Canadian Provinces

I attended “The Premiers’ Perspective: A Canada-U.S. Relations Outlook for the New Decade” at Wilson Center on February 7, 2020.  It was advertised as “a conversation with the Honourable Scott Moe, Premier of Saskatchewan and the Honourable Jason Kenney, Premier of Alberta. The Premiers will speak on how provincial interests play a role in Canada’s vision and presence on the global stage and how topics such as trade, energy, and innovation will shape Canada-U.S. relations in 2020 and beyond” and that was what it was.  “Politico” co-sponsored the event and so Luiza Savage Executive Director at “Politico” joined Jane Harman President & CEO, The Wilson Center in welcoming the guests and Lauren Gardner Reporter from “Politico Pro Canada” moderated the discussion. The program lasted about an hour and fifteen minutes.
Jane Harman introduced Chris Sands as the new director of the Canada Institute.
 Notes are below.

The funniest part of the “Premiers’ Perspective: A Canada-U.S. Relations Outlook for the New Decade” came when Scott Moe, Premier of Saskatchewan seemed to say he disagreed with everything Premier of Alberta, Jason Kenney said, after they agreed on everything else up to that point.  What he had in fact that is that “I would JUST agree …”  Kenny asked right away, and Moe cleared it up on the spot.  Goes to show how misunderstandings happen.
Besides what would have been big news, but wasn’t, there was probably little that surprised people familiar with the two leaders, but there was a lot of useful insights and explanations.  Saskatchewan & Alberta are especially tightly integrated into the North American market, so it was no surprise that both premiers strongly endorse USMCA.  They foresaw no problems getting the agreement ratified by the Federal Parliament and reported that the premiers of all the provinces had come out strongly for the agreement. Jason Kenny said that it was especially important to get ensconced in the North American zone, as there are growing concerns about protectionism in the USA and around the world.
Both agreed that the new USMCA was an improvement over NAFTA, although they did not voice complaints about NAFTA.  When asked about concerns about specific products, they mentioned forestry, aluminum and dairy.  Softwood lumber exports are important in both provinces.  Detailed adjustments can be made within the treaty, so the sooner they get in the better to start the detailed work.
Defer to the Federal Government in international affairs
Both premiers made a point of emphasizing while they want to make the concerns of their own provinces well-known, it is the Federal Government that runs foreign policy and trade negotiations.  Jason Kenny added that this is especially important to recall now, given the challenge of China.  They don’t want to give the Chinese the impression that they can divide Canadians.
Huawei dispute hurts
Western Canada has been hurt by the Huawei extradition dispute.  When the USA and China have disputes, Canada suffers collateral damage.  Scott Moe mentioned harm done to potash exports from his province, as well as general agricultural products.  Beef and pork restrictions have also hurt, but the thorniest problem might be the canola ban.  They did not explain.
Speaking about China tensions, Jason Kenny said that there was more than two Canadians (Former diplomat Michael Kovrig and entrepreneur Michael Spavor) imprisoned related to diplomatic dispute surrounding the Huawei extradition.  He made special mention of Huseyin Celil, a Canadian citizen and former Uighur activist who has been imprisoned in China for 13 years.
Both provinces are producers of raw materials and especially energy and this is the biggest bone of contention between these provincial and the Federal authorities.  Some of it has to do with the provinces thinking that they pay too much to the Federal Government, but more of it is related to policies that restrict, or at least do not encourage, energy exploration and transportation.
Pipelines and transporting energy
Scott Moe characterized their concerns “the three Ts”: taxes, trade and transportation.  Jason Kenny said that he must assume that the Trudeau government is in favor of the Trans Mountain Pipeline, since the Canada Development Investment Corporation (CDIC), accountable to the Canadian Parliament, acquired the responsibly in 2018.  He explained that Canada’s Federal Court of Appeal cleared the way by ruling against challenges from First Nations groups concerned about the environmental impacts of the project.  [The Trans Mountain expansion would add more than 600 miles to the pipeline and increase its capacity from 300,000 barrels per day to 890,000.]  The government has a duty to consult indigenous people, but this does not imply their power to veto a project.
Kenny regretted the Obama decision to stop the Keystone XL pipeline and implicated the new (at the time) Trudeau government.  He suspected the there was at least a tacit agreement by Trudeau not to kick up a fuss.  Kenny believed that the veto violated the spirit if not the letter of NAFTA.
