Special from Energy In Depth Canada: QUÉBEC’S PROPOSED FRACKING BAN THREATENS TO LEAVE U.S. ENERGY COMPANIES’ WITHOUT COMPENSATION

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A group of fringe politicians in Québec announced plans earlier this month to completely halt all existing and future oil and natural gas production in the Canadian province. And the direct attack on the province’s energy industry doesn’t end there: The group also wants to permanently close all wells and reservoirs and expropriate all permits to explore for carbon sequestration reservoirs.

What isn’t part of the plan is compensating U.S.-based companies who will be impacted by the policy – a move that could be in violation of the United States-Mexico-Canada Agreement (USMCA).

The political party behind the new piece of legislation, Québec Solidaire, says they introduced the bill solely to oppose increased oil and natural gas production in Western Canada. However, given that natural resource production in Canada accounted for 17 percent of the country’s nominal GDP in 2019, this bill is completely out of touch with acknowledging what sectors continue to drive the Canadian economy.

In response to the sweeping legislation that would do little to reduce emissions in the province (more on that in a moment), Calgary-based Questerre Energy CEO Michael Binnion issued a compelling rebuke of the bill’s attack on the industry:

“With more than 50 percent of the energy consumed in Quebec coming from hydrocarbons, we see our focus on carbon technology and net zero as a real and practical solution to reducing emissions in Quebec. In addition to the employment and other economic benefits, it will also help reduce a $7 billion trade deficit due to energy. As they move towards carbon neutrality by 2050, we hope that the Government shares this view.”

Forget About International Trade Agreements, Québec Solidaire Says

Understandably, the most outlandish aspect of the proposed legislation is how a group of Québec politicans hope to simply turn a blind eye to multiple international trade agreements that the Government of Canada and not the province, are legally bound to uphold.

While Québec is not a signatory of international trade agreements like USMCA, the Canada-United Kingdom Trade Continuity Agreement and the World Trade Organization, Canada is and must pay a fair compensation for any property that is nationalized or expropriated. From USMCA:

Article 14.8: Expropriation and Compensation
1. No Party shall expropriate or nationalize a covered investment either directly or indirectly through measures equivalent to expropriation or nationalization (expropriation), except: (a) for a public purpose; (b) in a non-discriminatory manner; (c) on payment of prompt, adequate, and effective compensation in accordance with paragraphs 2, 3, and 4; and (d) in accordance with due process of law.
2. Compensation shall: (a) be paid without delay; (b) be equivalent to the fair market value of the expropriated investment immediately before the expropriation took place (the date of expropriation); (c) not reflect any change in value occurring because the intended expropriation had become known earlier; and (d) be fully realizable and freely transferable.”

Under Québec Solidaire’s proposed bill, all tangible foreign assets will be driven straight into the ground—leaving Canada on the hook for millions of dollars of lost investment.

Even more concerning is that local media reports the current CAQ government, which promotes itself as pro-economy, is also planning a ban on local natural gas.

The Québec Minister Julien responded that while all options are open, the government is waiting for the outcome of a judicial decision on the legality of regulations banning oil and natural gas within 1,000 meters from any waterway.  The 1 kilometer ban covers 97 percent of Québec, prompting calls that it is a disguised expropriation without compensation by the Government of Québec.  The ruling is expected before the end of November.  Minister Julien suggested that the law in Québec supported giving investors their money back but no compensation for the value of their discoveries.

Further, it is also unclear if Québec must compensate the federal government in the event of a positive ruling by the free trade tribunal.

Bill 894 Will Increase Carbon Emissions

Maybe it’s worth repeating that climate change is not just a provincial phenomenia, either. Reputable think tanks in Québec, like the Montréal Economic Institute, remind us that the province is responsible for less than 0.18 percent of greenhouse gas emissions, globally. With the larger picture of global emissions in mind, policies that seek to end or place greater limitations on oil exploration and development have little to no impact.

In fact, these policies actually have the opposite effect—by taking away opportunities for Québec to sustainably develop natural resources, it offsets that energy production to foreign countries which emit far more emissions to produce the same amount of energy.

study on carbon leakage in the aluminum sector in Canada revealed exactly what some of the unintended consequences of some climate policies have on global emissions. Using an energy-economy model to analyze carbon leakage, the study showed that although emissions may decline from climate policies that increase costs of production domestically, emissions would simply be displaced to countries with cheaper production:

“At a minimum, if Canada has a comparative advantage in a sector, activity in that sector should not decrease as a result of policy. In fact, it would be advantageous to increase activity in these sectors, since it would act as a substitute to more carbon intensive producers and increase economic activity in Canada. In order to reduce global GHG emissions, national emissions may increase.”

Conclusion

The bottom line is: every aspect of what Bill 894 seeks to accomplish runs counterintuitive to what the research says these types of climate-motivated policies actually do. Bill 894 will certainly increase global emissions and impact thousands of Québecers whose livelihood depends on low-cost, reliable energy sources. And beyond its borders, the legislation signals to outside investors that Québec won’t shy away from expropriation by legislation for political motivations.

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