Fry Federalism

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The Impact of Federalismon the Evolutionof the North AmericanEnergy Sector

by Earl H. FryProfessor of Political Science andEndowed Professor of Canadian StudiesBrigham Young University

Paper presented at the

Forging North American Energy SecurityConference, Monterrey, MexicoApril 1-2, 2004


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The author

Earl H. FryProfessor of Political Science andEndowed Professor of Canadian Studies

Brigham Young University 774 SWKTProvo, Utah [email protected]

FORGING NORTH AMERICAN ENERGY SECURITYis a conference organized by the North American Forum on Integration,the Escuela de Graduados en Administracin Pblica y Poltica Pblica(EGAP) of the Instituto Tecnolgico y de Estudios Superiores deMonterrey (ITESM) and the Consejo Mexicano de AsuntosInternacionales (COMEXI).

North American Forum on Integration4519 Saint - DenisMontreal (Quebec)Canada H2J 2L4Phone : 1 (514) 844-8030Fax. : 1 (514) [email protected]

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Pblica

Eugenio Garza Sada 2501CP 64849Monterrey NL. MxicoPhone: 01 (81) 8158-2218Fax: 01 (81) [email protected]/egap

Consejo Mexicano de Asuntos Internacionales, A.C.Campos Eliseos No. 345, Piso 6, Polanco, Mxico, D.F., 11560 Tel (52-55) 5279-60-87/88Fax (52-55) 5279-60-91

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Mr. Earl Frys Copyrights. All reproduction, in whole or in part, is prohibitedunless authorized by FINA, owner of an exclusive license.
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THE IMPACT OF FEDERALISM ON THE EVOLUTIONOF THE NORTH AMERICAN ENERGY SECTOR

Earl H. FryProfessor of Political Science and

Endowed Professor of Canadian StudiesBrigham Young University

he North American Free Trade Agreement(NAFTA), which went into effect in 1994 andwill be fully implemented by 2008, exemplifiesthe growing interdependence between Canada,

Mexico, and the United States. Figure I (page 10)illustrates various dimensions of North Americaninterdependence. For example, Canada and Mexicorank as the two leading trading partners of the UnitedStates. U.S. exports to Canada actually surpass itsexports to the entire European Union (EU), eventhough Canada has fewer than 32 million people andthe EU has 380 million inhabitants. U.S. exports toMexico are almost twice as large as its combinedexports to Central America, the Caribbean, and SouthAmerica. Since the implementation of NAFTA, U.S.trade with Canada and Mexico has grown much morerapidly than with the rest of the world, climbing from31.5 percent of all U.S. exports in 1993 to more than37 percent in 2002. U.S. direct investment north andsouth of its border has also climbed rapidly, with U.S.-owned companies in Canada producing the equivalent

of 10.3 percent of Canadas gross domestic product(GDP) and providing 1.15 million jobs within Canada.Since NAFTAs inception, U.S. direct investment inMexico has been growing at an even more rapid ratethan with Canada, with U.S.-controlled enterprisesholding 115 billion dollars in assets in Mexico andemploying 1.05 million Mexican workers.i As forCanada, its direct investment in the United Statesstood at 92 billion dollars at the end of 2002 and itscompanies have recently made sizeable investments inthe U.S. energy sector.ii

NAFTA is a partnership of the worlds largest,eighth largest, and ninth largest economies, according

to the World Banks gross national income (GNI)rankings in 2002. However, the North Americaneconomic relationship is asymmetrical, with Canadaand Mexico being much more dependent on access tothe huge U.S. marketplace than vice-versa. The U.S.population base is almost three times larger thanMexicos and almost ten times larger than Canadas.The GNI differential is even greater, with U.S. GNI 14

times larger than Canadas and 17 times larger thanMexicos. Over 80 percent of all Canadian and Mexicanexports are destined for only one foreign market, theUnited States, and these exports account for over one-third and one-fifth respectively of each countrysannual production of goods and services.

This paper will concentrate on a rather unusualdimension of the very extensive and elaborate NorthAmerican economic relationship, the impact offederalism on continental energy cooperation andsecurity. Joseph Dukert asserts that trilateralcooperation among the three sovereign nations ofNorth America is arguably more advanced in the fieldof energy than in any other aspect of everyday life.iiiThere are only 25 nations out of almost 200 in theworld today which maintain federal systems ofgovernment, and three of them are members ofNAFTA. The three sovereign nations referred to byDukert are governed by three national governments,92 major subnational governments in the form ofstates and provinces, and over 100,000 additional

county, municipal, township, village, and special-district forms of local government. The paper willexplore how modern-day federalism is currentlyaffecting North Americas energy relations and whateffect it might have on this relationship over the nexttwo decades.