Scott Moe went on to explain the importance of pipelines.  No form of energy exploration or transport is risk-free but moving oil by pipeline is by far the safest, compared with alternatives such as rail and trucks.  Beyond that, moving oil by rail gets in the way of other commodities, such as potash, timber and other agricultural products.
The Keystone XL pipeline is beneficial for international interests, Jason Kenny added.  It will produce billions in revenues, create jobs and enhance closer relationships between the USA in Canada.  It also creates jobs in the USA as far away as the Gulf Coast, where refiners are tooled to refine heavy crude, no longer so easily available from Venezuela.
North American energy
Scott Moe pointed out that North American energy is important for geopolitical as well as straight economic reasons.  We are transitioning from oil to renewable or other non-fossil forms of energy. This transition will take some time, but when it happens much of the world’s oil will become a stranded resource.  It is better if the last useful barrels of oil come from North America and that if the resource is stranded, better it be stranded elsewhere.  Until then, current demand will be satisfied from somewhere. North American energy is more secure and extracted in more ecologically friendly ways than in places where environmental protection is viewed with somewhat less enthusiasm.
Science-based regulation
Both premiers advocated a science-based regulation process.  Kenny pointed to his province’s $30/ton tax on industrial carbon tax as part of his government’s commitment weaning the world off fossil fuels. [The tax went into effect on January 1, 2020 and is the centerpiece of Premier Jason Kenney’s climate strategy. The tax could increase in future years to keep pace with the federal government’s climate plan for industry. Alberta’s oil sands are included in the tax.]
Don’t mock the people: the rise of populism
In response to questions, the premiers talked about the rise of populism. This factor in all advanced Western countries. Kenny thought that Canada was less affect by this malady (my word) and he credited Canada’s better immigration policies as well as the Canadian energy industry.  Canada’s skill-based immigration system matches potential immigrants with Canada’s needs.  They integrate much easier into society and are more easily welcomed by Canadians, since they provide useful skills.  The other factor, the energy industry, is less direct, but Kenny explained that semi-skilled workers in downsizing industries could move into the booming energy industries, and their related functions.  Many have moved some distance from declining eastern areas to the booming prairie provinces.
Kenny recommended former Prime Minister Stephen Harpers 2018 book, “Right Here, Right Now,” that addressed the root causes of populism.  When political elites dismiss the concerns of ordinary people or even mock them, they react with populism.
Addressing the “Wexit” issue, calls for Alberta to leave the Federation, Kenny said that concerns are genuine and serious, and he would not want it to develop further, but it is mostly talk. Still, polls show that 25-30% of the Alberta population supports Wexit, but that 75-80% understand the concerns.
Canadians first
Both Kenny & Moe emphasized that they thought it important to be Canadians first.  They emphasized that it was important that the Federal government run foreign policy and trade negotiations.  They singled out Deputy Prime Minister Chrystia Freeland for special praise two separate times and praised the work of Canadian diplomats in Washington.  They also referenced section 92 of the Canadian 1867 Constitution that gives significant power to provinces to develop and manage natural resources.  Good balance.
Moe and Kenny agreed on most things, in fact it seemed on all things discussed at the Wilson Center meeting, so much so that there was little need to differentiate.  Besides getting along very well, they gave the impression of being practical and competent leaders.
A complete video of the program is attached.

The new dynamics of global energy and climate: A conversation with Exelon CEO Chris Crane

America was plunged into an energy crisis soon after I graduated from HS, so besides drinking way too much beer as a freshman at University of Wisconsin Stevens Point, I was occupied with forestry and energy. I try to go to energy related programs at Brookings, AEI or Wilson and so I went today to “The new dynamics of global energy and climate: A conversation with Exelon CEO Chris Crane.” Exelon is the largest electric parent company in the United States by revenue, the largest regulated utility in the United States with approximately 10 million customers, and the largest operator of nuclear power plants in the United States.

