CIBC Capital Markets Macro Strategy

CIBC Capital Markets
Macro Strategy
Transcript of Monthly Markets Call with Earnscliffe Strategy Group
Topic: Alberta Election 2019: Left Faces Consolidated Right
April 12, 2019

Our guests on Tuesday’s CIBC Monthly Markets Call were Rick Anderson and Kathleen
Monk, both Principals at Earnscliffe Strategy Group - a Leading Government Relations
and Public Policy Consultancy. They shared their views on a number of issues pertaining
to the upcoming Alberta Election. The call was moderated by Maria Berlettano, Head of
Canadian Government Credit Strategy, CIBC Capital Markets ― Macro Strategy. The
following is a transcript from the call. The following transcript does not represent
the views of CIBC.

The 2015 election was an historic event for Albertans. Premier Rachel Notley and her
NDP Party won a decisive majority, ending the 44-year reign of the Progressive
Conservatives.

Albertans head to the polls again on April 16. Front-and-centre for voters is the
economy, jobs and pipelines. The NDP will be facing-off against the United
Conservative Party (UCP) ― a relatively new party created by the 2017 merger of the
centre-right and right-wing parties of the Progressive Conservative Association of
Alberta (PC) and the Wildrose Party (WRP). The battleground is much different than
the 2015 election when these two parties ran independently and split the votes.

We lead off with several background & philosophical questions to provide context.

1. Rachel Notley and the NDP Party are a familiar face having governed for the
past four years. Jason Kenney was a prominent federal cabinet minister having held
many posts, but the United Conservative Party is a relatively new party under his
leadership. What can you tell us about Jason Kenney and the UCP?

Rick: Jason Kenney is a well-known commodity in Canadian politics. He has been a
federal member of Canadian politics for two decades and a cabinet minister for half
that time through a variety of portfolios from Citizenship and Immigration to Defence.
The UCP is a brand new party essentially one that he forged the creation of. It’s been a
rough decade for Alberta Conservatives since Ralph Klein retired and there has been a
ton of turmoil in the party ― a succession of leaders, a break-away party with the
Wildrose Party was created and Jason left federal politics a couple of years ago to go
back to his home province and rebuild the Conservative movement in Alberta. He ran
for the leadership of the old PC and then campaigned to unify it with the Wildrose
Party and was successful and won the leadership of the combined party. He’s been
basically campaigning almost non-stop for two and a half years and has succeeded in
created a new party that now commands, according to polls, more or less of public
support in Alberta in a five party environment that is quite an accomplishment that
most people would acknowledge. The philosophy of the party, because of the nature of
the coalitions that he has rebuilt, really spans the spectrum from quite far right in
terms of both economic and social conservatism to the centre-right party of the
political spectrum. Probably most Albertans are somewhere in that centre-right part of
politics. Jason is well aware of the coalition he’s rebuilt and the fact that he has built
a base of support amongst the electorate of about 50% of people in a five party
environment and he is determined, if he wins the election, to govern that way,
speaking to the entirety of that spectrum and not just to faction on the far-right nor
factions on the red Conservative (Tory) side of things, which is the division that led to
the break-up of the party over the past decade. He is very conscious of that, is very
skilled in managing that, will have a cabinet that represents the spectrum, and he’ll be
careful to have a legislative program that keeps people together rather than has them
fighting.

Kathleen: Rick has painted a good picture of the political landscape and just how
interesting it is in Alberta right now citing the changes and rotating leadership that was
almost quite chaotic up until 2015 when Rachel Notley won in May; where we’ve seen a
number of progressive conservative leaders rotating in and out of the premier’s office
and exiting with certain scandals. The only thing I would probably quibble with is the
characterization of Albertans. I think what we’ve seen, both in the 2015 election and
increasingly since that time is that Alberta has changed after four decades of
conservative governments. We’re seeing a younger Alberta, a more diverse Alberta ―
an Alberta that’s embracing that diversity.

2. The NDP’s sweeping win in 2015 was based on a desire for change and, perhaps,
a desire to select a party that was passionate about protecting social services and
supporting the economy, instead of focusing on stabilizing the finances of the
government during the oil price shock through sweeping tax hikes and cuts to
program spending. Since 2015, have there been observable shifts from the NDP’s
main platform on the economy, energy policy, program spending or financial
management of the government? What policies and deliverables are critical to
ensure that the NDP remain in favour with its core support base?

