What will be the effect of the economic downturn?

The worldwide economic downturn has highlighted the link between economic activity and energy consumption. As economic activity increased earlier in this decade, worldwide energy consumption increased dramatically; however, when the world economy soured, energy consumption declined in tandem. The price of energy, especially oil, followed this trend, rising dramatically until mid-2008, reflecting the struggle producers had to keep up with demand, and then falling to levels not seen since mid-2004.

Whether the economic downturn is short lived or lasts for years, its impact on the energy sector will be felt in this region in a number of different ways. As importantly, what the provinces in the region decide to do during the downturn will determine how long it takes them to recover and how well they will weather the next downturn.

Most people have already experienced one of the few apparent benefits of the downturn, the fall in the price of gasoline and fuel oil since last summer. With OPEC producers more-or-less acting in unison and reducing production, prices may begin to increase in the near future.

One of the more serious impacts of the economic downturn on Atlantic Canada will be the laying-off of people working on the various tar-sands projects in Western Canada. During the boom times, many people left the region to work in Alberta and Saskatchewan, and, in many cases, helped Atlantic Canada’s economy in two ways; first, by sending remittances home and second, by lowering the region’s unemployment rate. Now, with workers, through no fault of their own, losing their jobs on these projects and returning home, the impact on the region’s economy will be equally dramatic: lowering household incomes and, for those unable to find work, adding to the region’s unemployment.

The decline in the price of energy, coupled with the worldwide financial credit crisis, is leading to less investment in energy exploration and energy production facilities. Compounding this problem are the size and locations of the newly discovered oil and natural gas reserves—they are invariably smaller and in more difficult to access locations, usually adding to the cost of the energy extracted. In the short term, this will impact those directly and indirectly involved in the energy industry; however, over the longer term, it means that when the recession does end, there may not be the energy supply needed to meet the demand generated by the recovery. One scenario for the recovery sees it cut short because of the lack of energy, leading to yet another, deeper economic downturn.

Jurisdictions that intend to lead the economic recovery and be prepared for future energy shocks will begin by improving their energy security. This will require a thorough review of their present and potential future energy supplies and services. It will also mean significant reductions in per-capita energy consumption, and the replacement of existing insecure energy supplies—and the restriction of new demand—to supplies that are both secure and environmentally benign.

So how will the Maritime Provinces fare?

The Maritime Provinces are net energy importers, making the region vulnerable to volatile energy prices and supply shortages. Although the region’s lack of energy security is well known, the actions proposed by some of its politicians raise doubts about whether they understand the gravity of the situation. For example, all three provinces have plans to export wind-generated electricity to New England (Nova Scotia wants to take it a step further, transshipping electricity from the Lower Churchill hydroelectric project to New England).

Sadly, the mania for exporting energy is not confined to electricity: Nova Scotia exported all of its offshore oil, most of its offshore natural gas and is currently in the process of doing the same for its onshore natural gas. The inability of Nova Scotia’s policymakers and politicians to understand the importance of energy security is perhaps best illustrated by the humble wood pellet: over the past few months there has been a pellet shortage in the province, which was eased recently because of pellets imported from Maine—meanwhile, the province exports an estimated 90,000 tonnes of pellets to Europe each year.

Quite simply, exporting energy outside the region will not prepare the Maritimes for any economic recovery—if anything, the absence of access to the very same energy that is being exported could well delay the recovery.

For example, a review of the region’s energy services shows that the energy used for space and water heating in the residential and commercial sectors is primarily from sources that are for the most part, insecure. Increases in the price of fuel oil or electricity or disruptions in the supply of oil products or coal, could impact large numbers of people living in the Maritimes.

Reducing energy demand for space and water heating will require all buildings, both new and existing, to have the lowest possible energy intensity (that is, energy consumed per square metre). There is a straight-forward way to encourage this: when a building is to be sold, the seller would be required to produce a certificate giving the energy intensity of the building—somewhat like new automobiles with stickers that show their fuel economy rating—allowing the buyer to decide whether or not to purchase the building.

It is also necessary to begin a space and water heating program the replaces existing insecure energy supplies, and restricts new supplies, to ones that are secure. Again, this information can be a required part of the sale of any building.

These simple changes to the way buildings are bought and sold will result in improvements in the region—s residential and commercial energy security. But these are not the only benefits. An educated workforce that can design and erect buildings that meet lower energy intensity targets and rely on secure sources of energy will be required. This same workforce will need individuals who can design the heating systems that take advantage of these energy sources. And still others in this workforce will understand how to seek out and harvest energy sources sustainably.

Jurisdictions that understand the importance of energy security and adopt energy policies that embrace the four ‘R’s (review, reduce, replace, and restrict) will be better prepared for the recovery, new environmental regulations, and any future economic downturns. The only question is, will politicians in the Maritimes discover this fact before the next downturn?

Larry Hughes
Atlantic Construction and Transportation Journal—February 2009