Renewed NAFTA has potential to be a big three-way win for energy



by Rona Ambrose

Calgary Herald
January 26, 2018

Can energy be the catalyst to a new NAFTA?

As the NAFTA negotiations take place in Montreal, energy remains one of the most interesting opportunities for progress. In fact, it could be the rallying point which makes a renewed NAFTA worth it for all three countries. The stage is set for progress towards shared energy goals for Canada, U.S. and Mexico: energy security, pipeline access and cheaper power. Importantly, for all three countries, North America has become the only region that is headed towards energy independence globally. We’ve all heard President Trump clearly indicate his desire for U.S. energy dominance. The truth is, he can’t achieve his goal without Canada and Mexico. 

When it comes to tallying up trade deficits, President Trump has clearly shown he sees trade in energy differently. Unlike autos, cheese or Bombardier, the Trump administration has not shown a protectionist, nationalist approach to Canadian energy. In fact, U.S. Energy Secretary Perry championed a North American energy strategy, while U.S. Commerce Secretary Ross called the U.S. trade deficit in energy “blameless.” Furthermore, one of President Trump’s first acts was initiating approval of the Keystone XL pipeline, a symbol of Canada-U.S. energy integration. Energy is the only area in NAFTA that Trump hasn’t targeted with his America First policy.

Canada desperately needs pipelines to tidewater. We are currently selling our oil and gas at a massive discount to market prices due to lack of pipeline infrastructure. There is no greater example of the need for renewed discipline in the regulatory process for cross-border pipelines than President Obama’s delayed and politicized rejection of the Keystone XL. After years of review, the President argued that allowing Canadian oil into the U.S. would harm global climate efforts. Within a few weeks, he signed a law repealing a U.S. crude oil export ban and effectively enabled more than a million barrels per day of U.S. oil onto the global market.  In part, trade agreements should constrain discriminatory decision making with no real basis in environmental reality. 

Given the Trump administration’s efforts toward streamlined regulation, there may be an opportunity to deliver a more ambitious NAFTA commitment regarding cross-border energy infrastructure pipeline permitting. Providing cross-border infrastructure projects a fair review on the merits of the individual projects would eliminate a significant area of uncertainty holding back further North American energy integration.  

Importantly, President Trump cannot achieve global energy dominance or North American energy integration without Mexico being part of the equation. Energy security is probably the number one reason we should work to keep Mexico at the table. 

An ambitious NAFTA energy chapter could bring Mexico’s energy sector under the same rules as those governing Canada and the U.S. NAFTA was negotiated at a time when Mexico’s energy sector was state-run and closed to international competition.  With recent constitutional reforms, Mexico’s energy sector is now open to new investment and competition from international firms. In the interest of geopolitical security, our three countries need to formalize these energy reforms in a new NAFTA.

In an effort to support their growing economy, the Mexican government hopes to deliver clean, cheap energy and develop resources using international capital, innovation and expertise. For Canada and the U.S., an open Mexican market is a valuable commercial opportunity.  In fact, thanks to the new reforms, a number of Alberta oil, gas and renewable companies are now working in Mexico. This type of economic and energy integration will only boost continental security.

Unfortunately, just as this opportunity emerges the NAFTA investor-state dispute settlement mechanism currently protecting cross-border investors appears at risk from left-wing environmental groups who see it as a way for corporations to avoid government environmental policy.

Ironically, the Mexican governments plans for renewable energy is an example of how protecting investor interests can deliver better environmental outcomes.  Mexico has access to some of the lowest cost renewable energy in the world and a vast supply of clean U.S. natural gas. Connecting those resources to consumers via new infrastructure could deliver a better deal for consumers and the environment.  Unfortunately, abandoning NAFTA’s investor-state dispute settlement mechanism would create a disincentive for private investment in renewable infrastructure just as we reach the cusp of a cleaner Mexican energy system.

We’re all looking for a win-win-win on a renewed NAFTA. Canada is an expert in all forms of energy. We have the opportunity to raise the bar and create a NAFTA energy chapter that delivers President Trump his “global energy dominance,” delivers Canada badly needed pipeline access and delivers Mexico cheaper, cleaner power.

Hon. Rona Ambrose is a Global Fellow at the Woodrow Wilson Centre in Washington, D.C. and a member of Canada’s NAFTA Advisory Council.

Image credit: Canadian Press/Sean Kilpatrick

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