The tangled what-ifs of Alberta separation — from trade and treaties to currency and disaster costs

Reports have warned about not only the economic costs of separation, but also the various challenges and dilemmas posed by starting a new country on the Canadian Prairie. (Jason Franson/The Canadian Press)Social SharingIt’s the big things that might spring to mind first when pondering the consequences of Alberta separation — the potential impacts to the gross domestic product, jobs, wages, debt and such.

This week’s major report by the University of Calgary’s School of Public Policy laid out these figures in sharp relief, with a series of outcomes ranging from modest long-term benefits to massive long-range detriments (and short-term pain in any scenario).

But beyond the headline figures contained in the government-commissioned summary report, we find a series of the U of C academics’ technical papers.

They underpin predictions of an independent Alberta’s debt load and potential job losses by diving into the many complex factors a breakaway republic named Alberta would have to contend with.

When you form a whole new country from the rib of an existing one, there’s a tonne to consider, from tariffs and multilateral agreements to currency, interest rates and treaties — both international and Indigenous.

Or even seemingly smaller (but still billion-dollar) factors, like public-sector pension obligations, and who pays for the aftermath of major floods and wildfires, the kinds of disasters Alberta knows all too well.

So without further ado, here’s a glimpse at the report’s analysis of some of the other challenges of Alberta independence, in the event that the public’s current pro-unity majority shifts dramatically, and opts for independence in two successive referendums, beginning with the one on Oct. 19.

Owing largely to oil pipelines, Alberta’s trade south of the border is more valuable than its exports to the rest of Canada, the School of Public Policy report notes.

Because of that, the authors suggest it may be most expedient for a new country to strike a direct deal with Washington, rather than try to inject itself into the already rocky talks around the Canada-U.S.-Mexico Agreement (CUSMA).

However, it notes that while the current U.S. administration might offer terms that are beneficial to an oil-producing neighbour, the report adds: “As much as the U.S. depends on Alberta oil and gas exports, Alberta depends on making those exports more, and the U.S. administration knows this.”

Danielle Smith and Donald Trump: future trade dealmakers? (Danielle Smith/X)Meanwhile, joining CUSMA — does it become CUSAMA? ACUSMA has a certain ring — would provide largely tariff-free access to its big customers, including Mexico. “However, the process could be lengthy,” the report states, a familiar refrain throughout. 

Also, ratification to Alberta’s benefit might run into pushback from Democrats in the U.S. Congress, given their historic opposition to the Keystone XL pipeline.

And while Alberta separatists might be wary of global bodies like the World Economic Forum (WEF) and World Health Organization (WHO), they’re more likely to need to get their new country into the World Trade Organization (WTO), World Bank and International Monetary Fund.

“Without membership in these institutions, a separate Alberta would not receive most-favoured-nation tariff rates, making it subject to the same tariff rate as, for example, North Korea,” the report says.

The fastest any country has ever gotten into the WTO is three years, and five to seven is more like the “best-case-no-active-opposition” estimate, the report says.

But will there be no opposition? Other countries with their own secessionist movements might be wary of offering a quick embrace of a breakaway ex-Canadian republic.

And domestically, even if there’s a deal reached between Alberta and Canada, the regulatory differences and hiccups of interprovincial trade could get exacerbated when there’s a harder border. There’s a risk “the border ‘thickens’ considerably, in similar fashion to the U.K.’s border with [European Union] countries after Brexit,” the report says.

The report notes that the currency question was a major preoccupation during separation debates in Scotland and Quebec.

The dilemma is massive: stick with the loonie, try a Euro-style shared dollar, or strike off with a new Alberta form of money?

While sticking with the Canadian dollar is easiest and quickest, it keeps Ottawa in control. 

“A separate Alberta would still be subject to Bank of Canada interest-rate decisions and it would remain reliant on fiscal policy to deal with Alberta-specific shock,” the report states.

A separate Alberta could choose to keep this coin as its legal currency, but it keeps monetary policy control in Ottawa if that's the case. (Paul Chiasson/The Canadian Press)An Alberta-Canada monetary union, like in Europe, might most resemble the current situation. “It is not obvious, however, that the RoC [rest of Canada] would see great benefit to entering a formal monetary union with a separate Alberta.” 

Alberta bucks as legal tender? It’s the most common solution for new nations, the report states. 