Mr. Crane talked about his firm’s vision which includes providing reliable power and cutting carbon emissions. He said that you can believe in climate change or not, but that firms like his have to adapt to it because it is happening. To stave off the worst of climate change the USA will need to drop carbon emissions by 80% by 2050. This is a tall order. The electrical sector is off to a good start. We are down 25% based on 1990 figures, but it may get harder to do. This was done largely by substituting natural gas for much dirtier coal. Nobody really anticipated the big supply of cleaner and cheaper natural gas. We cannot count on that sort of good luck again.

Renewables like solar & wind are coming along very well, but they do not supply the base loads.
There are times when the wind doesn’t blow, and the sun doesn’t show. Base loads for the time being can be supplied only by fossil fuels, hydro or nuclear. Exelon is the largest operator of nuclear power plants. The nuclear power plants are losing money. They cannot compete with cheap natural gas, but they have a big advantage in that they do not emit CO2. If these plants went off line, CO2 emissions would necessarily rise. This is what happened in Germany. In their rush to be green, they shut down nukes and dirty coal plants took up the base-load task. There is currently a social benefit to keeping the nukes in business.

As a result, German CO2 emissions actually went up not in spite of but BECAUSE of their green movement.

Carbon taxes – the good, the bad & the unlikely
Exelon supports carbon taxes, specifically the Baker-Shultz plan (I have written about this on other occasions). Crane thinks that only market driven plans have a real chance for success. We should look to outcomes, rather than back any particular technology and let various techniques compete. We do not know which will be best, or maybe what combination will be most effective.

Challenges include developing better electrical storage and connecting pipelines and power lines. New England is at risk, for example, because activists have opposed and effectively shut down construction of electric transmission lines that could bring Canadian hydro-power and gas pipeline expansion to bring abundant American natural gas to the region. Ironically, Exelon power plants in New England that use natural gas need to import LNG, and these imports come from Russia.

Hydrogen economy  – perpetually five years in the future

The talk ended on a hopeful note. Crane talked about the hydrogen economy. This is not a new idea, but its accomplishment seems always to be five years away. Hydrogen is a perfect fuel. It burns cleanly, with the only emission being water vapor. The problem is that hydrogen really is not a fuel source, but more a storage medium. Hydrogen exists nowhere in nature in a pure form. It must be made. The most ecological method would be to divide it from oxygen in water. H2O is made of hydrogen and oxygen and it the most common thing on the earth’s surface. But separating the H from the O takes lots of energy. A process might be to use solar to make hydrogen when the sun is shining and then to use this hydrogen in fuel cells to make energy when it is dark.

My first picture is from Brookings. The program was from 2-3:30. This makes a difference to me. I ride my bike down, but I prefer to take the Metro back, since it is uphill and I am tired. I can take the Metro before 3 or after 7, so I had to hang around until 7. Fortunately, there are nice places to hang. The next picture and the video show the Botanical Garden, a great place to hang around. Notice the longleaf and lobolly pines. After that are some elm trees near the old USIA and last shows the kiosk at McDonald’s. You order electronically and then they bring your order.

Solar energy in North Carolina

Solar energy can be a really bad idea. I found this new solar installation along US 1. It is worse than a parking lot. I suppose the solar produces power, but it displaces forest. When you clear cut a pine forest, it is still a forest. It just is in a new stage. When you destroy all the soil and install solar, you are ruining the land for a long time. My bet is that this was built with government subsidy and it will not be economically sustainable after that money runs out. But it will be a sand desert for a century later. It is an abomination.