Kathleen: Comments on any observable shifts are equated with a long-time Prairie
sensible pragmatic New Democratic government that existed in Saskatchewan and
other places throughout the west – might try to characterize that Notley and the New
Democrats have, in fact, changed or have shifted their platform. I would disagree with
that. I think that they have actually in the campaign in 2015 which I was happy to be a
party of and, since then, have laid out a very clear step-by-step approach to where
their vision of where the province is going and that was one that differed with previous
conservatives in the province that didn’t see that it was important to slash and take
money out of healthcare or education or public services, for that matter, and charge
health care premiums or the plan of the Prentice government that went into the 2015
election; instead reverse that and Notley was very clear that she felt the way to create
a stable economy in the midst of what has been a very difficult recession in terms of
the oil crash, how you create opportunity and set out a path to balance is not by
further cutting public services, but in fact, investing in them, cutting back instead on
perhaps some of the more wasteful approaches that previous governments have had in
terms of some of these special perks and deals and getting rid of, for instance, what
Notley has called, the golf club memberships and, of course, putting a stop and end to
building things like the Sky Palace (suite at the legislature) and instead investing in
things that Albertans really cared about. Investing in teachers, investing in classrooms,
making sure that the budget focussed on diversification of the economy, attracting new
business to the province, and trying to dig out from what has been a very difficult time
in the province. I wouldn’t say that there has been a true observable shift in terms of
the setting of the course that Notley set out in 2015, but I would add that to your
second question on what policies and deliverables are critical for New Democrats to
remain in favour of its core base, obviously that commitment to social policy, that
commitment to investments in things like healthcare and education; that’s why we’re
seeing an investment in this platform in the 2019 campaign to actually reduce
healthcare wait times - $90mln invested there, and also, obviously more increased
funding to build new classrooms. I think one of the things that you’ll see Ms. Notley say
that she’s most proud of is funding in terms of nutrition programs and other measures
that the New Democratic government has invested in so that they could actually cut
child poverty significantly in the last year despite dealing with the recession that they
have been dealing with. They have actually cut child poverty in half in the last years
and that is something that New Democrats across the country are committed to.

Our next series of questions are financial in nature and of strong interest to fixed
income investors.

3. The Alberta advantage has been well publicized, with low corporate and income
taxes and no consumption tax; yet, the UCP has proposed broad corporate tax cuts
while the NDP as held, more or less, to the status quo. What do you believe to be
the potential hurdles as well as the economic benefits or risks of the UCP plan?

Kathleen: I would say that the Alberta Advantage is something that obviously New
Democrats and the province hold quite dear. Ms. Notley has been very clear that there

is no sales tax in Alberta. There will not be any sales tax in Alberta should she be re-
elected. There is no payroll tax and there are no healthcare premiums. She is
committed to maintaining that ― maintaining the Alberta Advantage going forward. I
think the risk that New Democrats and Ms. Notley would point out is that there is a risk
in making a choice in electing the UCP, cause their fiscal plan is one that has
highlighted significant tax breaks, corporate tax breaks, to really only the richest
Albertans and, what that means is actually, instead of creating the jobs by investing in,
whether it’s public services, public infrastructure, things like the Calgary Cancer Care
Centre or the Green Line in Calgary, Jason Kenney’s plan risks actually putting 70,000
jobs at risk; whereas Notley is looking to create those jobs. Notley fiscally, without
having to stop her program spending in health and education, laying off more nurses
and doctors, can do so and still have a path to balance by 2023/24, which is the kind of
predictability that the market needs and it’s stable and will still create the
opportunities without driving the economy further into the ditch.

Rick: I tend to see the tax changes that Jason is advocating as relatively minor in the
schemes of things. Corporate taxes are not the biggest part of the revenue picture for
the Alberta government and those are really the only taxes he is proposing a significant
change to and he is doing that with an eye towards stimulating investment or re-
stimulating investment which has gone missing, particularly in the energy industry, but
in Alberta generally over the last few years. He is a pretty economically savvy political
person. He has spent a fair amount of his life on the economic side of policy making
and he is being very careful and prudent about his tax cuts. The hurdles that he faces
are, there are two externalities that are the risks that he is focussing on, one is the low
price of oil, if you look at the Alberta economy and you track it against the price of oil
over the past decade, you will see there is significant correlation there, oil price is
doing a bit better these days, but there’s been two big shocks over the past decade
that have done significant damage to the government books and the Alberta economy.
So, the oil price matters to him. He is trying to diversify into natural gas. He has quite
a significant focus in his platform on revitalizing the natural gas industry and the
export of natural gas and he is aiming to quadruple the price that Alberta gets for
natural gas, which is a very low price these days. The other externality that Alberta
faces as a risk is pipelines. Basically, the oil industry ― the oil sands industry in
particular ― has invested in production expansion over the last 20 years which finally
leads capacity out the transmission system a couple of years ago. So now, we’ve got
significant over production compared to transmission capacity because our regulatory
system has become completely gridlocked in Canada. Where pipelines used to sail
through the regulatory process, sail through in a matter of say of only five years, they
now go 10 years and frequently then, still end up in courts and getting set back and
suspended or even cancelled. Those of us in Canada are familiar with that story. It’s
really got quite dire and effects on the Alberta industry and economy, coupled with a
lower than expected oil price. Those are, I think, the main risks in his own budget
projections. Jason and the UCP are forecasting actually lower oil and gas royalties than
the NDP is. They are being prudent about that and giving themselves some breathing
space, but they are setting about to address, the best they can, the prices, particularly
by addressing the differential by increasing pipeline capacity, and by diversifying into
natural gas to a greater extent.