NORTH AMERICAN ENERGY COOPERATION

In very simplistic terms, Canada and Mexico are majorenergy exporters, and the United States would like tobuy the lions share of these exports in the form ofcrude and refined petroleum products, natural gas,liquefied natural gas (LNG), and hydro or nuclear-

generated electricity. Canada already ranks as thenumber one foreign supplier of energy to the UnitedStates, ranking ahead of Venezuela and Saudi Arabia inshipping petroleum products and providing almost allof the U.S. natural gas and electricity imports.According to Albertas energy minister, his provincealone supplied enough natural gas to the United States

T

NAFI EGAP Comexi: Forging North American Energy Security 3


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in 2002 to provide the energy equivalent needed tofurnish lighting for one of every 7 households.ivInthe year 2000, Mexico also furnished 9 percent of totalU.S. energy imports. President George W. Bush hasclearly stated that strengthened North Americanenergy cooperation is a major priority for his

administration and his national energy plan of 2001emphasizes that a significant goal is to make it easierfor buyers and sellers of energy to do business acrossnational boundaries.v To help achieve this goal, thethree nations created the North American EnergyWorking Group (NAEWG) in 2001 which is comprisedof the energy secretaries from Mexico and the U.S. andthe natural resources minister from Canada. The groupmeets frequently in an effort to facilitate cross-borderenergy transactions and to work toward greatertransparency in overall energy policy. Energyregulators from the three countries have also begun tomeet on a regular basis to compare notes and to decide

whether or not a convergence can occur in the field ofNorth American energy regulation. A concrete step hasbeen taken in this direction with the tripartiteagreement to establish minimum energy efficiencystandards for a variety of household appliances.

FEDERALISM AND ENERGY COOPERATION

In formal terms, Canada maintains the mostdecentralized system of federalism, with the tenprovincial governments maintaining control over andregulating the use of natural resources located withintheir areas of jurisdictions. For its part, the federalgovernment in Ottawa retains jurisdiction over the

rules governing interprovincial and internationaltrade. One of the most bitter federalist battles over thecontrol and distribution of energy occurred in Canadain the 1970s following the rapid rise in global oil pricesinstigated by the OPEC countries. Alberta, which has apreponderance of Canadas oil and natural gasreserves, wanted to sell its petroleum products acrossCanada at the escalating global prices, but the nationalgovernment led by Pierre Trudeau insisted that thiswould be harmful to Canadas national interest andthat intra-Canada petroleum prices must be regulated.Albertas provincial government hinted that it mightretaliate by cutting off the production of oil within the

province, only to have Trudeau threaten to take overcontrol of the oil fields for the maintenance of peace,order, and good government within Canada as awhole. Eventually an uneasy compromise would bereached between Edmonton and Ottawa, but the eraunder the Foreign Investment Review Agency and theNational Energy Policy, which resulted in severe

restrictions on foreign investment activity in certainparts of the energy sector, prolonged the period oftense relations between the national government andthe energy-rich Western provinces.

In the United States, federalism is morecentralized than within Canada, but state and local

governments do have significant day-to-day authorityin determining the terms of access to energy for theircitizens. The National Governors Associationemphasizes that states deal with (a) electric and gasutility industry restructuring, (b) the needs and issuesof industry, business, and residential energyconsumers, (c) energy efficiency, (d) energy-relatedenvironmental goals, (e) cost-effective advancedenergy efficiency, renewable energy, and other cleanenergy technologies, (f) the management of certainfederal energy research, development, deployment,and demonstration programs, and (g) energyconservation.vi The federal government has limited

explicit powers in this arena, and does not even havedirect authority to regulate the reliability of thenations electricity transmission lines. However, thefederal government has at its disposal very powerfulweapons if it ever desires to confront subnationalgovernments in their regulation of the energy field.The U.S. constitution is very clear in providingWashington, D.C. with a big stick linked to thecommerce and supremacy clauses and to its overallpreemption powers.