Carbon Taxes

Please refer to the link for reference – Pricing energy right is crucial and maybe a carbon tax can reduce taxes on things we think are good, such as labor and capital. If we want to reduce CO2, we can do that through regulation or through a carbon tax.
Regulation is a type of tax, it just is not very efficient. It appeals to people who just like to tell others what to do, but it is always more complex and does not – unlike a carbon tax – raise revenue. A carbon tax is relatively easy to administer, harder to cheat and it permits individuals and firms to plan. By making carbon a clear cost, firms can target reductions. – Vítor Gaspar, International Monetary Fund.
This elegant tax also have the advantage of focusing intelligence on reducing CO2. If you regulate, the best minds try to figure out ways to avoid regulation. If you make carbon a cost, those same smart guys figure out ways to reduce the cost.
Next up was John Delaney, US House of Representatives (D-MD). He talked about his new bill to tax pollution not profits. He proposes a carbon tax with proceeds to lower corporate taxes (American corporate taxes are highest in the world) and target some to help displaced coal workers and the poor. He said that these are not all optimal places to put the money, but in politics you need to compromise.
Even if you think climate change is a low probability event, the potential costs are high enough to take action now. This action is the most effective. He quoted Wayne Gretzky, the hockey great who explained that you have to go where the puck is going, not where it has been. Regulation tends to be backward looking.
Finally we had Bob Inglis, Energy and Enterprise Initiative. He spent most of his time praising Delaney, who had to leave for a vote. He thought the carbon tax would come, it would go from impossible to inevitable w/o pausing at probable. Both sides need to give. Conservatives need to give on the idea of the tax. Liberals need to make it sweeter by agreeing to reduce corporate taxes. It depends how important they really think climate change is.
These are good events. One of the great things about Washington is that you can continue your education in these ways. And you often get a free lunch.

When not to recycle

The bottom line is energy consumption. If something consumes more energy to recycle, it is better not to do it. We can add the permutation of toxic materials. We should recycle things that may cause damage.
However, recycling sometimes makes no sense. For example, recycling of office paper is worse than a waste of time. It takes more energy to recycle than to make fresh paper, and since most paper is made from pulp thinned from sustainably grown trees, paper production HELPS forest health.
Glass is inert, like sand. It causes no trouble to the environment. If it takes more energy to recycle glass than it does to dump it, we should dump it.
Recycling as become a kind of act of religious faith. It is past time we figured out when it is a plus for the environment and when it is a liability.
BTW – the biggest sin in recycling is when municipal sewage waste is put into landfill instead of being recycled into fields and forests. Strangely, this elicits almost no protests. In fact, many fight the deposition of biosolids. This is ignorant.
Reference –

Bright and brightening American energy future

We might worry that the American energy boom is creating too much prosperity, since we have bottlenecks in inadequate, ports, pipelines, rail and shipping. Of course, adapting to those things will create jobs based on REAL wealth.

IMO, we sometimes forget that real wealth comes from real stuff. This is a real stimulus, both the biggest hope for an eventual robust economic recovery tomorrow and the thing that is keeping our economy growing today, albeit a bit anemically.
We should also make the distinction between infrastructure that is real and that for show. The real infrastructure it built to satisfy needs created by tangible things like our American energy boom. We see that as wealth creating and good. So we are tempted to make bogus investments, that look like this but really don’t carry anything. Real investments raise the economic temperature. The bogus ones are more like lighting matches under a thermometer and hailing success. Glad to see real need which will create real wealth.

A Boom In Oil Is A Boon For U.S. Shipbuilding Industry

Ten supertankers are under construction and there are orders for another 15, but just three years ago the tanker market was barely moving.

Speaking of the energy boom, the ingenuity of our fellow Americans is not limited to fossil fuels and our happy challenges will soon include how best to integrate abundant energy from alternative sources.

As solar and wind become cheaper and batteries improve, more people will be in the energy production business. However, the temptation to go it alone should be resisted. As the linked article says, “Distributed resources such as solar and storage can generate more value and have better economics for customers and society both if they are connected to the grid.” I think of it like the Internet. You CAN have a stand alone computer, but does anybody really want one?

Why the Potential for Grid Defection Matters 

This blog post explores why cost parity doesn’t necessarily equate to widespread customer defection, why defection would create a suboptimal electricity system, and why even the specter of customer defection is relevant.

