Canada's future energy security hinges on more deregulation and closer ties with the U.S. oil and gas industry, says a new report from the Fraser Institute.

Alexander Moens, the report's co-author, says excessive environmental regulations could wreak havoc with the market-based structure of the integrated Canadian-American oil and gas industry.

"There are serious issues with CO2 (carbon dioxide) emissions that we need to address, but the way to deal with them is through technological solutions and the market forces have, in this industry, been quite creative in finding efficient ways to deal with problems," says Moens, a Simon Fraser University political science professor and senior Fraser Institute fellow.

More harmonized and better regulations will protect the diversity of Canada's energy supply, Moens notes. He says stakeholders should think "in a more strategic way" about how to expand pipeline capacity and look at ways to get more diluents - liquids that dilute heavy oil - into pipelines.

Alexander Moens

The best way to expand pipeline capacity, the report says, is to harmonize regulations between Canada and the U.S. and speed up the conversion of oil lines into heavy-oil lines.

The Fraser Institute is a Vancouver-based think-tank that advocates for more competitive markets and closer economic ties between Canada and the U.S. The group has previously expressed skepticism about the need for - and benefits of - regulatory action against global warming.

The report, titled Achieving Energy Security through Integrated Canadian-American Markets, calls on Ottawa and the provinces to signal a long-term commitment to market-based solutions and remove policy uncertainties arising from environmental restrictions and First Nations land claims.

It also asks governments to streamline and consolidate regulations and regulatory procedures within the framework of an integrated Canada-U.S. market; modernize regulations and develop best practices in the exploration and production of unconventional fuels such as coalbed methane; and provide market-based incentives to invest in greater pipeline capacity and new technologies.

"We do not say in the report that deregulation means the absence of regulation, but rather it means government regulation that facilitates better markets and exchange," says Moens.

He says Ottawa and the provinces can start by removing policy uncertainties by putting a 60-day time limit on environmental reviews. "You can obviously be more flexible, but we simply want government to think about this," says Moens.

A joint U.S. and Canadian approach to oilsands investment would also be "very useful," because projects are so capital-and labour-intensive.

"Oil is a very cyclical business," says Moens. "(Oilsands are) very expensive. Therefore, for Canadian companies to bear all that investment risk by themselves is not as good as (sharing with) American and other foreign private firms.

"We point out in the report that, at the moment, the costs are so high in Alberta, and the labour shortage is so intense, that there wouldn't even be an opportunity to build a heavy refinery in Alberta."

The report also calls for more use of private nuclear power plants - with government covering insurance, risk-management and startup costs - to reduce emissions and offset the use of gas to power oilsands facilities.

Greg Stringham, vice-president of policy for the Calgary-based Canadian Association of Petroleum Producers (CAPP), says his group agrees with the Fraser Institute's position that the integration of the Canadian and U.S. market "has been very beneficial on both sides of the border."

But Stringham refutes Moens' claim that excessive environmental regulations could hurt the integrated Canada-U.S. market.

"There is certainly a need to look at the potential duplication and overlap of environmental regulations," says Stringham. "But it's not really a Canada-U.S. issue. It becomes more of a federal-provincial issue in Canada as well as a federal-state issue in the U.S."

Aside from international pipelines, most environmental regulations apply within the respective countries.

"(In Canada) we have two different jurisdictions, both looking at separate parts of the environmental aspects, so that does cause some delays in some circumstances," says Stringham.

He says the industry continues to work on a one-window regulatory approach that will meet strict environmental standards that are already in place.

Stringham lauds the report's emphasis on the need for public infrastructure, which includes roads, housing and schools for employees, as well as "private infrastructure" - namely pipelines that can move oil and gas from the Far North, across Canada and into the U.S.

He also agrees a strong push is needed for new drilling technologies designed to produce more unconventional gas and new environmental technologies that reduce emissions and the "size of the land footprint."

Environmental groups also reject the claim that excessive regulations will hamper Canada-U.S. energy trade.

Karen Campbell, a Vancouver-based lawyer for the Pembina Institute who oversees the Calgary-based group's B.C. policy, says the U.S. environmental law can be more stringent than Canadian legislation.

She says the claim is one of the Fraser Institute's "classic race-to-the-bottom" arguments.

Canada does not need to have fossil-fuel development at the expense of the environment and communities - "and the reality is, that's what's happening now," says Campbell.

Canada already has a runaway oil and gas economy, she says, that will not suffer through more regulation - thanks to high oil and gas prices.

"Deregulation is not what we need," says Campbell.

She says she understands the industry's need for more certainty, but adds a 240-day time limit is "absolutely" necessary for applications on major projects that require environmental assessments. A 60-day time limit would be fine for minor projects, she allows.

Ian Bruce, a climate change specialist with the Vancouver-based David Suzuki Foundation, says environmental regulations are the most cost-effective way to address such serious problems as global warming and air pollution. They help drive innovation that has led to clean-energy solutions, he says, such as hybrid vehicles in California.

"A real market-based energy system would refrain from pollution, as pollution creates a problem that someone has to deal with - and someone has to pay for," says Bruce.

He adds authorities need proper resources to do their jobs in a timely manner, but putting a timeline on due diligence is "a recipe for mismanagement."

Bruce contends Canada's existing environmental regulations are among the weakest in the industrialized world, and regulatory bodies lack the resources and staffing levels to keep pace with the amount of projects and ensure that proper checks and balances are done properly.

"We don't want to push ahead just with a gold-rush mentality (so) that projects are simply rubber-stamped," says Bruce.

While Moens says the Suzuki Foundation's call for caps on oilsands production would send negative signals to investors, Bruce says the foundation has not called for a cap on oilsands output, but rather a cap on emissions.

"If industry comes up with innovative solutions to reduce their greenhouse-gas emissions (rather than cap production), that's perfectly legitimate," says Bruce.

(Monte Stewart can be reached at monte@businessedge.ca)