Mexico has by far the most centralized federalsystem in North America, and the one-party PRIdominance from 1929 until 2000 resulted in a further

centralization of governmental authority and therelegation of federalism to the status of windowdressing. The victory of the PANs candidate, VicenteFox, in the 2000 presidential elections, has providedan opportunity for the Mexican states to exercise alittle greater policy latitude. However, within theenergy sector, Articles 27 and 28 of the Mexicanconstitution clearly mandate that the Nation shallexercise control over natural resources. Modest and attimes disputed influence might be exercised by someaboriginal groups and ejido communes, but MexicoCity continues to call the shots and dominates inalmost all facets of natural resource and energy

policies.Nevertheless, one should not underestimate the

capacity of state, provincial, and local governments inNorth America to influence the course of futurecontinental energy relations. Among the 200 nation-states in the world today, 3 U.S. states would rank inthe top10 measured by GDP, 22 states within the top


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25 nation-states, and all 50 with the top 72 nations.viiCalifornia alone has a larger population base thanCanadas and a larger production base than Canadaand Mexico combined. In Canada, four provinceswould rank among the top 40 nation-states and eightamong the top 80. The Federal District in Mexico

would rank among the top 32 nation-states and thestate of Mexico would rank among the top 50. Inaddition, the annual budgets of several states andprovinces actually surpass those of most nation-states.

Moreover, these state and provincial governmentsare becoming much more engaged in international andcontinental affairs. At the end of 2002, 37 states andPuerto Rico had 243 foreign offices or foreignrepresentatives, up from just four in 1980. Mostgovernors lead international trade missions annuallyand about 1,000 state employees work oninternational programs with an overall annual budgetof 190 million dollars.viiiTwenty-one states maintain

offices in Mexico and 12 in Canada, in part becauseCanada is the number one export partner for 39 of the50 states, and Mexico for 3 additional states. Figure II(page 10) indicates the cross-border state andprovincial government associations which currentlyexist in an effort to exchange perspectives andcoordinate on a broad range of policy issues.

Some of the Canadian provincial governments areeven more actively involved than their U.S.counterparts in the international arena. The Quebecgovernment alone has almost as many employeesworking on international programs as the 50 U.S.states combined and it maintains 24 foreign offices in

14 different countries, including seven in the UnitedStates and one in Mexico. Ontario has 230 employeesworking on international programs and has begun toopen up a few foreign offices after having closed 19such offices in the 1990s. Alberta maintains nineforeign bureaus and has 50 people engaged ininternational pursuits, and British Columbia operatesone foreign office but has almost 100 employeesworking in the international sector. All of theCanadian provinces send trade and investmentmissions on a periodic basis to the United States, andless frequently to Mexico. In the energy arena, PremierRalph Klein of Alberta met directly with Vice President

Richard Cheney in Washington in June 2001 and againin June 2003 to discuss future North American energycooperation, and Premier John Hamm of Nova Scotiahad a teleconference session with Cheney in December2001 to discuss energy issues in the turbulent periodafter the destructive events of September 11.

Among the subnational governments in NorthAmerica, Alberta has arguably been the most activist inpushing within Canada for a more effective federal-provincial dialogue on energy issues, and within NorthAmerica for greater continental collaboration. WithinCanada, Alberta proposed in June 2001 a fairly lengthy

Understanding among the provinces and territorieswhich would establish a mechanism providing for thefull participation of the provincial and territorialgovernments with the federal government in theimplementation, management and further elaborationof the North American energy relationship inaccordance with this Understanding.ixThe documenthas never been ratified but does provide a concisemodel for building cooperative links in the energysector between the major levels of government inCanadas federal system. At the continental level,Premier Klein has had the two aforementionedmeetings with Vice President Cheney and the Alberta

government expects to host President Fox during thesummer of 2004 after Fox has hosted Klein in MexicoCity in September 2002. The provincial governmentalso announced that it would open its own office inWashington, D.C. within the next few months,following in the footsteps of the office which it openedwithin the Canadian Embassy in Mexico City in 2002.In addition, Albertas Ministry of International andIntergovernmental Relations dispatched a long letterto U.S. Secretary of Energy Spencer Abraham in April2001 outlining the provinces perspectives on howcontinental energy exchanges could be enhanced, andprovincial representatives have worked very closely

with state governments in the U.S. West to expandenergy linkages on a cross-border basis.xAlberta hasalso participated in some of the meetings of U.S.energy groups, including the U.S. Energy Council andthe Interstate Oil and Gas Compact Commission.