Big plans

Big, comprehensive plans usually come to grief. It is impossible to identify all the variables and how they interact even if things stay the same – and they never do. Big plans make hard, still and brittle systems. Being robust & adaptive is better in a world that cannot be predicted. Having a good process in mind is better than a great plan.

In Germany’s case, they ended up doing precisely what the plan was supposed to avoid. Carbon emissions are now rising in Germany, even as those in the “plan-less” U.S. are falling.

I have been following this planning debate my whole adult life. I recall that I used to be upset that we had no big plans. When I was in college, professors told me it was a weakness of ours. I recall reading how communists would dominate us because they had a coherent plan. Didn’t work out for them. I remember the Japanese supposedly had plans that thought a century ahead. (We should not have thought that was impressive. Imagine a plan from 1914. Assumptions would not have played out.) Well that one didn’t work out so well either.

A big, detailed long range plan is a work of fiction. It may be beautiful. Fiction is often clearer and more rational than fact. It makes people feel better but it is pure BS if you get more than a few years out. You cannot predict the big discontinuous change because it is discontinuous. It is the meaning of the concept. All planning depends on the future resembling the past. At times when it doesn’t … we use the simple term overtaken by events, but it is worse.

A better plan is distributed decision making and emergent strategy. You can set goal, but know that you need to change them when conditions change and assumptions prove wrong.

From a strictly personal greed point of view, however, I hope our European friends hold onto their master plan a few more years. We are experiencing a boom in wood pellets, shipped from the Port of Chesapeake to Europe. It has really helped the prices for pulp and even smaller round wood. They use our renewable forest litter to generate electricity. We can produce and ship them cheaper than our European friends can, even with their local advantage. So thanks guys. The plan is working for some people, just not maybe the ones you planned for.

How the world has changed

The argument today is whether or not the U.S. should export oil. I continue to marvel at energy developments of the last ten years. The U.S. will soon be the world’s largest energy producer, an energy superpower. All the experience of the past forty years has been overtaken by events. It is the energy equivalent of the fall of the Berlin Wall and will have consequences as far reaching.

I should not be so surprised. I have been an optimist all my life, trusting that human imagination, intelligence and innovation can overcome all obstacles. But I came to maturity during the dark and cold days of the late 1970s, when President Carter told us that we would have to recognize limits, when books and movies emphasized the end of our resources. It is hard for me to believe that it is all so different.

When I was young, people around me made stuff out of raw materials. It seems perfectly intuitive that you could – would – run out of raw materials if you kept on making stuff. I remember hearing stories about the great range Mesabi Range in Minnesota just running out of iron ore. I pictured it just as empty.  It was the end of the line.  Those big iron ore boats coming through the lakes would come no more. I remember being a little surprised by the great song by Gordon Lightfoot about the wreck of the Edmund Fitzgerald in 1975. I thought those boats had mostly stopped already.

It seemed to make sense to see the world as a bunch of boxed filled with resources. Our ancestors had emptied lots of these boxes and we were emptying them even faster. Soon there would be no more full boxes and we would be out stuff and out of luck. This formulation is easy for child to understand, maybe because it is childish.

In real life, we have constantly developing technologies and techniques. We do indeed “run out” of some stuff, but by the time we do we have transitioned into something else, usually something that works better for our needs.

I recall my first class is business policy. We were assigned a well-known business and told to ask what business they were in. I was assigned McDonald’s and it seemed an easy answer. McDonald’s was in the hamburger business. This was the wrong answer. I expanded to fast-food. Still not right. I finally ended up with a vague “customer satisfaction” explanation. This was almost right, but still not broad enough. McDonald’s is in the customer satisfaction business, using mostly a fast and integrated process to do that. It is also in the logistics business, the technology business and the real estate business, among others. If people stopped eating hamburgers, McDonald’s would face challenges, but it would not necessarily go out of business, especially if the changes took place over some years. In fact, we have seen McDonald’s diversify its offerings since that time many years ago when I first gave my incorrect answer.

