In recent years, Canadian Prime Minister Stephen Harper has sought to promote Canada as an "energy superpower" and to appeal to U.S. energy insecurity as a basis for ongoing binational cooperation on energy and related environmental issues (for example, Harper 2007). In practice, however, U.S.Canadian energy interdependence is a far more complex phenomenon that defies the capacity of governments in either country to manage through the conventional policy processes - foreign or domestic - of national governments.
This paper contends that U.S.-Canadian energy interdependence may be understood best as the interaction of multiple, decentralized economic, policy and political relationships - reflecting broader trends in bilateral policy relations noted by Gattinger and Hale (2010).
Although some of these arrangements have been institutionalized through the Canada-U.S. Free Trade Agreement and NAFTA, as noted by Clarkson (2002, 2008), and by subsequent administrative arrangements (Doern and Gattinger 2003; Dukert 2007; Gattinger 2010), the policies of both national governments have tended to accommodate or, in some cases, facilitate the integration of North American energy markets, rather than to direct or negotiate these arrangements (Plourde 2005).
However, except in the aftermath of major economic or policy shocks, these relationships tend to be driven primarily by variable mixtures of market forces, simultaneously overlapping and competing corporate and societal networks, and disaggregated domestic political processes in both countries - what Stephen Blank (2008; Hale and Blank 2010) has categorized as the "bottom up" dimension of North American integration. As in most policy fields, securing and preserving access to U.S. markets, combined with the side effects of American domestic politics and regulatory processes loom far larger in Canadian policy considerations than do Canadian politics or policies in American policy considerations.
This asymmetry of attention creates significant opportunities for Canadian governments and economic interests to influence American energy policies at the margins - particularly as they relate to cross-border energy trade. Canadian energy is constantly "in the pipeline" or "on the wires." This reality is generally taken for granted by the relatively few Americans who think about such things. However, the broader the range of interests or the greater the extent of redistributive activity (actual or anticipated) involved in shaping particular American energy policies, as with other economic policies, the less likely that Canadian interests can exercise any significant influence on U.S. decision-making beyond what may be achieved through participation in coalitions of U.S. domestic interests (Hale and Gattinger 2010). In such cases, when particular Canadian energy imports are caught in the crossfire of ideological conflicts and interest group competition in the United States, Canada's relative dependence on a single large market can place Canadian interests "over a barrel" unless Canada can engage American political processes successfully.
Canada's reputation as a secure supplier of energy products - and indeed, the largest foreign supplier of U.S. oil, natural gas, and uranium imports - has created a sizeable policy community responsive to Canadian policy concerns, as long as Canadian policies do not discriminate against U.S. national or corporate interests. However, Canada's dependence on the United States as the principal market for its energy exports, and the relevance of secure export markets to the economic viability of many energy development projects given historic volatility in North American and global energy prices, increase the vulnerability of Canadian energy interests (and the governments that depend on them for revenues) to domestic political and market shifts in the United States. The higher Canada's profile as an energy supplier to the United States, the more its exports are likely to be caught in the cross-fire of American domestic debates over energy and related environmental issues. As a result, managing the bilateral energy relationship and related environmental issue has become a key priority for both federal and provincial governments in Canada.
This paper explores the major structural factors that have helped to shape the evolution of U.S.-Canadian energy interdependence, including the shifting relationships between the political and market contexts for bilateral energy relations, during the past twenty years and their implications for theoretical approaches to cross-border policy relations. It then analyzes Canadian efforts to engage the diverse world of American energy policies at different levels of analysis, and their implications for the evolution of bilateral energy relations in the foreseeable future.
Structural and Theoretical Considerations
Discussions of national energy policies - as with most other areas of bilateral relations - take place in very different contexts. These differences are rooted in three major sets of factors: the different political and market contexts for energy and environmental policies in each country, institutional and market asymmetries which create different national (and sub-national) frameworks and patterns of segmentation for governance, and the asymmetries and variable geometry of interdependence of the two countries. The practical effects of these relationships can be summarized in a series of stylized facts.