Mexican state governments are beginning to reachout to strengthen their international ties, especiallywith neighboring U.S. states. In addition, thegovernors of Yucatan, Hidalgo, Nuevo Len, and theState of Mexico are among those who have recentlytraveled to Washington, D.C. to meet with members ofthe US-Mexico Binational Council and to share theirperspectives on energy and other related issues. The

Mexican federal government has also established anextensive network of 44 consulates in the UnitedStates in an effort to service some of the needs of theburgeoning Mexican and Mexican-Americanpopulation which surpassed 25 million in 2002.xiRepresentatives of these consulates also interact on a


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regular basis with officials from U.S. state and localgovernments.

THE FUTURE IMPACT OF FEDERALISM ONNORTH AMERICAN ENERGY RELATIONS

The North American energy sector has been in some

turmoil in recent years. The August 2003 blackoutaffected 50 million people in Ontario and the U.S.Midwest and Northeast, causing an estimated sixbillion dollars in economic losses.xii This blackout waspreceded by a half dozen other major blackoutsbetween 1965 and 1998 which affected the U.S.Northeast, Midwest, and West, Ontario, and portionsof the Canadian West and Baja California. Residents ofCalifornia have suffered through a series of energycrises which helped bring about the unprecedentedrecall of Governor Gray Davis. As a recent Californiagovernment publication emphasizes, in three shortyears, California has weathered an electricity crisis,

unparalleled natural gas spikes, and the highestgasoline prices in the nation.xiii Corporate scandals inthe energy sector, personified by the infamous Enronaffair, have also proliferated.xiv The route and financingof the Alaskan pipeline have still not been settled, anddrilling in the Arctic National Wildlife Refuge (ANWR)remains a priority item for many Republicans onCapitol Hill and in the White House. Canadian naturalgas exports to the United States decreased in 2003 andsome are arguing that the depleting gas reservesshould be left in the ground for future generations ofCanadians instead of being exported south of theborder.xv Some provincial governments have also

disagreed with Ottawa over the implementation of theKyoto Protocol, arguing that Canadas energy sectorand overall economic competitiveness will be harmed,especially when Canadas nearest neighbor has refusedto ratify the Kyoto provisions. Mexico struggles toprovide enough energy for its own people and needs toattract much more foreign investment in order todevelop a panoply of energy resources andtransmission grids, but keeps in place rather onerousinvestment restrictions in the energy sector firstimposed by President Lzaro Crdenas in 1938, apolicy still widely supported by the Mexican public.The Fox presidency has also been greatly weakened by

the poor showing of the PAN in the 2003congressional elections and by how few of thepresidential proposals have been transformed into lawby the two chambers of Congress. With federalismbeing in its nascent form under President Fox, will itrevert back to its window-dressing status after thenext presidential election in 2006?

The three national governments relations withtheir aboriginal populations may also impact futurecontinental energy relations. Aboriginal rights overnatural resources have been strengthened in theCanadian federal territories and some provincialgovernments have also been willing to concede that

native groups should have more control in certainareas. The Quebec government has had an uneasyrelationship with the Cree for decades as it sought todevelop hydro-electric facilities near James Bay. Aninitial agreement did go into effect but the Cree foughtan accord which years later would have greatlyexpanded facilities along the Great Whale River. TheCree mounted a successful international publicitycampaign to kill the project, including direct appeals toHydro-Quebecs customers in the state of New York. Anew accord which will permit construction along theRupert River has now been reached betweenprovincially owned Hydro-Quebec and the Cree tribal

leadership, but some rank-and-file tribal membershave expressed their dissatisfaction with the terms ofthe agreement.xvi The power generated by Hydro-Quebec not only services Central and Eastern Canadabut also New York and New England. Consequently,what transpires between Hydro-Quebec and Creeofficials in the future will certainly have internationalrepercussions.

In the United States, there has been an ongoingdispute between the Department of Interior and nativegroups concerning control over and royalty paymentsfor oil, gas, and other natural resource deposits. Nativegroups claim that they have been grossly underpaid for

resources which they permitted the federalgovernment to develop, and a class-action suitinvolving a half million Indians has been filed in thefederal court system.xvii The Navajo nation, which isthe largest Indian tribe in the United States andcontrols 18 million acres cutting across Arizona, NewMexico, and Utah, is also pushing for greaterrecognition of its control over natural resources on itslands, and for compensation for the underpayment ofroyalties by the federal government since the 1950s.xviiiThe sovereign jurisdiction granted to indigenousmovements in the United States has also resulted intensions between tribal and state governments. For

example, the Skull Valley Goshute tribe, whichnumbers 124 people and controls a small patch of landin Utah, has signed agreements with a number ofutility companies to become a depository for theirhazardous waste, a stance bitterly opposed by the stategovernment of Utah, its congressional delegation, andmost of the 2.2 million residents of the state.


