One winter while in high school, I landed a short-term job. A neighbour was going south for a month of respite from a Saskatchewan winter and asked if I’d come over daily to feed his cows. Having done this for years at home I was up to the task and jumped at it. Before he left, he asked me to come over to “show me how to do it.” He had his own special technique of manipulating the front-end loader with a huge hay bale, and he wanted to make sure I did it his way. As I sat in his tractor, trying to follow his ever-wilder hand gesticulations from stage left, it of course turned into a disaster, like when someone gives you directions on backing up while in your rear-view mirror. I remember the crunch of broken wood, the sound of his wife screaming at her husband to “just leave him alone and he’ll be fine”, then the awkward silence as we stood there surveying the carnage. His wife was right; as soon as I could do it on my own, I had no problems thereafter, and his cows and bale feeders remained well-fed and undamaged, respectively, until their return.
The enduring lesson out of that fiasco was that sometimes over-guidance can nullify or silence basic competence, not to mention outright skill (I considered myself somewhat of a prodigy at feeding cows, a victim of youthful naiveté). There are also massive consequences of this bad practice for innovation. At home, I might have spent time wondering if there was a better way to do things; but while working for this guy, I couldn’t imagine wasting my breath on any sort of suggestion.
This principle is portable and is relevant to other realms. In the energy sector, imagine if there was a framework that placed innovation at the forefront and not compliance.
I’m not talking about environmental compliance, where operating standards and/or habitat protection might take a back seat to anything. That should never happen. And I’m not talking about forced innovation, where only certain pre-ordained outcomes are on the table. I’m talking about freedom and support to do something about emissions that maximizes the innovative and entrepreneurial spirit, a spirit that needs a certain freedom and incentivization to flourish.
In a recent Arc Energy Institute podcast, a minister of Canada’s federal government declared their aim to be net-zero carbon emissions by 2050 a “moon shot”, as in the way US president Kennedy laid out a goal (get a person on the moon) and then NASA had to figure out how to do it. Natural Resources Minister Seamus O’Regan likes the analogy, further commenting that a moon shot is “not throwing ideas out there and seeing what sticks…it is a very specific goal.” In the same interview, he then went on to say the exact opposite by throwing out a number of ideas to see what will stick, including using “carbon capture and storage and employing hydrogen, geothermal and small modular nuclear reactors as alternative sources of energy.”
Given those enigmatically opposing comments from the Natural Resources Minister (unless I missed a news release about a federal program for small modular nuclear reactors (Saskatchewan is studying the idea, not the feds anywhere I’ve seen), or concrete/tangible federal support for carbon capture/storage (the feds kicked in only $63 million towards the Alberta Carbon Trunk pipeline vs the AB government’s $495 million, and have been almost completely silent on the topic since), or any indication of a hydrogen strategy at all (the International Partnership for Hydrogen Fuel Cells in the Economy lists Canadian federal financial support as too small to even mention, though O’Regan says word of a strategy is coming this summer)), we have to wonder if there will be substance to this talk at all. For every reference by the federal government to carbon capture/storage/hydrogen/etc, we hear five hundred to “green energy” which in most minds means wind/solar. All the while, the federal government has poured billions into renewable initiatives and incentives (the 2017 budget alone earmarked over $600 million for this sector, again, largely wind/solar).
The notion of supporting carbon capture/storage, hydrogen, geothermal and small nuclear reactors is fantastic news. It would be even better if paired with proper federal respect for the one that pays a lot of the bills, the Canadian hydrocarbon sector. Imagine what could be done together, that is if the focus was on taking one economic pillar/powerhouse and teaming it with other new energy kids on the block, rather than having intermittent missiles fired at the sector from various cabinet ministers who insist that hydrocarbons are a thing of the past. (The federal government does understand the concept; the idea of constructing the Trans Mountain Expansion and using the income for cleaning up the environment is a spectacularly good idea. Now if only they’d expand the scale of that thinking…)
There’s a lot of talk about how Canada’s energy sector needs to get more innovative, to reorient towards The Great Energy Transition. The talk comes mostly from people that don’t know energy or that think they know it from third-order and third-rate mainstream media analysis and Twitter cluster-attacks.
Having been in the industry for longer than I care to admit, I can assure you that the whole freaking thing is built on a spirit of innovation. Not just innovation, but entrepreneurship, and those two make a potent combination when incentives are aligned.
Certain outsiders will sneer at topics like fracking, but if they were to consider the technical challenges that have been overcome to sequentially detonate dozens of frack stages, kilometres underground, through a small pipe, with consistent success, they would be amazed. Each progressive technological step – from drilling a well to drilling a horizontal well to today’s fracking technology has required staggering amounts of innovation.
Put another way, fracking technology didn’t require innovation, innovation made horizontal multi-stage fracking possible. That distinction may sound trivial, but it’s not. The former presupposes that something we’d like to happen is going to happen, and we find a way to do it. That strategy is flawed – many things should happen (i.e., no more poverty/spousal abuse/drug overdoses/crime/you name it) but don’t because they fight human nature and/or don’t harness full potential; the latter is infinitely more powerful because of the inherent drive to succeed that fuels innovation. On average and nearly universally, people will work far harder to succeed financially than, for example, to get in top shape, even though being healthy is more important than being wealthy. Entrepreneurs see a prize – making money, building a business, enjoying the challenge, etc., and go for it time after time after time. People working to get in shape do it time after time as well, as we see every January in the gym, but resisting the urge to eat a doughnut is not the same as an entrepreneur landing a new contract, even if both require the same significant internal effort.
The result of the fracking revolution was spectacular, of course; it changed North America’s economies, lowered energy prices for years (and counting), and for those willing to be honest about it, helped the US lower emissions by replacing dirtier coal-fired power.
Now, in Canada, we need incentivization to align with the goals, in a way that unleashes the innovative and entrepreneurial spirit of the hydrocarbon sector (whatever’s left of it anyway). There is hope; O’Regan mentions that the government will be coming out with a plan this summer that addresses the potential of hydrogen, for example. But how this vision is unrolled will make all the difference. Will the strategy be like a stick – a squeeze or compliance push, with say requirements to reduce x or y or z, or will the strategy be a carrot, with incentives like, for example, tax-free status for 10 years, or some such, for anyone able to convert a depleted oil reservoir to a hydrogen factory? And how about expanding the mandate – does it all have to be about CO2 reductions? Are there not other emissions that deserve focus too? Does ESG have to boil down to CO2 and nothing else?
O’Regan commented repeatedly on his belief that a healthy and strong oil and gas sector is critical to Canada’s financial health. Those were very nice words and most welcome, however, we have heard this before from the Trudeau government where a Calgary audience gets a massively different message than a climate crowd in Geneva or Jamaica or Australia or wherever they feel the urge to gather. It is critically important that the government goes for the carrot and not the stick; the former could quite well revolutionize the hydrocarbon sector on its own terms, the latter could tear the country apart.
Summer reading season is here, nothing better than “The End of Fossil Fuel Insanity”, available at Amazon.ca, Indigo.ca, or Amazon.com. Thanks for the support!
Read more insightful analysis from Terry Etam here, or email Terry here.