4. Alberta is an important borrower in the institutional debt capital markets, both
domestically and internationally, and benefits from a strong average AA credit
rating. The province is currently contending with a -$7.5bln operating deficit with
plans to trim its way back to balance by fiscal 2023/24. On the issue of deficit
fighting, what is the relative sense of urgency between the two main parties? What
revenue tools or expense management tools, if any, are likely to be considered by
either party to get the province in balance?

Rick: In the macro sense, the two parties’ deficit projections are not terribly different.
The UCP proposes to balance the budget by 2022/23, the NDP proposes to balance the
budget by 2023/2024, but the approach to getting there is significantly different. The
UCP is proposing to hold the line on spending, but not actually make drastic absolute
cuts, so they are forecasting annual spending increases of only 0.3% per year, which of
course is less than inflation and population growth, which means in proportionate
terms, a spending decrease, but not a radical one, more a steady as she goes, holding
the line on spending, but of course there would be some redistribution of spending
within than overall cap. They are counting on revenues increasing faster than the NDP

are forecasting by stimulating investment in the province, which has been stagnant
really for a few years now, and more job growth and getting people back to work.

Kathleen: Joe Ceci, the finance minister, in March laid out the plans to get back to
balance in 2023/24 (NDP). I think though that Rick underestimates the freeze that
Kenney’s UCP is putting on the budget and the impact that will have on families. You
know, there will be up to 15,000 new children entering school, obviously next year and
with the freezes, it is essentially be a cut ― there won’t be the classrooms, there
won’t be the teachers that will be necessary to keep the province moving. It also
means cuts to some of the programs that Notley has introduced, like the $25/day care,
which has resulted in enormous pocket savings for families across the province. I think,
when a province is recovering from such a shock that has happened to the economy
there in 2014, in Alberta, what Notley, Ceci and Cabinet have done, in terms of
bringing Alberta’s targets faster than expected that should be noted and, certainly
among some political circles it’s celebrated, while also bringing in the Climate
Leadership Plan, and really leading on that in terms of pan-Canadian wide. They are
not different, but I think the results and how the two parties will impact families
across the province could be quite different and have a really negative impact on
families.

Rick: Just adding numbers into that part of the conversation, because I know people
are interested, what it comes down to is the NDP are forecasting the price of oil, the
average benchmark price (WTI) will be US$59-70 over the period to 2023. The UCP
projects, by comparison, it will be US$55-62, so basically US$5-7/8 difference, which
doesn’t sound like a lot, but of course in terms of revenue to the government and the
effect on the Alberta economy, it’s quite a significant amount. The difference works
out to $9bln of difference in revenue forecast, and when you ask the question the
relative priority that the two parties place on this question, the UCP is not a radical
cutting party, at least not in its platform, but it does believe that you have to live
within your means; that your operating expenses can’t routinely outstrip your
revenues, and so they intend to hold the line to get back into line with expenses over
the period of the first term. The difference in debt projections for the two parties is
$101bln in 2024 by the NDP’s projections; the UCP says it will be $86bln under their
own budget. They have both, of course, costed that out, people challenge each other’s
numbers and so on, but there are actual underlying differences and policy that feed
into those numbers.

5. What implications do a NDP or UCP win have on future plans for the Alberta
Heritage Savings Trust Fund, which now sits at around $17bln and whose three
objectives are to provide financial security for future generations, strengthen or
diversify the economy, and to improve the quality of life of Albertans?

Kathleen: On the Heritage Fund, neither the New Democrats nor the UCP really are
doing anything with the Heritage Saving Trust Funds in terms of comparing what their
statements have been. Albertans are obviously very insistent that the money stays
where it is and is focussed on the three priorities that it has been. Nor Notley (NDP) or
UCP have said that they will do anything specifically with the trust fund.