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The Zapatista movement in Mexico has clamoredfor the right of indigenous groups to control the useand distribution of natural resources on land whichthey claim. Many other native groups have also beenpushing for similar recognition, but little has beenaccomplished in terms of formal agreements with

Mexico City. Mexico has by far the largest indigenouspopulation in North America and this disagreementover the rights of native groups to land, naturalresources, and the development of energy sourcescould emerge as a more contentious issue in thedecades ahead.

For a number of reasons, federalism could be adeterrent to strengthening trilateral energy relationsand security arrangements between Canada, theUnited States, and Mexico over the next 20 years, withmany of the potential obstacles concentrated in theUnited States.

First, U.S. state and local governments continue to

exercise significant control over the extraction ofnatural resources, the development and transmissionof energy, the regulatory standards which will governthis development and transmission, and the disposalof waste linked to the use of energy. Maryland hasrecently put in place energy efficiency requirementsfor small appliances which are much more stringentthan those agreed to by the three North Americangovernments.xixNevada continues to fight the federalgovernments efforts to turn Yucca Mountain into arepository site for nuclear waste. Various states willnot permit new electrical generation facilities to bebuilt on their territory, nor will they allow pipelines,

transmission lines, or LNG facilities to be constructedin areas which would seem to be optimal in terms ofthe overall energy needs of the nation or thecontinent. The NIMBY syndrome is also alive and wellin many states and urban areas. The Los AngelesDepartment of Water and Power was established in1902 and began to engage in electricity distribution in1916. Much of its electricity today comes from theIntermountain Power coal-fired facilities in the desertsof Utah, facilities which it helped to build. This poweris then transmitted over 700 miles to Los Angelesbecause local residents do not want such facilitieslocated in their region.xx California is dependent on

power supplied not just from other Western states, butalso from Canada and Mexico, and its stategovernment is pushing for pollution standards to beimposed on new facilities in northern Mexico whichare more stringent than those in the United States,fearing that the pollution would cross the border andbe injurious to residents of southern California.

Secondly, control over and the regulation orderegulation of the energy sector in the United Statesrepresents an administrative labyrinth. Theinfrastructure is already the most extensive in theworld, with 5,000 power plants, 150,000 miles ofelectricity transmission lines, and two million miles of

oil pipelines.xxi

As the California Energy Commissionlaments, the permitting of transmission lines inCalifornia currently suffers from jurisdictionalresponsibilities that are fragmented and overlapping,environmental analyses that are inconsistent, andinadequate consideration of regional and statewidebenefits. As a result, existing permitting processescreate duplication between local, state, and federalagencies, delay in approvals, and denial of neededprojects.xxii State and local government law-enforcement officials also bear much of the brunt forensuring physical security for energy transmission andcontinue to complain that inadequate funds have been

transferred from Washington to bolster such securityarrangements in the aftermath of 9-11.Thirdly, state governments are increasingly

engaged in establishing standards linked to renewableor alternative energy sources or vehicle emissions.California has the toughest vehicle-emission standardsin the nation and because it is the most populous statewith the largest gross state product, vehiclemanufacturers must pay attention to its demands.California has also mandated that a certain percentageof vehicles sold in the state be powered by sourcesother than the conventional internal combustionengine, with 60,000 cars, transit buses, and trucks

already operating on natural gas and liquefiedpetroleum gas and another 13,000 vehicles onelectricity.xxiiiSeveral states have also mandated thatrenewable energy sources must comprise anincreasingly larger segment of their overall energymarket. For example, California has mandated thatprivate utilities provide 20 percent of their electricityfrom renewable sources by 2017, and New Mexicoenacted a new law in March 2004 requiring that localutility companies derive at least 10 percent of theirpower from renewable energy sources by 2011,although these standards could certainly be altered inthe future depending on the energy outlook over the

next decade.xxiv

Provisions put in place by some NewEngland states actually discriminate against importedhydro power, a situation which prompted a vigorousprotest from Hydro-Quebec.xxv

And finally, state and local governments, incombination with environmental groups, represent aformidable combination in efforts to block or delay


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energy-related projects through lawsuits filed in stateand federal courts. The Bush administration attemptedto lower efficiency standards for central airconditioners, but this effort was thwarted by lawsuitsfiled by several state governments and environmentalorganizations.xxviA few state governments would like

to implement some of the standards called for underthe Kyoto Protocol in order to combat global warmingrelated to power-plant and other types of pollution,and may be willing to confront the federal governmentin the courts.xxvii The United States is arguably themost litigious nation on earth, and state and localgovernments are not hesitant to defend their ownenergy and environmental policies in the judicialsystem.

