21 February 2014

Thinking about the Unthinkable #nlpoli

Only a decade ago, voters turfed Roger Grimes and the Liberals from office as punishment for – among other things – signing a deal to develop a nickel mine even though it was a really good deal.

[Not one teaspoon, they said, echoing a line Brian Tobin used.  Better to leave the ore in the ground than do a deal that involved any ore leaving the province unprocessed]

But leave the oil in the ground rather than pump it out?


That’s curious because leaving the oil in the ground is a valid policy choice for any government, including one in Newfoundland and Labrador.

The Independent’s Jon Parsons raised the idea of not producing oil. He ties it to climate change.  In the 1970s and 1980s, when no one knew exactly what would happen once we started pumping oil, some people talked about the need to control oil production rates as a way of limiting the social impacts of oil development.

Of course, not producing oil is also a way of managing the economic consequences of oil.  After all, it is a non-renewable asset.  And if the government spends all of the money that comes from oil production, as the Conservatives have done over the past decade, it’s gone.  Forever. 

Lowering oil production rates preserves revenue for later.  At one point, no provincial government in Newfoundland and Labrador could think of leaving oil in the ground.  Most projections had oil prices staying so low that oil royalties would basically replace federal transfers dollar for dollar.  That’s why governments were worried they’d wind up no better off after oil production than before.

By the early part of the 21st century, and less than a decade after first oil production at Hibernia,  the provincial government had windfalls measured in the billions.  Peak production came and went, leaving the government with reduced revenue as time went along.

Yet the politicians never stopped to think what they could do – what they should do – with oil revenue and with oil production other than just keep it all rolling in and then rolling right on out again in unsustainable levels of public spending.

It’s really amazing if you stop and think about it, if you think about the unthinkable.