Rick: I think that Albertans are somewhat embarrassed about the Heritage Savings
Trust Fund. It should have been, if operated as it was intended when it was set up
under Premier Lougheed, it should be hundreds of billions dollars now. Norway’s, by
comparison, is $1tln and is providing a basis for that economy to diversify and to
become much greener and so on. Here is Alberta sitting there with $17bln in that fund.
I know it’s a bit of apples and oranges there. I’m not saying that they should be the
same number, but it should be hundreds of billions of dollars. Essentially what
happened is that after Premier Lougheed left, government starting routinely dipping
into the Heritage Savings Trust Fund to fund annual budget deficits, particularly capital
investments in infrastructure. Alberta probably has Canada’s best road infrastructure,
university/academic infrastructure, and healthcare infrastructure. There has been a
ton of money put into those things in Alberta. Anybody that lives there or moves there
can see it. It has the highest standard of living by far in the country, but they have
done that partly by not having a sales tax, by not funding the investments they were
making in infrastructure over the years and, by using the Heritage Savings Trust Fund,
to invest in that kind of infrastructure. You could make the case that it’s a legitimate
purpose for that fund, but it is also supposed to be a savings fund because it is funded

by the royalties of a non-renewable resource. I think that, in their bones, there are
many Albertans, and I suspect that the UCP feels this way, that once the province does
get back to a balanced budget and stops going further into debt every year, there will
be more attention given to starting to get back to putting some money into that
Heritage Savings Trust Fund, against a rainy day and against the future when there is
less oil to be developed in Alberta; but today when the government is still operating in
the red, that’s basically not something that can really be talked about.

6. Governments often deploy different approaches to fund large-scale capital
projects and different attitudes towards how best to maximize the value of key
crown assets. What implications do a NDP or UCP win have on future plans for
possible Privatization of crown assets or the use of Public-Private Partnerships?

Kathleen: New Democrats and their party and part of their platform that lines is set
around bringing in around $75bln in new private investment to create 70,000 new jobs
over the next 10 years through increasing petro-chemical production capacity through
expansion of refining and upgrading of that industry. The renewable energy industry is
booming because of the major investments that have actually happened in the last four
years under Notley. I know there’s been lots of talk about the exit of capital, but
they’ve attracted more than $10bln in private investments since 2015 and that will
help to create 7,000 jobs by 2030. New Democrats obviously are working in the best
way to diversify the economy, continue to attract new investment, and if Notley and
her government are re-elected, you could expect a similar path.

Rick: UCP is going to be interested in emphasizing private delivery services as much as
possible. Moving diagnostic tests and minor operations out into the private sector,
instead of having everything done in publicly funded hospitals and so on. They’ll lean
that way. They’ll also lean towards P3 projects. Their basic attitude is that government
should get out of the room and let private investors invest in the economy, not the
government. The one exception to that is the funding out of the new Tier Fund that
they’re proposing to set up, which I think we’ll get to a little bit later in the
conversation as we talk about energy, but by-and-large, the UCP orientation will be
towards doing what they can to encourage private investment ― you know, transit
projects, all those kinds of things, will be candidates for public-private partnerships.

Kathleen: There’s been a lot of discussion in the news lately and it’s certainly come up
on the campaign trail about the fact that Notley is concerned and has raised the fact
that Jason would be open to road tolls, something that no driver whether in Alberta or
across the country is keen to pay. She’s been clear that she wouldn’t give in to road
tolls, but the UCP is looking at those. Also, in regards to health care, Rick raises a good
point, you can expect a Notley government to continue the path they’ve already gone
on to strengthen any kind of regulations against private clinics to prevent the kind of
double-dipping and queue jumping that was happening and that just increase costs and
are really just privatization experiments in our healthcare system.

7. In a UCP or NDP win, what are the possible scenarios with respect to the timing
and form of budget? If the UCP win, are they likely to request a full-scale, non-
partisan audit of government operations which could have timing implications?