In Canada, because its conventional oil andparticularly natural gas reserves are being depleted,one or more governments in energy-producingprovinces could conceivably decide at some point over

the next decade to cut back on production in order tosave the finite resources for future generations ofCanadians. As one critic of current Canadian federaland provincial government policies sardonically notes,Canada would be better off if gas used to heatAmerican swimming pools had lower priority than gasused to keep the kids unfrozen in Thunder Bay orTrois-Rivires.xxviii Such a provincial policy may or maynot be viewed favorably in Ottawa, but it is doubtfulthat the federal government would step in to forcethat province to pump more oil and gas solely forexport purposes. Conversely, Canada is obligated tomaintain a certain level of energy exports to the

United States, and this is to be proportionate to theamount of energy being distributed across Canadaitself.

On the other hand, energy companies and nationalgovernments are not without recourse in fighting backagainst state or provincial government policies ortactics. NAFTAs controversial Chapter 11 doesmandate national treatment be accorded to all NorthAmerican companies, and the Metalclad case linked towaste disposal in San Luis Potosi which was settled infavor of the U.S.-based company, and the unresolvedcase in which Vancouver-based Methanex Corporationhas targeted environmental practices in California,

illustrate that companies may be entitled tocompensation for wrongful actions on the part ofsubnational governments, compensation which is tobe paid, ironically, by the national government whichloses the case. Nonetheless, even Chapter 11 cannotguarantee that the project will be able to proceed asoriginally planned. Furthermore, national

governments are very hesitant to pay the political priceof taking on their constituent governments, even ifthey have the constitutional authority to do so.Washington never did challenge the right of Californiaand about a dozen other states to impose unitarytaxation, a system which taxed multinational

corporations on the basis of their global earnings andnot just on their earnings within a state. Arguably,unitary taxation was a form of double taxation whichviolated U.S. tax treaties with several nations aroundthe globe. However, California had 53 of the 435 seatsin the U.S. House of Representatives in the 2000election and accounts for one-fifth of the votes neededto select the president in the Electoral College. Thispolitical clout prompted silence on unitary taxation inWashington, in spite of pressure from Great Britainand other close allies to put an end to the practice.When Barclays Bank of Great Britain finally took thestate of California to court over the issue, the U.S.

Supreme Court eventually ruled that California had theright to enact unitary taxation so long as the U.S.Congress remained silent on the issue. In the energyfield, both Congress and the White House can beexpected to remain silent on a variety of stategovernment actions because they are not prepared topay the political price for taking on California andother powerful subnational government actors.

FUTURE POLICY OPTIONS

The need for greater energy output and security in allthree North American nations is abundantly clear, as isthe need to modernize an aging energy infrastructure

and to be more efficient in the use of energy.xxixEachnational government should be expected to work withits subnational counterparts to enact conservationmeasures and the practical development of alternativeand renewable energy sources so that the depletion ofoil and natural gas reserves can be slowed. Newtechnology and higher energy prices in general are alsomaking it economically feasible to develop the oilsands in Alberta, coal bed methane along the PowderRiver Basin in Wyoming, and off-shore locations in allthree nations. In addition, the United States has a 250-year supply of coal, a resource which already accountsfor 52 percent of the nations electrical generation.xxx

New technologies to develop this resource, transportit, and burn it cleanly and efficiently could alsodramatically change the energy outlook for thecontinent. Routes for the construction of pipelines andtransmission lines which cross national boundariesshould be decided by the national governments, but inclose consultation with the impacted subnational


