The Canadian government’s recent proposal for curbing greenhouse gas has it right concerning the oil and gas industry. By setting targets for big CO2 emitters such as the oil sands industry in the short to medium future (2010), the plan centers on the most important variable in this effort: Market-based and technology driven solutions. These are far better solutions in the long term than immediate caps and penalties. Penalties will be passed on to the consumer while immediate caps can wreak havoc in one of North America’s most vital economic activities, the extraction and production of bitumen in Alberta’s oil sands.

The Canadian-American oil and gas sector is one of the most deeply integrated and mutually beneficial activities our two countries share. Both countries have declining conventional oil fields and between them they have less than five per cent of global natural gas reserves. It is not only a prime Canadian interest to supply the North American economic engine of which we are benefactors, it is also a key interest of Canada to have American industry and technology invest and share the risk in the complex activity of extracting and upgrading bitumen.

Moreover, an integrated pipeline system and refinery structure allows Alberta’s heavy oil to be processed at much lower cost than if we had to build refineries in the already overcharged and labour-scarce Alberta economy. If we do not aggressively explore and produce more natural gas in Canada, we may actually run out of gas in a decade.

Some forget that 20 and 30 years ago, government intervention on both sides of the border led to all kinds of market distortions. Now we have a regime in place of regulatory measures that optimize free-market exchanges.

Still, two policies could unravel this success. The first one is energy nationalism. High oil prices may lure governments to nationalize energy exploration or production. Fortunately, we see few political forces in our two countries at this time that would go down this road once again. The second challenge comes from well-intended but excessive environmental policies. On this score, there is much to be worried about in Canada’s political future. The current Canadian government recognizes this danger and is wisely steering towards a better solution: a balanced approach to energy security and the environment.

The environmental question should be seen as an opportunity where both technology and market incentives can come together. Burying CO2 in old oil and gas fields is a realistic option. Adding clean and safe nuclear power to the bitumen production and upgrading process is another option that should be explored. By setting realistic targets which can be met by technological answers, Ottawa is heading in the right direction.