Kathleen: It’s an interesting question as it was a similar timeline time of the year that
Notley was elected in 2015 and they did go ahead with a full budget. You’re always
given the option to continue and deliver a mini-budget with a full budget later, or do a
full budget. I think that if it’s Notley you would see a similar pattern; that you would
see a full budget in short order. They, as you will recall before the legislature dissolved
and the election was called, they did just do a throne speech, but they didn’t
introduce a budget. I would raise one risk or concern that hopefully Rick can respond to
in kind, the UCP and Jason Kenney have said quite clearly they will enact Bill 12 almost
immediately, which is the bill, if you recall, that turns off the taps to BC, and that will
trigger obviously an immediate challenge from the British Columbia government and
will drag down the Alberta economy and a bunch of lawsuits that don’t really result in
any economic benefit for Albertans beyond some lawyers that will probably as a results
of these lawsuits. So I think there is a concern that the economy with a change of
government of course and if Kenney does pursue this tactic of bravado and kind-of
looking for the sound-bite as opposed to the sound policy risks actually slowing down an
economy that is just getting its legs.

Rick: Bill 12 is one of the tools. So I mentioned earlier, pipeline capacity is one of the
two big external challenges to the Alberta economy; the other being the price of oil.
Pipeline capacity has failed to keep up with production growth, where at about 4bln
barrels per day, give or take, of oil production in Alberta. The industry is on a path to
increase that to 5.5bln barrels a day over the next 15 years. Canada needs to unblock
the gridlock that effecting pipeline transmission. It’s a very serious problem. Our
competitor in the south, the United States, is now approving pipelines at a rapid pace
and with growth in production; they have become a major competitor in the
international market. They are of course Canada’s major, really only export customer
so we need to get our act together and get pipeline construction back happening. The
really bloc in that, from Mr. Kenney’s perspective and that’s his main focus, but the
secondary one is the Province of BC and the government of BC. When NDP Premier
Horgan was elected a few years ago, he set out to oppose an already federally
approved pipeline, using what he called every tool in the toolbox ― harassment
lawsuits, more than a dozen of them, regulatory harassment and so on. Kenney intends
to go hard at the federal government to get on with furthering pipeline construction in
Canada and remove its policy blocs to it and to do the same thing with the Premier of
BC. I’d be surprised, including the tool of threatening to stop transmitting oil to BC
from Alberta, which would have a very big impact on BC since Alberta is the source of
almost all the oil and gasoline that British Columbians use. That would be a calamitous
thing to do to British Columbia. It’s a very colourful threat. I think it would be a tool of
last resort, rather than a tool of first resort, but it signals to Premier Horgan that we’re
not talking about boycotting wine purchases anymore. We’re talking about, if you are
going to do this to the Alberta economy, we’re going to hit back to your economy.
That’s not the way Canada works, and I’d be surprised if we get to that point in the
country, but he’s using that to signal that he’s serious about this and that he is not
prepared to have the Province of BC in the Alberta economy and in the federal
government’s jurisdiction by harassing the progress of pipelines that have been duly
approved and permitted by the federal government.

Kathleen: A fine point on that he did say on Monday, April 8, that he would enact Bill
12 at the very first cabinet meeting, if he was elected premier.

Rick: He’d introduce the legislation, but he’s not going to turn off the taps at the very
first cabinet meeting. He is going to begin the legislative process of developing and
introducing Bill 12.

Kathleen: But when we are so close to a federal government approval hopefully in May,
it just seems unnecessary to bog governments down in multiple lawsuits that don’t help
actually build a pipeline or move the economy forward, but it’s political tactics, we’re
E minus 7, we’re seven days out from vote day. This is when you throw everything at
the wall, but that statement yesterday was quite dramatic.

Rick: On the budget timing, I would expect the legislature to be called quickly in the
matter of a month. The throne speech follows as soon as you open up the legislature
and a budget not long after, before the summer.

Kathleen: I agree

In the next segment, we shift to large public-policy topics covering both energy and
climate change.

8. What are the key differences between UCP and NDP on energy policy and how
effective will their policies be? (I.e. pipeline, exploration and development, market
interventions – i.e. curtailments)? How will these governments work with both the
federal government, the Province of British Columbia and governments in eastern
Canada to get resources to market?

Rick: To expand on what has already been said on energy policy, it’s an endless
discussion. We could do a separate hour just on energy policy. It’s so essential to the
Alberta economy and to the politics of Alberta these days. [Segue into next topic on
climate policy)

9. What are the key differences between the UCP and NDP on climate change
policy and how difficult will it be for them to deliver on their promises given the
current economic and political realities. For example, how will the UCP ‘scrap the
carbon tax’ given the federal program now in place now? How effective will the
NDP government’s decision to withdraw from the Federal Climate Plan be to get the
Trans Mountain Pipeline Expansion project completed, while addressing the
urgency of climate change?