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governments. Canada is the best prepared to carry onnational-subnational government exchanges throughits First Ministers Conferences and the newly createdCouncil of the Federation which represents theprovincial and territorial premiers. The White Houseshould agree to hold regular consultations on energy

issues with the National Governors Association, andthe Mexican government can give greater credibility toits federal system by putting in place regularlyscheduled meetings with the state governors. Up untilthe present, the overall input of subnationalgovernment leaders on future directions to be pursuedby their national governments has been greatest inCanada, very sporadic in the United States, andvirtually non-existent in Mexico.The cross-border organizations listed in Figure II (page10) can also help coordinate subnational governmentenergy policies on a regional basis. As an illustration,the Council of Atlantic Premiers has been working on

increasing security and sustainability of energy on aregional basis.xxxiThese four Atlantic provinces, alongwith Quebec, also work closely with the organizationof New England Governors and Eastern CanadianPremiers to harmonize some of their energy andenvironmental policies on a cross-border basis, as havethe states, provinces, and territories associated withthe Pacific NorthWest Economic Region (PNWER). TheWestern Governors Association, which represents 21Western states and U.S. territories in the Pacific, haspursued an aggressive energy agenda and sponsored aNorth American Energy Summit in April 2004 whichbrought together political leaders and experts from all

three NAFTA member countries. This regional andcross-border cooperation should also lend support tothe harmonization of certain energy policies andsecurity measures on the part of the three nationalgovernments.

Nevertheless, the development of acomprehensive North American energy policy,including energy security, is easy to talk about but verydifficult to implement. The three nationalgovernments have their own energy agendas which attimes differ substantially because they must cater tovery distinct domestic constituencies. The energy andenvironmental priorities of states and provinces

within the same nation-state may also be quitedistinct. For example, Texas has dispatched its ownobserver to OPEC meetings for many years and itgenerally favors high oil and natural gas prices,meaning that it has more in common on this issuewith Alberta, which in 2002 produced about 60percent of Canadas oil and 80 percent of its natural

gas, than it has with California or Massachusetts.xxxiiSignificant differences on a variety of energy issuesalso exist between Alberta and Ontario, Connecticutand Alaska, and Tabasco and Nuevo Lon. However, inspite of a notable divergence of some policies amongthe three nations and within each country, some

degree of harmonization in energy policy andagreement on compatible regulatory frameworksshould be feasible. For example, North AmericanElectric Reliability Council (NERC) standards related toelectricity generation and distribution should beagreed to by national and subnational governmentsalike, especially after the August 2003 blackout whichcould be traced to the lax implementation of standardsin Ohio. Some harmonization should also be possiblerelated to development, distribution, safety,emissions, and security standards linked to the use ofoil, gas, coal, hydro, nuclear, LNG, as well as wind,solar, biomass, fuel cell, geothermal, and other

renewable sources. Ottawa, Washington, and MexicoCity should also establish a mechanism within theNorth American Energy Working Group for state andprovincial governments to provide comments andsuggestions on a regular basis. More specifically, onemeeting per year of this group could includeparticipation by one delegate selected by the Canadianpremiers, and one each selected by the U.S. andMexican governors. This process would lead to muchmore effective interaction on an intergovernmentalbasis and facilitate the harmonization of energypolicies and energy security on a continental basis.

In terms of federalism, periodic and meaningful

two-way communication on pertinent issues betweennational and subnational government leaders, and attimes aboriginal representatives, can definitely helpalleviate some of the roadblocks which stand in theway of more efficient North American energycooperation and security.


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FIGURE IINTERNATIONAL EVENTS ARE TRANSFORMING LIFE IN NORTH AMERICA

INTERNATIONAL SECTOR


FIGURE IIBORDER COMMISSIONS AND GROUPS

Border Governors Conference(Arizona, California, New Mexico, Texas; BajaCalifornia, Chihuahua, Coahuila, Nuevo Lon,Sonora, Tamaulipas)

Border Legislative Conference(Arizona, California, New Mexico, Texas; BajaCalifornia, Chihuahua, Coahuila, Nuevo Lon,Sonora, Tamaulipas)

Chihuahua - New Mexico Border Commission

Commission of the Californias(California, Baja California Norte, Baja CaliforniaSur)

Council of Great Lakes Governors(Illinois, Indiana, Michigan, Minnesota, New York,Ohio, Pennsylvania, Wisconsin; Ontario and Quebec[associate members])

Idaho-Alberta Task Force

Montana-Alberta Bilateral Advisory Council

New England Governors and Eastern Canadian

Premiers(Connecticut, Maine, Massachusetts, NewHampshire, Rhode Island, Vermont; New Brunswick,Newfoundland and Labrador, Nova Scotia, PrinceEdward Island, Quebec)

