| August 7, 2012

Why not U.S.?

We really should thank our northern neighbors because the TransCanada Keystone XL pipeline is a praiseworthy project that would greatly benefit the U.S. economy. Its ability to create much-needed jobs here in America, facilitating the flow of oil to our refineries and on to our consumers makes the project’s necessity a no-brainer. Keystone XL will allow us to import oil from our friendly northern neighbor instead of perpetuating our reliance on other not-so-friendly countries. Overall, the Canadian pipeline is a move in the right direction, but could the United States do more? Why has Canada become such a huge player in the energy exporting market, while we remain in an import struggle with China and other burgeoning economies? The answer is the difference in policy between the U.S. and Canada.

While we are increasingly losing the idea of federalism envisioned by our founders here in America, Canada has embraced it when it comes to energy policy. Ottawa cedes most energy decisions to the provinces, which have encouraged production. An example of this can be seen in the Alberta oil sands, where cutting-edge technology helped raise Canada’s proven oil reserves to 180 billion barrels, the third highest of any country in the world. The province of Alberta helped incentivize this boom by lowering the royalty rate companies pay to 1 percent until they have earned back their initial capital investment. According to Canada’s national statistical agency, the oil sands have accounted for an estimated one-third of the country’s economic growth in 2010 and 2011. Canada is in the process of exploring opportunities to extract oil from shale and has decided to drill in the Arctic Ocean. Canada has even produced oil by drilling off the coast of Nova Scotia, just north of Maine. (If Canada can produce oil that close to American territories, then it might be worthwhile for us to explore the opportunity as well.)

Canada’s decision to adopt the American ideal of federalism by deferring energy policy decisions to its provinces has jump-started its economy and allowed its energy reserves to become highly sought-after by both the U.S. and China. Once again, importing from Canada is a much better scenario than our current dependence on Middle Eastern oil, but so much more could be done.

In addition to slow playing the Keystone XL pipeline, President Obama has made countless other mistakes when it comes to energy policy. Instead of deferring to the states or free market, Obama and his administration have decided to choose the winners and losers themselves. The Solyndra debacle is evidence that this administration blindly favors green energy projects, even if those projects waste millions of taxpayer dollars and end up in bankruptcy.

To make matters worse, through a web of bureaucratic regulations and moratoriums, the administration has made fossil-fuel exploration even more difficult. In the wake of the Gulf oil spill, President Obama took the easy way out by imposing a moratorium on offshore drilling instead of delicately looking at the issue and finding a balanced approach. On another drilling front, he recently issued a veto threat against a House bill that would restore pre-Obama plans to allow greater offshore exploration. In Alaska, the lack of oil production has reached a point where the continuity of its pipeline is questionable. The Keystone pipeline isn’t the only project that has been delayed by the bureaucracy. Since Obama took office, Shell Oil has been sitting on a $4.5 billion Arctic investment because the government refuses to issue permits. Oil isn’t the only energy sector that has been deemed a loser by this administration. The EPA is considering imposing national regulations on shale fracking – a technology used by Oklahoma companies to extract natural gas.

The Obama administration is a case study in what not to do when it comes to energy policy. Instead of giving the federal government more control, policy decisions should be left to the states. By basing policy in free-market principles, states could incentivize similar policies like that found in Alberta, leading companies to implement cutting-edge technologies that enhance energy exploration while remaining good stewards of the environment. Instead of allowing the federal government to control the energy sector, we should defer to the states and free market so we too can join our northern neighbors on the path to energy independence.

By James Hall

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