POLITICAL AND MARKET CONTEXTS
The United States is a sizeable net importer of most energy sources, particularly oil; Canada is a net exporter of most energy sources, including 30 percent of its oil production and 50 percent of its oil and natural gas production in 2008 (Energy Information Agency 2009). Most Canadian energy exports are sold to buyers in the United States. Canada exported 38.3 percent of all the energy it produced in 2007. Rising energy prices increased energy exports from about 8 percent to 27 percent of overall Canadian exports between 1999 and 2008 - and more than one-third of its exports to the United States (Statistics Canada 2009a). Canada currently supplies 20 percent of U.S. oil imports and 18 percent of its natural gas imports (U.S. Department of State 2010).
However, what market cycles confer they can also withdraw - as demonstrated by global oil prices' vertiginous drop from $US 139 per barrel in July 2008 to $35 in January 2009 before rebounding to the $70-80 range for much of 2009 and 2010 (United States Energy Information Administration 2009). It is also visible in dramatic shifts in natural gas prices and geographical production resulting from technological changes and large-scale discoveries in the southern United States which came on stream in 2008-09 (Ebner 2009; Foster 2009).
Regionally diversified energy exports are economically significant in most provinces - but especially in Western Canada. Power exports play a major role in the investment and production calculations of several provincial electric utilities that are integrated into regional grids in the United States, although electricity trade flows fluctuate both seasonally and annually depending on rainfall and other weather conditions.
The strategic importance of energy imports to the American economy and American security, combined with increased global competition for control over major energy reserves and the resurgence of resource (especially energy) nationalism during the past decade, has increased the importance of energy security in American political discourse. Canada's status as one of the few major energy exporting countries whose domestic energy industries are not dominated by state-owned or controlled energy firms is a major factor in close political and economic relations between the two countries. However, the size and complexity of U.S. energy markets have contributed to a primarily domestic policy focus for sectoral and micro-level regulatory policies.
Energy interdependence is institutionalized in major continental and regional distribution networks. However, its extent varies across regions and is highly variable depending on the particulars of different energy sub-sectors (e.g. oil, gas, refinery capacity, pipelines, electricity production, electricity distribution) and relative distance from the Canadian border. Energy markets and infrastructures in both countries are heavily integrated. Interconnected pipelines, electricity distribution systems, financial markets, and comparable legal systems enable most large firms (and many small ones) to operate in both countries as part of broader and deeper networks of cross-border economic activity.
However, the nature of market integration is fundamentally different from the 1960s and 1970s, when the disproportionate influence of major U.S. oil and gas firms in Canada's energy sector became a major source of political controversy. American-based energy firms continue to play a major role in oil and gas development in Canada. Exxon-Mobil subsidiary Imperial Oil became the second largest Canadian oil and gas firm following the merger of market leaders Suncor and Petro-Canada in 2010. Several other major U.S.-and foreign-based firms maintain a significant market presence in Canada's upstream (production) and midstream (refining) oil and gas sectors (see Table 1) - although Chinese and French firms have made significant inroads in recent years with the ongoing shuffling of corporate assets (Chastko 2010; Tait 2010; Yedlin 2010).
Table 1 Canada's Largest Oil, Gas, Pipeline and Petrochemical Firms - 2009 Rank in Name 2009 Revenues Ownership Type ('000) Revenues (FP 500 firms) 5 IO Petro Canada $ 27,585,000 (1) (De08) 9 IO Suncor Energy $ 25,036,000 Inc. 12 IO Imperial Oil $ 21,292,000 Exxon-Mobil (U.S.) Ltd. 100% 19 IO Husky Energy $ 15,074,000 Inc. 24 Gas Encana Corp. $ 12,681,074 25 Pipe Enbridge Inc. $ 12,466,000 29 Oil Cenovus Energy $ 11,659,740...