Pacific Northwest Economic Region (PNWER)

(Alaska, Idaho, Montana, Oregon, Washington;Alberta, British Columbia, Yukon Territory)

Sonora-Arizona Commission

resources

environment

energy

conflictweaponsproliferation

crime

economics cyberspace

immigration

religion andideology

culture

NNOORRTTHH AAMMEERRIICCAANNCCOOMMMMUUNNIITTIIEESS

terrorism

sports andentertainment

disease


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ENDNOTES

i. Raymond J. Mataloni, Jr., U.S. MultinationalCompanies: Operations in 2000, Survey of Current

Business, December 2002, pp. 117-127.

ii. Foreign Direct Investment in the United States,Survey of Current Business, September 2003, p. 52.

iii. Joseph M. Dukert, The Quiet Reality of NorthAmerican Energy Interdependence, discussionpaper prepared for the Study Group on Mapping theNew North America, Montreal, 13-15 November2003.

iv. Murray Smith, Competitive Markets: Unleashingthe Power of Albertas Energy Sector, speechdelivered to the World Forum on Energy Regulation,Rome, 7 October 2003.

v. Quoted in Michael Kergin, Energy, Innovation

and a More Secure Future, speech to the NewEngland-Canada Business Council, Boston, 25October 2002.

vi. National Governors Association website athttp://www.nga.org.

vii. This is based on World Bank rankings of nationsfor 2002 and U.S. Department of Commerceestimates of gross state products for 2001.

viii. Adrienne T. Edisis, Global Activities by U.S.States: Findings of a Survey of State GovernmentInternational Activities, paper prepared for theElliott School of International Affairs, George

Washington University, July 2003.ix. A copy of the Understanding was provided to theauthor by Albertas Ministry of International andIntergovernmental Relations.

x. This information was provided in an e-mailmessage to the author from Albertas Ministry ofInternational and Intergovernmental Relationsdated 23 February 2004, a message which includedseveral attachments.

xi. Roberto R. Ramirez and G. Patricia de la Cruz,This Hispanic Population in the United States, March2002 (Washington, D.C.: U.S. Bureau of the Census,2003), p. 2.

xii. The estimate of economic damage was made byStandard & Poors. See U.S. Department of Energy,Office of Electric Transmission and Distribution,Where We Are, 2003.

xiii. California Energy Commission, 2003 IntegratedEnergy Policy Report, December 2003, p. 45.

xiv. William L. Massey, a commissioner of theFederal Energy Regulatory Commission (FERC),stated in a speech in Santa Fe, New Mexico on March17, 2003, that the tsunami of the Western energycrisis, coupled with the collapse of Enron, have left a

devastating wake within the industry, andprecipitated a flight of capital from the energysector.

xv. See, for example, Eric Reguly, NAFTA Lets theGas Out of Canada, Globe and Mail, 12 June 2003.

xvi. Toronto Star, 1 February 2004.

xvii. Deseret News, 8 February 2004.

xviii.Ibid.

xix. Matthew L. Wald, Environmentalists Head forthe States,New York Times, 1 February 2004, IV, p.7.

xx. The Los Angeles Department of Water and Power

is now considering participating in the building of athird power plant in Utah. It currently buys 44percent of the power produced by the two existingIntermountain Power plants in Utah, and Californiautilities are purchasing nearly three-quarters of theoutput of these two facilities. This power is also tentimes less expensive than what they are paying forlocally produced solar power. See the Los AngelesTimes, 29 January 2004.

xxi. National Energy Policy Development Group,Reliable, Affordable, and Environmentally Sound Energyfor Americas Future (Washington, D.C.: Government

Printing Office, 2003), chapter 7.xxii. California Energy Commission, p. 19.

xxiii.Ibid., p. 35.

xxiv. Los Angeles Times, 29 January 2004, andAlbuquerque Tribune, 5 March 2004.

xxv. Kergin.

xxvi. Wald.

xxvii.Ibid.

xxviii. Reguly.

xxix. National Energy Policy Development Group,p.7.1.

xxx.Ibid., p. 7.16.xxxi. Press release by the Council of AtlanticPremiers, 16 February 2004.

xxxii. Albertas statistics were graciously provided tothe author by Jane K. Currie and Mike Boyd ofAlbertas Department of Energy in a letter dated 20February 2004.

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