Energy and the environment will shape Western Canada's economy as it becomes increasingly reliant on Asia-Pacific trade over the next decade, say participants at a recent joint B.C.-Alberta conference.

But speakers at the New West: The Rise of Alberta and B.C. in Canada conference held in Vancouver warned that the oil and gas and environmental sectors that they know today will likely be much different tomorrow.

"Climate change is going to have, I think, in Alberta, a significant impact on the energy economy," said Paul Boothe, a University of Alberta economics professor.

The one-day event was staged by the Vancouver-based Business Council of British Columbia and Calgary-based Canada West Foundation.

Boothe, a former Saskatchewan deputy finance minister and official in the Bank of Canada's international department, said Alberta should come up with its own solutions for dealing with climate change before Ottawa or somebody else does it "for us - or to us."

A recent U of A symposium on climate change discussed the "desert-ification" of Edmonton, he noted. Barring new environmental-protection methods, he said, Edmonton is going to become as arid as Lethbridge and, eventually, Arizona.

"That's something that we're going to have to think about, because it's going to completely change the way we live," said Boothe.

Environmentally, Alberta may not be able to afford unfettered energy growth, he added.

"One of the things that people are not aware of is that the energy industry in Alberta is undergoing quite an important transformation," said Boothe. "It's moving from conventional, relatively-high-royalty energy to non-conventional low-royalty energy. Even if energy prices remain high, the trend in royalties in Alberta is probably downwards."

High royalties have led to billions of dollars worth of provincial budget surpluses in recent years, prompting former premier Ralph Klein to deliver one-time bonus cheques to all Albertans.

But Boothe predicted the economic tide could be turning in the Wild Rose province.

"Given the government spending that we saw, and even with the other, sustainable part of the economy growing and generating revenues for the government, it may well be that we are in danger, in the next two to three years, of going back in deficit in Alberta," he said. "People need to be aware that this doesn't require falling energy prices. It's just a fact of life with low-royalty, non-conventional energy sources."

But Pierre Alvarez, president of the Calgary-based Canadian Association of Petroleum Producers, said there appears to be no immediate risk of Alberta returning to its days of deficits.

"Any government and any business can, potentially, have a deficit scenario," said Alvarez. "This year, natural gas prices have rebounded. I don't think there's any short-term concern of (a deficit.) Longer term? I don't know."

Alvarez warned conference-goers not to rely too heavily on energy to boost Alberta-B.C. trade. He pointed out that, for the first time in seven years, private capital investment is going to be down in the entire Canadian energy industry.

Energy investment will also decline $2 billion this year, he predicted.

However, some major producers have already announced budget reductions which exceed that amount.

Canadian Natural Resources Ltd. has announced a $1.5-billion budget cutback for next year while EnCana has announced a $1-billion scale-down. Devon Canada Corp. has also indicated it will also considerably reduce its Canadian activity as its U.S.-based parent concentrates on activity there.

Light oil sales - the barometer for the industry - are also down across Western Canada.

As producers move into northeastern B.C., the Foothills region of the Rocky Mountains and the Arctic, new pipelines become more critical. But regulatory approvals are taking longer and Canada is taking longer than the rest of the world to build infrastructure.

For example, the long-awaited Mackenzie Valley Pipeline was supposed to start transporting gas next year, but it still has not gained regulatory approval, notes Alvarez.

"We will see a downturn in B.C.," said Alvarez. "It could be up to 20 per cent in the province this year."

Still Alvarez said he's "remarkably optimistic" about the Western Canadian industry's potential for growth based on pipeline and modular-facility construction, low tax rates and growth of energy-related programs in schools.

Martha Piper, former president of the University of B.C., said regions - not countries - are the hubs of economic revitalization. She contended successful regions, have one thing in common - a cluster of world-leading universities.

She pointed out that Massachusetts, Texas and California account for most of U.S. research and development, which is based primarily in 10 states, because of their globally renowned universities. But, she added, Canada's under-funded universities rarely crack the world's top-50 rankings.

Piper said regions must also be aware of one key factor when it comes to boosting trade: "It's all about China and India."

Echoing comments he has made in the past, B.C. Premier Gordon Campbell said increased Asia-Pacific trade will be the key to Western Canada's future, and the entire country's prosperity, since B.C. and Alberta have the top-ranked economies.

The trade investment and labour mobility agreement (TILMA) that B.C. and Alberta signed earlier this year will help the two provinces meet increasing demand from across the Pacific. "It's not just for these provinces, it's for our country," said Campbell, hoping other provinces will sign on to the deal.

In a related deal, officially signed after Campbell's speech, 31 B.C. and Alberta colleges have agreed to recognize each other's training programs.

The memorandum of understanding will attempt to boost training capacity, improve participation of Aboriginal students, allow students to transfer credits between provinces and programs, and support applied research and innovation.

Art Meyer, president and CEO of Calgary-based Enbridge Pipelines Inc., said the colleges deal will create more opportunities for people in Alberta and B.C., and help the industry fill future jobs.

"Certainly, we see any efforts to create co-operative agreements between the provinces as complementary to our interests, especially Alberta and British Columbia working together in areas of common energy policy," Meyer said.

Enbridge's proposed Gateway pipeline between the oilsands and deepwater port of Kitimat is one example of how the two provinces are joining forces economically.

Gateway, a source of optimism for many northern communities, has been delayed about four years as the company focuses on higher demand in the U.S., but Meyer said the project will eventually proceed.

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