Tuesday, June 21, 2011

Piping into Canadian Energy

If you were to guess what county the United States receives more oil from, you are likely to respond with Saudi Arabia, or Iraq, or maybe Venezuela. But according to the U.S. Energy Information Administration numbers for March 2011, the U.S. imported 82,637 barrels of oil from Canada; 40,901 from Mexico; 34,356 from Saudi Arabia and 33,070 from Venezuela. The numbers do not lie. They tell us that more oil is imported from Mexico and Canada than from any other countries. Like it or not, this indicates that if we are to continue our dependence on fueling our cars, planes and lawn mowers with petroleum based fuels, we need to appreciate the importance of North America in oil production. The International Energy Agency (IEA) announced last week that North America will be the fastest growing oil-producing region during the next five years. This news has occurred at a time of growing frustration between Canadian and American energy, environmental and business interests.

One of the most talked about cross border issues discussed in the Canadian press lately has centered on the U.S. approval of the Keystone XL pipeline. When completed, the pipeline will transport 500,000 barrels of crude oil every day from the Canadian oil sands in Alberta south across the American Midwest to oil refineries in Texas. Both the EPA and the Department of State have been independently evaluating the proposed project. In Canada, the news of the review has been closely followed in the press while it barely makes news in the United States.

The truth is that there will be no easy solution from the EPA and the Department of State. The United States is addicted to L'or noir and will not be tapering its usage in the near future. From this perspective, the pipeline will deliver a dependable supply of oil to American refineries without a reliance on OPEC nations. On the other hand, our national consciousness still remembers the sight of a burning oilrig dumping petroleum into the environmentally sensitive Gulf of Mexico. What would happen if the pipeline bursts somewhere in the Midwest?  The Department of State and the EPA have both stated recently that there will be no decision on the pipeline expansion until late in the year.

The debate over the pipeline once again highlights our energy problems. Do we continue to find new sources of oil for the livelihood of our nation, or do we say "NO" to the pipeline right now and absorb the painful economic costs now for a cleaner future. These are questions that need to be discussed at the national level. On June 15, Republican members of the House Energy and Commerce Committees passed legislation that would force President Obama to make a decision by November 1st of this year. Yet, this received little public attention. Prime Minister Harper of Canada has also pressed the United States government to hurry up and make a decision.

Will the pipeline extension be approved? The answer is most likely yes. Would this help stabilize oil prices in a turbulent global market? Yes. Unfortunately, the discussion does not draw any attention to the need to find alternative sources of energy. The environmental side of this story has been drowned out by the need for reliable and cheep energy sources.

It may be too late for this debate, but North Americans should focus on cross-border renewable energy sources. At the moment, Quebec, Canada is one of the largest producers of hydroelectric power in the world. Canada has some of the most abundant and cleanest hydroelectric power plants in the world. If you are reading this in New York City, there is a good chance the electricity powering your computer came from Quebec. Energy researchers have been working on harnessing the power of the world's most dramatic tides into usable electricity in the Bay of Fundy between Maine and Nova Scotia. In the Thousand Islands between Ontario and New York State windmills have become fixtures of the landscape.

This new way of harnessing energy will require new transmission lines to handle a increased electrical capacity. This not cheep, but it is needed in order to build a North American energy grid for the twenty first century. Canada and the United States should be the global leaders in creating new sources of energy, not China.

None of these solutions alone will be able to replace the loss of oil, but many small renewable projects aggregated across the continent may one day help make the needed transition from fossil fuels to renewable energy.

Wednesday, June 15, 2011

Economic Recovery from Above

Last Thursday the government released two very important economic indicators. The Department of Labor and the Department of Commerce released the latest numbers on the trade deficit of the United States and the unemployment rate. The Bureau of Economic Analysis (BEA) of the Department of Commerce announced on June 9th that the trade deficit declined a total of $175.6 billon in goods and services sold internationally. This number represents a small bright spot in an otherwise bleak economic forecast, and is very good news. Simply put, more exports equals more money flowing into the United States as opposed to flowing out. While imports from Japan have declined, the gap with China continued to grow.

On the other hand, the same day, the Department of Labor announced that the jobless rate climbed to 427,000 for the first week of June, an increase from 426,000. This number once again reflects the sluggish economic recovery and a national economy where the private sector is still avoiding massive new employment. Our great recession will not end until the 14-million unemployed Americans return to work. A solution to our problem will not come from God, or China or even the IMF and World Bank. One route to economic growth may lie with one of our strongest and closest of partners: Canada.

Canada and the United States are forever linked as neighbors. As of April 2011, the United States imported $26 billion dollars worth of goods from Canada while exporting $23 billion.
 For two centuries, the border between the two countries remained porous. In an age when “9/11” was only known as the day after 9/10, goods and people frequently crossed the border utilizing communities’ economic comparative advantages. While the population of the United States is distributed all across the country and fairly desolate along the northern border, approximately 75% of Canadians live within 100 miles of the Canadian-American border. The result is a growth of a “border community” in which people on both sides frequently cross to achieve the best deals on consumer goods. In the past, Americans have traveled north for cheaper prescription drugs and Canadians have traveled south to shop in the malls and shopping centers in border towns. This activity highlights the comparative advantage on both sides of the border. Companies also have paid attention to the benefits of the border.

In the northern New York community of Plattsburgh, the Quebec manufacturing company Bombardier moved some of its railroad production south of the border to take advantage of tax incentives. If you ride on a railcar of the New York MTA, it most likely started its life in Canada and completed in New York State. This is only one example. The community has taken advantage of its proximity to Montreal, Quebec and has labeled itself “Montreal’s American Suburb.” The community realized that its proximity, and lower tax rates, makes the region a bastion for enticing Canadian companies to move south of the border. Montreal is home to much of the Canadian pharmaceutical industry. Some of these companies could be enticed to move south to New York or Vermont.  They could be the ignition for restarting the American industrial engine. In turn, in many American border communities, the nearest population centers are across the border in Canada. Thus, in some instances Canadian cities could benefit from employed Americans going to Vancouver or Montreal to make consumer purchases.

The first step, from Fort Kent, Maine to Point Roberts, Washington, is that these communities need to develop plans for enticing Canadian companies to relocate across the border. The Canadian and American economies’ high level of interconnectivity means that developments on one side of the border will have spill-over effects across the border. Today there are many security impediments to transporting good across the border, but this should not be an impediment for trade. Nurturing the Canadian-American relationship, often neglected in Washington, D.C., is one avenue for jumpstarting the American economy in a region of the United States suffering from long-term unemployment.