Since its entry into Confederation in 1949, Newfoundland and Labrador’s dependence on natural resources has left the province with a boom-and-bust economy characterized by short spurts of spectacular growth followed by protracted periods of gloom.
Yet, a much-anticipated report on struggling Newfoundland’s fiscal future insists that doubling down on resource development is the only way – short of a bailout by Ottawa – to create the wealth the province needs to get on top of its debt problem.
While media coverage of the report tabled last week by the Premier’s Economic Recovery Team largely focused on its calls for painful government spending cuts, the crux of the panel’s recommendations involve reinvigorating the province’s resource economy by cutting red tape, boosting incentives for private investment and promoting Newfoundland’s oil and hydroelectricity as “cleaner” energy alternatives.
The panel led by St. John’s-born Moya Greene, a former chief executive of Britain’s Royal Mail, sees private capital rather than public spending as the key to reinvigorating Newfoundland’s economy. That is no surprise given Ms. Greene’s own career path, which took her from helping oversee the privatization of Canadian National Railway as a senior federal bureaucrat in the 1990s to piloting the 2013 listing of the Royal Mail on the London Stock Exchange.
Her report calls for a Green Economy Transition Strategy that capitalizes on the lower carbon footprint of Newfoundland’s offshore oil sector to lure investment away from competing sites such as Alberta’s oil sands. And it recommends packaging government-owned hydroelectric assets in Labrador as a “single [investment] opportunity” for private investors and to help offset the burden of the disastrous Muskrat Falls project.
“[I]nvestment in petroleum will favour those jurisdictions that have high-quality petroleum and can extract that petroleum with a low carbon footprint … Newfoundland and Labrador can thrive in this context,” reads the 338-page report, now in the hands of Liberal Premier Andrew Furey.
The report notes that the Hibernia offshore oil project, which began producing oil in the late 1990s, “has one of the lowest carbon footprints per tonne of production in the world,” generating a fraction of the per-barrel greenhouse gases produced by Suncor’s synthetic crude operations in Alberta. That should help buttress the case for offshore oil investment, as major oil companies seek to cut their carbon profiles.
However, the Greene report says the provincial and federal governments must move now to streamline the approval process for new oil projects. “Projects that are not discovered in the next five years and sanctioned in the next 10 years may never be developed … [C]onsiderable wealth will be stranded, hindering the province’s ability to improve its fiscal situation,” the report says.
Since 2000, the offshore oil industry has generated $22.6-billion in royalties, turning Newfoundland from a “have not” province into a relatively “wealthy” one. But most of the oil wealth, the report laments, has gone toward “the salaries of public servants through increased hiring, wage increases well beyond inflation and offers of more government services.”
Royalty revenues tumbled to just $532-million last year as oil prices slid, and the report projects they will not surpass $1-billion again until 2026. The Greene report says at least half of future oil and mining royalties should go toward paying down the province’s public debt, which is proportionally the highest in Canada.
Like it or not, the report says there “are no short-term, realistic scenarios to replace petroleum royalty revenues necessary to provide public services as the province transitions to the green economy.” What’s more, the report notes, the jobs multiplier of the oil and gas sector is the largest of any industry in the province, with four additional jobs created for each direct one.
The report calls for the province to “package the Churchill River [hydro] resources as a single opportunity, including Muskrat Falls, Gull Island and the upper Churchill contract and seek federal and private sector partners to maximize economic value.”
The 2,250-megawatt Gull Island project, considered the most economically attractive undeveloped hydro site in Canada, has been the subject of joint development talks between Newfoundland and Quebec. But the bitterness stemming from the 1969 deal under which Newfoundland sells the bulk of power from the massive Churchill Falls hydro project in Labrador to Quebec at extremely low rates has always served to poison negotiations. Under former premier Danny Williams, Newfoundland decided to go it alone to develop the Muskrat Falls site, in part to spite Quebec.
With the Churchill Falls contract set to expire in 2041, the Greene report says Newfoundland has an opportunity to sell private investors on its Labrador hydro assets, though it adds the federal government must shoulder some risk, too.
The report argues Muskrat Falls is a cautionary tale about how not to go about hydro development rather than a reason for avoiding new hydro projects in the future. “Hydroelectric resources will contribute to reducing [greenhouse gas] emissions and will also generate economic wealth, investment, jobs and income for the province. … This is the future for Newfoundland and Labrador’s young people.”
Any way you slice it, the Greene report concludes, resource development is still the only way forward for Newfoundland.
Source: The Globe And Mail | This text was excerpted from the media outlet cited on May 11, 2021 and is provided to Noia members for information purposes only. Any opinion expressed therein is neither attributable to nor endorsed by Noia.