"Hancock's musings don't make sense"

I had been preparing a response to Edmonton Whitemud MLA Dave Hancock's support for blocking bitumen exports, but Deborah Yedlin says much of what I would say and says it more succinctly.

Shouldn't the emphasis be on creating a better environment for companies to take the risks they need to develop the resource as cost-effectively as possible? This is what would benefit Albertans in the long run.
...
Once again, the musings of the Alberta government smack more of populist politics than they do of robust, long-term economic policy.

Dave Hancock vs free trade

The attendees of the P"C" party of Alberta convention in Red Deer this past weekend helped clarify for the voters their view of fiscal conservatism, as "Several resolutions on spending controls were rejected, including adopting legislation limiting year-over-year spending increases to the rate of inflation, plus population growth..."

Could it be any clearer? The Wildrose Alliance platform contains a plank, a plank that, in my view, would be the cornerstone of the platform if associated with anti-cyclical tax reforms that would put serious (windfall revenue denying) teeth into it: "The Wildrose Alliance believes Alberta will limit growth in program spending to the rate of inflation and population growth of Alberta." This very same Wildrose Alliance plank was considered by the P"C" Party and rejected. At least they are consistent... these P"C"s are the people who increased government spending 191% between 1996 and 2008 while the population grew 34%. Plus ça change, plus c'est la même chose.

What are the stakes here? Jack Mintz does not believe that even limiting spending to population growth plus inflation will be sufficient to both avoid both deficits and higher taxes. No economist of note who has taken full account of Alberta's future demographic challenge has disagreed. The implication is that continued government by the P"C" Association of Alberta would not mean just deficits and higher taxes, but LARGE deficits and/or MUCH higher taxes.

If that wasn't enough Red Toryism for you,

Members approved a policy from Education Minister Dave Hancock's Edmonton [Whitemud] constituency association calling for the upgrading of more oilsands bitumen in Alberta by blocking shipments to other jurisdictions. The province should take "whatever appropriate action is necessary" to achieve the goal, said the resolution, including legislating that bitumen be upgraded in Alberta.
"One of the things we want out of our oilsands is to have the value here," Hancock said, suggesting the proposal is consistent with government policy. While the province doesn't like to interfere with private business, "unless you engage in some way, bitumen is going to flow down the pipe," Hancock said.

It is absolutely true that unless government "engages in some way" ("engagement" being the Dave Hancock-approved term for coercive regulation) people will freely trade. That means exporting bitumen when the price is attractive and when the investment climate in Alberta has deteriorated to the point that the corporate finance number crunchers conclude upgrader projects within the province are lower NPV than in other jurisdictions. Now the government COULD change elements of those NPV calculations by 1) reducing the marginal effective tax rate (METR) on new investment to a more competitive level and/or 2) reducing the risk adjusted discount rate by not changing energy industry policy every time the populist winds shift and/or 3) stop crowding private investment with continued high levels of government spending that inflate the cost of business inputs, including labour. Not one of these options were acknowledged. Rather, Dave Hancock's Whitemud constituency association reckons coercive, trade restricting regulation needs a place at the table, a contention that would have been of limited interest to non-Whitemud voters were it not for the fact that the rest of the convention-attending, Stelmach-supporting P"C" membership decided it would make a great policy plank for their party. BA Energy spends more than a half billion on an upgrader near Fort Saskatchewan, goes bankrupt, and the problem wasn't the escalating cost of doing business but insufficient government "engagement"? Perhaps Hancock's idea of "engagement" also includes a massive corporate welfare scheme that would send billions of taxpayer dollars down the rat hole. After all, if they can find billions for boondoggle carbon capture projects, surely they can find billions for boondoggle upgrader projects that would create more carbon to capture! Of course, these upgraders will also suck so much juice from the grid we'll need a massive new power transmission line project... you see how it all fits together?

If the government is not going to allow the private sector to export bitumen, are they going to allow the private sector to give out-of-province investors a return on investment? If Hancock can't tolerate gooey black stuff "flowing down the pipe" how is he going to keep his paws off an actual cash flow? Longtime readers of this blog know that I'm a frequent critic of the Prime Minister and what I see as a "firewall" mentality. But if there has to be a wall, I'd take Harper and Ted Morton's mostly symbolic social "firewall" around Alberta over Dave Hancock's economic firewall any day of the week and twice on Sundays. It is the expectation of being able to eventually take out a return on investment that creates the confidence to put the initial job-creating, economy-building investment in.

At the 2010 P"C" Party AGM, perhaps the Edmonton Whitemud P"C" constituency association will propose that the government take "whatever appropriate action is necessary" to ensure Albertans consume Alberta-grown bananas. Mr Hancock could explain that Albertans want "to have the value [of banana production] here." Indeed, Albertans might have to go without any bananas that aren't home grown because foreigners decided not to trade with us after we are refused to part with our bitumen (we'll trade you some worthless stuff we Albertans don't want instead... what? not interested?) If the government does not "engage in some way," you get all these free traders influencing production and investment decisions, and that's apparently just too much to bear for Dave "give me my financially and environmentally dubious upgraders" Hancock.

"carbon capture projects are madness"

From Jeffrey Simpson's latest Globe and Mail column:

Prime Minister Stephen Harper makes so many spending announcements, flying like Mary Poppins on speed around the country to distribute billions of dollars, that the news media have given up analyzing any of them.
For the heck of it, let's look back to last week, when Mr. Harper dropped into Edmonton to announce $343-million of federal money for a coal-fired TransAlta Corp. carbon-capture and storage (CCS) project. Simultaneously, Alberta Premier Ed Stelmach announced a contribution of $436-million, for a total investment of $774-million of taxpayers' cash.
That Harper-Stelmach announcement followed an earlier Ottawa-Alberta one for a coal-fired Shell carbon storage project. In that case, the combined federal and provincial contribution was $865-million. ...
Let's be generous and assume the two projects costing $1.6-billion do in fact bury 2.1 million tonnes of carbon dioxide, the most-prevalent gas contributing to global warming. Such a reduction would mean a per-tonne carbon-reduction cost of about $761 – staggeringly, wildly, mind-blowingly higher than any other conceivable measure designed to cut greenhouse-gas emissions. ...

While you, the Alberta taxpayer, pay C$761 per tonne of CO2 abatement, which is equivalent to 494 euros, the price per tonne in Europe has ranged between 10 and 30 euros year to date:

What has the reaction of the Stelmach government been to the Wildrose Alliance party, whose leader has denounced Stelmach's multibillion dollar carbon capture fund as a political boondoggle?

If they want to be relevant, they have to develop a long term policy strategy which speaks to a modern, compassionate, cosmopolitan Alberta and I don't think they do.
- Edmonton Whitemud MLA and Education Minister Dave Hancock

The P"C" party thus asks you to understand, dear Albertan, that you are spending billions on CO2 abatement that costs $761 a tonne because this is what "modern" and "cosmopolitan" jurisdictions do. In fact, if you looked up either word in the dictionary you would see the smiling faces of Premier Ed Stelmach, Finance Minister Iris Evans, and Energy Minister Mel Knight! Those euro types are a bunch of rubes who just fell off a turnip wagon compared to these public policy prodigies. And as for you young and unborn Albertans who will be coming of age in a jurisdiction that squandered the natural resource wealth it was once blessed with, well, that's how we, the Alberta P"C" Association, define "compassion." Now please take a seat while your august government gets back to the business of closing hospital beds and increasing class sizes!