McDonald’s is just one firm. How much more adaptive is the great diversity of our society? I could have been asked a similar question about energy. Back in the 1970s, I might have talked about the need to secure foreign energy sources and to cut way back on energy consumption, maybe put on a sweater, turn down the lights and sit in the cold as President Carter implied. But things don’t really work like that.

So today we talk about how much energy we should export. The big energy producers in the world worry about the U.S. as a competitor. They can no longer ration our energy or use it against us. If they embargo oil to us, we don’t really care. In fact, the big geopolitical talk of today is whether or not we will ALLOW Iran to sell more oil. How the world has changed.

Fracking stimulus: real energy for the real economy

American energy is booming and energy is driving the economy. It is a stimulus much larger, more effective and sustainable than anything the Obama folks have done. And it is reaching all over the U.S. Fracking is lowering energy costs and reducing pollution. It is giving business to railroads, jobs to truckers and money to rural landowners. Beyond that, the fracking boom is stimulating a renaissance in heartland industries, such as fertilizers, plastics and other petrochemicals. In my native state of Wisconsin, the western part of the state had some problems in rural areas. Then came the fracking boom in North Dakota. Fracking fluid is mostly sand and water and Wisconsin sand is particularly well-suited for fracking.

This story is being repeated all over the American heartland. I suspect that the immense proportions of the success are under reported because much of the value and the jobs are going to smaller cities or rural communities outside the general purview of the bicoastal elites. But it is real and sustainable. This is not cash for clunkers or Solyndra pipe dreams. This is real and sustainable. And instead of costing billions, it is providing billions in earnings and taxes.

Of course there is also the conspiratorial reason to think it is under reported. The bicoastal elites tend to dislike both fossil fuels and the “hicks” in the heartland. Beyond that, if we understand the true engine pulling the American economy, how can politicians take credit?

W/o the fracking stimulus, our economy would be even more in the dumps and it may be fracking and its less expensive energy and abundant petrochemical complex that pulls us out.

Everything about fracking appeals to me. My blue collar heritage loves jobs for honest working people in an America is making real things, wealth through creation, not artificial stimulus or redistribution. The environmentalist in me sees the carbon reduction and the clean burning gas energy. My inner economist figures the potential salvation for an economy still in slow recovery from the great recession. My spirit of enterprise is excited by the courage and imagination of the men who took this technology discarded by big oil and made it great. My sense of fairness is enamored with the spread of prosperity to my people of Middle America and my patriotism is exalted by American energy letting us give the middle finger salute to despots and tyrants that control so much foreign oil and gas. We did it again.

Green AND Growing – U.S. CO2 emissions drop again

The U.S. economy grew 2.8% last year, But energy use DROPPED by 2.4% and CO2 emission DROPPED even more, by 3.8%. And despite the overall decline in renewables, the carbon intensity of power generation still fell by 3.5 percent, mostly because natural gas is replacing coal. We are figuring out how to grow the economy, keep the free market and still go green.  

This provides a good case study. Our European friends, who talk green, have not achieved both growth and carbon reduction. They have also sometimes reduced CO2, but at the expense of growth. Meanwhile, the U.S. is successfully separating growth from increased energy use and energy from increased carbon emissions. 

This is not the first time we have responded well. Our American market system just works better than the planners in other places. It often doesn’t seem that way. Planners have a rhetorical advantage. They can point to their plan. We can only respond with the true but unsatisfying, “Our plan is to let millions of people make plans in the belief that what they come up with will be better than your experts.”

This is something I have noticed in my years of travel and living overseas. Many places are nicer than the U.S. in theory. People have more rights, in theory. They get more stuff, in theory. But Americans do better in reality. I think it is just difficult for academics to understand the U.S. market economy. Market forces are as protean as they are ubiquitous. They defy explanation. So for many years, since before we were even a country, intellectuals have been predicting our imminent demise.

The CO2 problem remains, however. China and others are emitting enough CO2 to swamp any improvements we make. In less than ten years, China will emit more CO2 all by itself than the whole world did in 1990.

We can figure out how to make the future work;  I have less confidence in some others.

My picture shows elm trees at the White House. These elms resist Dutch elm disease that wiped out so many elms in the 1960s and 1970.