Rick: Climate policy is something we haven’t really talked about, but it’s another
ingredient here. Alberta is the first province in Canada, back in 2007, to introduce
what’s called a large emitter pricing system for carbon emissions. It was called the
Specified Gas Emitters Regulation. The NDP, when they were elected, revised that into
and replaced it with the Carbon Competitiveness Incentive Regulation (CCIR). Jason
Kenney has a new proposal to revise that further into a program that assesses carbon
levey on large emitters and where the proceeds go into a technology investment fund ―
the Tier Fund ― that will invest in emission reduction technology (Carbon Capture
Utilization & Storage – CCUS). That’s a pretty big area of things. Alberta has actually
had a pretty stable policy regime in that area, compared to most of the rest of Canada.
It was the first, as I mentioned, to have that kind of system, and it’s becoming common
across the country. One of the things that’s interesting about the whole carbon pricing
debate in Canada is that all of the media and the politics tend to focus on retail level
carbon taxes in Ontario, Saskatchewan, New Brunswick, and Manitoba. The federal
government is now imposing one on those four provinces against its will; but that tax is
only 4.4 cents/litre at the retail level at the gas pumps which is, you know, people
make a big deal of it, but it’s not super consequential either in terms of economic cost
or environmental benefit. On the other side of the spectrum, the large emitter pricing
system, which the feds call OBPS for Output-Based Pricing System, is very similar to
what Alberta has been moving towards and, I believe, Kenney would embrace. Premier
Moe in Saskatchewan and Premier Ford in Ontario are also embracing. The point I’m
making is that while the public attention and controversy tends to focus on the retail
tax that everybody pays, the more significant pricing system is actually the large
emitter system that affects heavy industry, where the bigger emissions are and where
the bigger investment shifts can occur; and there’s actually more harmony on that side
of things than you would ever know from the political discourse that we have. I think
that’s important for people in the investment world to understand, that even though
the rhetoric is that so-and-so has no climate policy, that’s actually not true. It doesn’t
have the same climate policy and, particularly, the difference comes down to this
retail level taxing. Most of the rest of it is actually quite similar. Taxing large emissions
at the same level as the feds are warranting ― $20/tonne, and rising to $50/tonne over
the next few years ― and using the proceeds to invest emission reduction technologies.
That’s becoming a more common approach across the country, although, as I say,
everybody’s chosen to characterize the whole area as fraught with controversy and
division.

Kathleen: I would just quickly add, let’s remind ourselves where we were prior to 2015
and Notley getting elected. The Alberta economy was suffering from again repeated
boom and bust cycles. It had a black eye in the international sector because the oil
sands were so badly maligned. Notley has come in, through her climate leadership
plan, has set out a plan to work to reduce those GHG emissions and also trying to build
that stronger more diverse economy; and no one has fought harder to get those
pipelines built and to create those good jobs across the economy. I think that
significantly, we haven’t mentioned on this call, the NDP has phased out coal
generation by 2030 under the Notley government and is looking to boost renewable
energy to the electricity system. Those kind of things have been all part of Notley’s
dual plan to commit to climate leadership, but also diversify the economy. She’s also
going to be putting forward clear timelines for when companies have to clean-up those
oil and gas wells that have been abandoned and require them to justify any kind of
delays.

Rick: Personally I am a fan of using a pricing to fight GHG emissions. I am not as
adverse to it as some of my conservative brethren are; but as I said a minute ago, I do
tend to think that the effect of the retail part of it is not as significant. If you talk to
economists who are frequently quoted as saying it is the most efficient way to reduce
emissions, they are mostly talking about a carbon tax that is $100 or maybe
$200/tonne. Macron has encountered now significant resistance in France as he’s

crossed into the $100/tonne threshold. In Canada, right now we are at $20/tonne.
Alberta is at $30/tonne. BC is $35/tonne. At those levels, it’s actually not that
controversial amongst the public, although there is a lot of political controversy around
it. It’s untested really whether anybody will support, whether it’s in Quebec or Ontario
or any place else in the country, a $100/tonne carbon pricing. So theoretically,
economists will tell you that carbon pricing at $100-$150/tonne is the most efficient
way to fight carbon emissions. They don’t have to go out on the front line of politics
and sell that kind of thing. We’re seeing in Ontario, particularly right now, and
Saskatchewan and Manitoba, significant public resistance or significant public support
for parties that oppose that kind of taxing. Let’s deal with the world of politics as it
really is ― the art of the possible ― and ask ourselves, do we really think we are going
to push retail level carbon pricing to $100-$150-$200/tonne as economists we are
saying we should, or focus that on large emitter pricing, which is where Premier Moe,
potential Premier Kenney, and Premier Ford are focussing. I think that’s an open
question. Those provinces are actually on track to meet their emissions reductions
goals as much as the whole country is at least. I think Canada is actually in better
shape in terms of carbon emission policy. We still have some work to do. We have four
sectors that are doing very well: the building sector, heavy industry sector, electricity
sector, and waste sector (landfill). We have three sectors that aren’t or actually not
improving the way they need to for the country to make its targets. Those are oil and
gas, transportation sector (vehicles) and agriculture, where there’s really been no
improvement at all in terms of carbon emissions and there’s almost no technology on
the table that really helps them to that. We’ve got some work to do in three sectors,
but I think by-and-large Canada is actually on a good track; at least those four sectors,
there’s 11-12 years left to our targets. I think we can actually make them. I’m not sure
that retail pricing is a necessary part of this. My colleagues like Ford, Moe and Kenney
believe it’s not and that the other tools are better tools and that’s, I think, really in
substantive policy terms, where things are at; although the politics are intensely
different.

