June 22, 2024

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The Capitalist Manifesto: In energy, we need more free markets, not more socialism

The Capitalist Manifesto: In energy, we need more free markets, not more socialism

The solution to the world’s energy problems and its over-reliance on an illiberal cartel is not to model Canada’s energy sector after a socialist country like Venezuela

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Capitalism has created more prosperity and progress for more people than any system in human history. With the recent 30th anniversary of the official end of the Soviet Union, join the National Post and Financial Post in a series saluting the unfashionable yet awesome power of the free-market system.

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Communism as an economic system may have died 30 years ago with the collapse of the Soviet Union and the process of market liberalization in China, but Marxist theories have proved stubbornly resilient. The modern left continues to divide society based on class, always on the lookout for the new proletariat ready to foment the long-promised revolution, and continually advocates for the state to take more control over the means of production.

Historians may one day look back at the current era and find that the most prosperous societies were the ones that were best able to resist their collectivist impulses. One only needs to look at how we treat our oil and gas industry to see why Canada will receive a failing grade.

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It has now become clear that despite years of investment in green energy, Europe is nowhere close to being able to replace fossil fuels with renewables.

Equally unmistakable is the fact that the environmental movement’s efforts to hobble Canada’s oil and gas industry by blocking the construction of pipelines and liquified natural gas terminals and advocating for moratoriums on oil tankers, among other measures, have failed to reduce global demand for those products, instead enriching despots in countries like Russia, Iran, Venezuela and Saudi Arabia, while weakening the Canadian economy.

Following Russia’s invasion of Ukraine, there is a good case to be made that Canada should have spent the past decade building the energy infrastructure that could allow us to support our democratic allies and dampen global commodity prices — and that, having finally realized the error of our ways, it is not too late to change course.

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But even as our very liberal European allies start to realize the importance of energy security and recognize that fossil fuels will continue to play a role in the world’s energy mix as we transition to more environmentally friendly sources, the Canadian left seems undeterred.

Writing in the Toronto Star recently, Amir Barnea, an associate professor of finance at HEC Montréal, seemed incensed that Canadian energy companies would be allowed to enjoy the “windfall of cash” they’re bringing in due to high oil and gas prices.

To illustrate his point, Barnea listened in on a March 3 conference call with investors, in which CNRL, Canada’s largest producer of oil and gas, announced its fourth-quarter results. What struck him most was that “the call was all business as usual, as if we weren’t in the midst of a climate crisis.

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“The entire call was about how strong the firm’s cash flows are, how production is at record levels, how CNRL is delivering massive returns to shareholders, and will continue to do so in the future, allocating even more capital to dividends and share repurchases.”

Heaven forbid a private company, in a call announcing its quarterly earnings to investors no less, would have the gall to focus the discussion entirely on the value it’s providing to those shareholders, rather than talking about a global issue it has no ability to unilaterally address, much less solve.

I’m tempted to say this belies a fundamental misunderstanding of the distinction between a publicly traded company and a Crown corporation or other public asset. But as a professor at a prominent business school, Barnea surely knows public companies are private enterprises whose function is to provide goods and services demanded by consumers in order to maximize shareholder value, not work toward some nebulous public good.

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It also must be pointed out that the left has a rather curious definition of a crisis. And I don’t mean to pick on Barnea here, as numerous columnists and public figures — including U.S. climate czar John Kerry, UN climate chief Patricia Espinosa and the CBC’s Aaron Wherry — have warned about the war in Ukraine, and the resulting energy crisis, distracting the world from climate change.

As of March 23, the United Nations said that 977 civilians have been killed and over 1,500 wounded in Ukraine, while more than 3.5 million have fled the country. Thousands of combatants have died, as well. Meanwhile, the so-called climate crisis has likely killed a grand total of zero people since the conflict began.

Nevertheless, Barnea sees global warming as such an existential threat, he is advocating for government to step in and confiscate even more of the energy industry’s profits than it already does. “It is up to the government to demand that the industry starts its transition,” argued Barnea. “Putting a cap on fossil fuel production or taxing excess profits unless invested in renewables are a few tools that the government could use.”

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With oil breaching $100 a barrel and gasoline well on its way to becoming a luxury reserved for the bourgeoisie, capping production below current levels would be politically untenable. But the bigger problem is that years of depressed commodity prices, along with a hostile political and regulatory environment, has dried up investment and halted development, which acts as an effective cap.

And governments already tax excess profits. According to a 2020 study from the Canadian Energy Centre, the energy industry paid $102.6 billion in federal and provincial corporate taxes between 2000 and 2018. Adding in royalties, land sales and indirect taxes, it contributed at least $359 billion, or around $20 billion a year, to government coffers over that period — more than the banking, construction or real estate sectors.

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This is money that governments could spend on carbon mitigation policies if they choose to, and it is funds that will be lost if they continue to burden the industry with unnecessary regulations that put it at a competitive disadvantage vis-a-vis its competitors in other countries. There’s also no question that the industry has invested in reducing its carbon footprint.

Yet the idea that private companies should be coerced by the state into focusing their energies on public policy issues, rather than profit maximization, and that their profits should go towards the government’s policy priorities, rather than investors, is indicative of a Marxist worldview that has managed to turn everything into a political issue and prevented this country from doing big things.

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The Northern Gateway and Energy East pipelines could have been transporting oil to both coasts for export if politicians and environmental groups hadn’t stood in the way. The Trans Mountain pipeline would have been built with private capital if it hadn’t been bogged down in bureaucracy, which ultimately led to the federal government purchasing it for $4.5 billion and watching as its costs ballooned by 70 per cent, to an estimated $21.4 billion.

There’s certainly nothing “free” about the energy market, as it is dominated by the OPEC cartel, which produces roughly 40 per cent of the world’s oil and controls around 80 per cent of global reserves. The solution to the world’s energy problems and its over-reliance on an illiberal cartel, however, is not to model Canada’s energy sector after a socialist country like Venezuela by increasing state control, but to unleash the full power of the free market by getting out of the way and allowing industry to produce the energy we need to power our modern, vibrant, industrialized economies.

National Post
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