energy issues have become louder and louder in Atlantic Canada; today, energy policy has recently often been the single biggest file for governments in the region. With the Muskrat Falls megaproject, shale gas exploration, and the Energy East pipeline have come a number of decisions Easterners must make—these decisions will play a large part in shaping the region’s economic future.

Let’s first examine the Lower Churchill Project. The project is often simply referred to as “Muskrat Falls,” the waterfall that is being developed for electiricty generation. Muskrat Falls will be owned by Nalcor, which the NL government created in 2007 as a publically-owned electricity-market monopolist. Through its subsidiary NL Hydro, Nalcor has the sole right to supply and sell electricity in the province. And despite the fact that government’s Lower Churchill development plan includes the construction of a Maritime link that connects NL’s electric grid to the mainland’s without passing through Quebec, the NL government has severely restricted interprovincial trade.

By denying Newfoundlanders and Labradorians other electricity options, the province’s government has given Nalcor the power to raise its rates at a whim. This power allows for the construction of the Muskrat Falls project, which will cost $7.7-billion.Without its monopoly, Nalcor would not be able to pay for the project: many economists think the project in uneconomical. In fact, NL’s Public Utilities Board (PUB) could not conclude that the project was the province’s least-cost energy option, stating that there were “gaps in Nalcor’s information and analysis.”

Because of the project’s high costs, the NL government will have to borrow $5-billion—that is, nearly $10,000 for each of its of its residents. With these potential consequences for the both the province’s debt and its electrical rates and output, the NL government’s management of Muskrat Falls will have serious ramifications for the province far into the future.

Muskrat Falls also has ramifications for Nova Scotian energy markets. Emera, Nova Scotia’s publically traded energy corporation will cover 20 per cent of the Maritime link’s cost in exchange for 20 per cent of the electricity produced at Muskrat Falls. Further, Nalcor will be able to use Emera’s transmission rights to sell electricity in the Maritimes and New England.

New Brunswick (NB) faces an equally dramatic energy situation. Two issues dominate energy discussions in the province: hydraulic fracturing (or fracking) and TransCanada’s Energy East pipeline. Tests for shale gas, which NB Premier David Alward hopes will be extracted through fracking, have prompted locals to (often violently) protest. Fiscally, however, potential fracking revenues seem to be the NB government’s only way to pay for its current level of services without raising taxes or adding to the provincial debt, which is approaching $12-billion.

Although New Brunswick’s fracking debate has been Atlantic Canada’s loudest, shale-gas extraction proposals have also provoked argument in NL and Nova Scotia. Recently, the NL government imposed a moratorium on fracking until it has consulted the public and conducted reviews. Nova Scotia has had a fracking moratorium for about two years, though it is set to expire this summer.

New Brunswick can also expect to benefit from the construction of the Energy East pipeline, which will bring Albertan oil to Saint John’s Irving Oil refinery. The most noticeable gains from project will take place during its development and construction: a report by Deloitte found that the pipeline will boost New Brunswick’s GDP by $1.1-billion in this period. And during its 40-year operations phase, the pipeline project will add $1.6-billion to the province’s economy, though it will only directly create 121 permanent jobs.

With Muskrat Falls, NL is taking a significant fiscal risk and trapping consumers with the hope of becoming an energy power. Any jurisdiction that allows fracking must balance the benefits of increased economic activity and royalties with potential environmental harm and local frustrations. And the Energy East pipeline could give NB the sort of economic and fiscal boost it needs. Energy may enrich Atlantic Canada, but squandering it may breed regret.

Michael Sullivan is a 2013-2014 Atlantic Institute for Market Studies’ Student Fellow. The views expressed are the opinion of the author and not necessarily the Institute

Revitalizing Atlantic Canada

Writing for Free Exchange allowed me to examine a multiplicity of issues facing Atlantic Canada and the following are some that I have found to be of paramount importance.

The most prominent issue in Atlantic Canada is slow economic growth, which has resulted in an enormous outflow of skill labourers, young professionals, and families who have left for British Columbia, Alberta, and Saskatchewan to find work. Economic growth rates in New Brunswick, Nova Scotia, and Prince Edward Island, for instance, have fallen below the national average of 2 per cent in 2013. Newfoundland and Labrador, which is currently booming due to oil production, is somewhat of an exception, however, declining revenues threaten to derail the province’s path to prosperity. In addition, the three Maritime Provinces experienced declining populations in 2013.

NL’s growth is largely attributable to strong oil and gas production, which has been growing in the province since the mid-2000s. The rest of Atlantic Canada could benefit from NL’s model and the region may need to look toward the oil and gas sector. New Brunswick currently boasts an opportunity to host the Energy East Pipeline and has a prospective shale gas industry. Other opportunities include increased cooperation or shared services between the three Maritime Provinces and exploring trade prospects with emerging markets.

Another problem facing the region, and the entire country, is unfunded liabilities. In other words, public sector pensions are a significant issue that plagues both federal and provincial government. This is where Atlantic Canada can lead: New Brunswick and Nova Scotia both made changes to their pension programs and the rest of Canada could learn from their progress.

In addition, Canada’s healthcare system requires additional consideration and policymakers must look into issues plaguing it. Through the Canada Health Transfer, the federal government allocates funds to the provinces to assist them with growing wait lists, quality assurance, and a number of other issues. However, progress has been futile. The federal government has given $41 billion in additional healthcare funding since 2004, yet, in 2010, Canada ranked last out of 11 countries in terms of wait times. This is why policymakers should consider alternatives to the status quo.

There are also serious democratic issues facing the country. The Senate remains unelected and unaccountable, and the Supreme Court’s recent ruling inscribed the current structure in stone. Its ruling does not need necessarily indicate defeat, though, and the Prime Minister, in addition to supporting premiers, must take the lead and ensure reform to the Upper Chamber.

While many Canadians may agree that these issues are of great importance, there must be action. We often criticize the political sphere for not dealing with these issues adequately, however, the truth is that we, as electors, must show that they are a priority or politicians will not give them due consideration. It is our duty to ensure that ideas, such as natural resource development, prudent fiscal management, and adequate healthcare, receive fair scrutiny, rather than arbitrarily dismissing them from the outset; it is our duty as citizens to place them on the political agenda.

Randy Kaye is a 2013-2014 Atlantic Institute for Market Studies’ Student Fellow. The views expressed are the opinion of the author and not necessarily the Institute