10. What implications do a NDP or UCP win have on future plans to diversify the
economy? How do their policies differ and how effective will their policies be over
the long-term?

Kathleen: I mentioned before that New Democrats are looking for a target of $75bln in
terms of new investment from private sector. The Alberta Energy Program is looking to
do more of the upgrading of oil, gas, petrochemical processing within the province –
get more value from Alberta’s oil and gas resources. They’ve also though, in terms of
diversification of the economy, have been focussed on expanding high tech,
entrepreneurial sector, using tax credits for small business and small capital projects
and they have had some good news stories in regards to attracting new industry:
media, film, tech industry, gaming. Alberta is an incredibly beautiful and diverse
province. When people come there and get to see it, as we’ve seen with the recent
industry sectors like the gaming industry, they realize that it is an attractive place to
work and live; so it’s about focussing on those different sectors and figuring out ways;
and the government has been doing that to attract them to move there and invest.

Rick: I think that UCP is pretty different from the NDP in this regard. They’re not
against diversifying the economy. They think it’s already more diverse than people
recognize and we talk about it as though it’s all about oil, but it’s actually about oil
and natural gas, and electricity and it’s also about agriculture in a big way and there’s
all kind of services industries and so on. The UCP sort of sees a more diverse economy
than the NDP see and aren’t in as big a hurry to get into new found areas. The
difference though, the UCP is very keen on diversifying within the energy portfolio to
expand the potential for natural gas, which it should have a huge role in a carbon-
reducing world. I know there are energy sources that are cleaner still than natural gas,
but for people that are using coal, which is a great part of the world, and diesel,
natural gas is a better substitute and easily substituted without a whole lot of
technology investment. As candidate Kenney said in the leaders’ debate this week, the
single most important thing Canada can do to assist climate change is to export natural
gas to China to replace the use of coal. Canadians don’t really think about that very
much, Albertans do and he sees that as a way of diversifying to help the natural gas
industry recover and to find new markets and, of course, he’s interested in getting
pipelines to the west coast like a lot of other people are, like Premier Notley is,
despite the frustration of the federal government and the BC government, in order

again to diversify our dependence the one single US market for exports for oil. So, their
focus is on restoring the health of the oil and gas industry and also making sure that
some of the trade winds that are interfering with agriculture do not worsen.

Our final question contemplates the implications of Alberta’s election on the
national political scene.

11. What implications does either an NDP or UCP win in Alberta have for the
October 21 federal election?

Kathleen: With my political pundit hat on, I would say, from my perch in Ottawa, Justin
Trudeau and the Liberal Government are not having the easiest ride over the last 9
weeks, certainly with the SNC Lavalin scandal… [speaker also commented on headwinds
from U.S. leadership and conservative leaders in Saskatchewan, Manitoba, Ontario and
New Brunswick, and potentially, next Tuesday, Alberta, if Mr. Kenney wins]. What is
going to be interesting in this coming 2019 election this fall, is that we’ve never seen
to this extent before, where conservative premiers, premiers of any strike politically
frankly, working literally and campaigning so strongly against a sitting government.
We’ve seen that with Notley’s opposition to obviously the carbon tax, but also their
opposition to Justin Trudeau’s government immigration policy and really challenging
them there. What’s interesting is that we’re actually seeing these provinces and these
premiers, almost act as third-party independent expenditure campaigns directly
campaigning against the federal Liberals. So that obviously is a challenge for Justin
Trudeau in him seeking re-election. Either it allows, for of all, Andrew Scheer, to not
have to do any of the dirty work; he could leave that to the premiers to fight that
battle for him where he could rise above and then introduce himself to Canadians
across the province. But I also think that it may help strengthen Trudeau in terms of
clarifying and differentiating what the fight is about and asking Canadians very clearly
what path they want to go down in the election in October. So I certainly think it’s
going to be one to watch, but you’d expect that statement from me ― I’m a
campaigner, I’m a strategist, I love campaigns, so I think certainly a year or a year and
a half ago, we would not have thought that this election was going to be as exciting as
it’s turning out now with the polls; so just buckle up, I would say.

