January 14, 2025
Ontario premier Doug Ford has moved into the forefront of Canadian responses to incoming US President Donald Trump’s threats to impose a 25 per cent tariff on Canadian exports to the US, and more recently to use “economic force” to make Canada part of the US.
Ford’s initial response was to threaten to cut off electricity exports to the US from Ontario, if the Trump administration proceeded with its tariff threat. This was followed, somewhat contradictorily, by a proposal last week for a “Fortress Am-Can” around energy. This would involve deepening energy system interconnections between Canada and the United States. The apparent goals, in part, would be to facilitate exports of ‘clean’ nuclear energy from Ontario, as well as cooperation on new nuclear projects in both countries.
The Ontario premier may well be on the right track in terms of the energy relationship between Canada and the US, as a key point of leverage in response to Trump’s threats. Unfortunately his approach so far has lacked credibility.
Trump’s proposed tariffs would be flagrant violations of the 2020 US-Mexico-Canada (USMCA) and the earlier 1988 US-Canada Free Trade and 1994 North American Free Trade (NAFTA) agreements. These agreements were designed, from Canada’s perspective, precisely to prevent the US from engaging in the sort of unilateral trade action that Mr. Trump is threatening.
Given the portion of US energy supplies, principally in the forms of oil, gas and electricity that flow from Canada, energy provides an obvious point of leverage in the current dispute. Canada’s position in this regard was actually reinforced by the previous Trump administration’s agreement to remove the energy proportionality provisions contained in the original 1988 US-Canada Free Trade Agreement and the NAFTA, from the USMCA. These provisions had guaranteed Canada energy exports to the US.
However, threats to reduce the flow of Canadian energy to the US, or to impose some form of export charge, need to be credible in order to be effective.
Unfortunately, Ontario’s leverage in this regard is far less than its premier seems to believe. Ontario’s electricity exports to the US are relatively modest. The exports that do occur are essentially transactional and necessary for the management of the province’s own electricity grid.
Ontario’s “Fortress Am-Can” energy proposal seems an equal stretch of credibility. Extensive coordination around electricity system reliability and security already takes place between Canadian and American grid operators. On ‘clean ‘ energy exports, it is important to note that Ontario’s nuclear reactor fleet is actually shrinking with the long-overdue retirement of the Pickering A plant at the end of December. At the same time, pollution intensive gas-fired generation has been rising dramatically.
As for the notion of expanding nuclear capabilities on either side of the border, US utilities and grid operators are looking carefully at the final costs of the recently completed Vogtle nuclear power plant in Georgia. With a final US$35 billion (or nearly $Cdn50 billion) price tag for 2200 megawatts capacity, the project is raising serious questions about the economic viability of new nuclear power projects. The Ford government is proposing a 4800MW new build project of its own for the Bruce site near Tiverton.
New estimates from the Tennessee Valley Authority, suggesting that the cost of Ontario Power Generation’s 1200MW four-unit ‘small modular reactor’ project at Darlington could hit $25 billion, are raising similar questions. The Americans may well be happy to let Ontario take a $100 billion+ flyer to confirm what they are already learning about the costs of new nuclear reactors. The province’s electricity ratepayers and taxpayers are unlikely to be as pleased. All of this while the costs of renewable energy and energy storage continue to fall.
Canada’s premiers, including Mr. Ford, need to curtail their efforts at ‘freelance' diplomacy in response to Mr. Trump. Instead, they need to stay focused on engaging with their subnational counterparts in neighbouring states. In particular, they need encourage the governors of those states to emphasize to the incoming administration, and their Congressional representatives, the extent to which Trump’s proposed tariffs would do at least as much harm to their economies as Canada’s.
Nationally, Canada needs to recognize that the assumptions that have underlain the Canada-US relationship for the past forty years are being shattered. If Canada is to avoid simply offering itself up as a fragmented, compliant and even annexed resource colony of the United States, it needs to formulate a strategy that leverages its assets, particularly around energy, with the US. Canada also needs to strengthen its wider economic and political alliances with the rest of the Americas, Europe and Asia, where there is also growing alarm over the signals coming from the incoming US administration.