Rick: I think a change of government in Alberta would have a significant impact on the
federal political scene, as Kathleen is saying. I’m a bit older than her and I remember
when Justin’s father, the Prime Minister’s father was Prime Minister, that’s when I
started in politics and I started actually working on his campaigns. He actually also had
quite an array of political opposition to him. So we’re seeing a little bit of repeat
history here in terms of a Prime Minister who’s become disconnected with a variety of
provincial governments and that’s becoming a flashpoint in federal-provincial relations.
I think it’s strange because so much of this is on energy and climate policy ― so much
of the controversy between the federal and provincial governments these days in
Canada; to remember the history, our actual history is so different from the narrative
that we see today. We’ve had Prime Ministers of both parties, five of them in a row,
pledge Canada to reduce GHG emissions from Brian Mulroney, to Jean Chretien, to Paul
Martin, to Stephen Harper, to Justin Trudeau; and I believe if Scheer happens to win
the election in October, then he too will become the sixth Prime Minister in a row to
pledge Canada to that. So even though we seem to have a debate about this, we
actually in substantive terms have brought one Prime Minister after another in both
parties pledge towards that goal. The country’s goals, in terms of GHG emission
reduction for 2030, were actually developed in a federal-provincial process under the
Harper government where the provinces actually submitted their own plans and
targets. The federal government rolled those up into a national target and submitted
those to Paris. So there was basically alignment between the provinces and the federal
government in 2015. Then there was a change of government in that fall and that’s
when Prime Minister Harper was replaced by Prime Minister Trudeau. He looked a look
at those targets and decided to maintain them; so we had harmony between the
provincial and federal level and across two federal party elections. Prime Minister
Trudeau build on that to create what he called the Pan-Canadian Climate Accord,
where all of the provinces, except Saskatchewan, and the federal government agreed
not just on the targets (reaffirmed their agreement on the targets), but agreed on the
plans by which to achieve them. What happened next is we had two or three provincial
elections and Prime Minister Trudeau and the Liberals to my eye failed to recognize the
changing political environment and to continue working with provinces in a harmonious

way to let them adapt their plans in a way that was different from what had been
agreed to earlier; while they were still agreeing to the overall goals. So in a sense,
what we’ve got is a fight going on about whether provinces are free to a goal with the
federal government, but to differ on how to achieve it. Again, the political narrative is
that these are people that are climate change deniers, etc.; that’s not what any of
them are saying. I find it kind of intriguing what we are getting ourselves into as a
political narrative. We’re going to have a very tough federal election campaign this fall
in Canada. You could see all of the ingredients in that. It’s going to be a little bit
similar to what we are seeing in terms of how polarized it is in the Alberta election
that’s just coming to its conclusion and I think that Kenney, with his skills and
experience, and following not just in Alberta, and across the country, should he win
that election in Alberta, will be an important addition to that national political scene.

Related Research:

     •    CIBC Macro Strategy Special Report “Alberta Election 2019: Left Faces
          Consolidated Right” (April 4, 2019) Click Here

About Guest Speakers:

Earnscliffe Strategy Group is a Leading Government Relations and Public Policy
Consultancy.

Rick Anderson
Rick brings decades of senior-level experience in business, government and consulting
to Earnscliffe with a focus on providing strategic advice on issues management, public
affairs and corporate relations. He is highly active in politics and in commentary on
public affairs and has served in senior advisory positions to former prime ministers and
party leaders. He has also been a frequent political affairs commentator, sought by
Canada’s most prominent news organizations.

Kathleen Monk
Kathleen is a communications and campaign strategist who brings over 15 years of
experience in media, politics and the not-for-profit sector. A prominent and highly
sought media commentator on politics and public affairs, Kathleen appears regularly on
CBC The National’s preeminent political panel, The Insiders, and has been named one
of the 100 most influential people in government and politics by The Hill Times.

Maria Berlettano, CFA
416 594-8041
maria.berlettano@cibc.com

Tom Bognar, CFA
416 956-6032
tom.bognar@cibc.com

www.cibcmacro.com

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