“The exchange rate for a separate Alberta would likely be quite volatile, as it would largely reflect the price of oil,” it says. “This could cause problems for non-commodity exporters, who would see their export revenues become more volatile in domestic currency terms.”

On top of the big debt Alberta would assume as its share of Canada’s current federal liabilities, the cost of servicing that debt would be greater. Alberta already has to pay higher rates than Canada on interest payments, with a slightly higher credit rating than the country as a whole — a premium currently worth around 0.46 percentage points, the academics’ paper states. The volatility of the fossil fuel economy may make it tough to boost a standalone Alberta’s credit rating, but the study points out that oil-reliant Norway, which has a similarly sized population, has a solid rating — thanks in part to its massive sovereign wealth fund.

However, it adds: “a short-term increase in rates is likely unavoidable” for a new country.

The report actually devotes little specific analysis to the question of First Nations rights, given the lack of international comparators of secession that involves Indigenous land claim matters, and the high degree of uncertainty. (It’s not even certain that courts would allow a secession referendum to go ahead in the first place, given the ruling that blocked a petition for a straight leave-or-stay question.)

Roughly one per cent of Alberta’s land mass is covered by First Nations reserves, over which Ottawa has exclusive legislative authority. But 100 per cent of the province’s territory is covered by Treaties 6, 7 and 8 — agreements to which Alberta is not a signatory. Figuring out longstanding land and rights issues in a separate Alberta would be a “focal point” of separation negotiations, the report says.

Treaty 8 Grand Chief Trevor Mercredi speaks as First Nations chiefs, band councillors and elders gather in March to call on Premier Danielle Smith to end the separation debate. (Jason Franson/The Canadian Press)“Given the fraught history of Indigenous-settler relations, as well as those with Métis communities, negotiations over treaties, territory, rights and finances will be delicate, complex and protracted. The agreement of all actors cannot be presumed.”

That might be an understatement. Conflict seems highly predictable, given treaty grand chiefs’ vows to strenuously fight separation, and their call for police to investigate Alberta’s premier for treason for planning October’s vote.

An independent nation must defend itself, and starting a military would be one of the biggest costs for a separated Alberta. But the $8.3 billion estimate that the School of Public Policy calculates for a transitioning province could be just the start of it.

Would Alberta want to join with Canada, the U.S. and Europe in their continental defence pact, NATO? If so, there are targets Alberta would have to meet — spending two per cent of its total annual economy on defense in the short term, and five per cent by 2035.

Alberta’s GDP is proportionately larger than Canada’s. The school’s report estimates the two per cent target would cost around $10 billion annually, while next decade’s benchmark would run about $25 billion.

That’s a lot of Alberta Air Force jets!

Alberta’s lucrative agriculture and food trade — hello, cattle country — relies on the Canada Food Inspection Agency’s oversight.

A separate Alberta could hire the province’s former federal inspectors and mimic Canadian policies, but “convincing international buyers these moves are acceptable would be complicated, costly and time-intensive,” the study warns.

Given that overseas product exports would still need to ship from Canada’s coastal ports and piggyback on Canada’s existing supply chains, Alberta officials would have to persuade other countries it was safe to intermingle Alberta-inspected meat or grain with Canadian product in transport.

Would other countries, including Canada, immediately trust Alberta's food-safety inspection system? (Ben Nelms/CBC)“In the short term, a separate Alberta would likely have to ‘rent’ inspection services from the Canadian government, adding to costs and ceding control of agriculture, processed food and livestock policy to Ottawa,” the report states. 

“There are few if any gains imaginable from this scenario, only costs.”

The federal government has a long history of playing financial backstop after climate disasters like wildfire and floods. That’s meant a lot of massive cheques cut to Alberta for various non-insurable rebuilding needs.

Ottawa paid around $2.8 billion for damages in the 2013 southern Alberta floods, and ultimately $385 million for the 2016 Fort McMurray wildfire. The wildfire in Jasper National Park — that’s another dicey transfer negotiation in itself — has led to $900 million in federal payments thus far.

Only British Columbia has received more in federal Disaster Financial Assistance Arrangements than Alberta, the report notes.

“A separate Alberta would lose the ability to have such costs borne largely at the national level and would instead need to cover them entirely on its own.”

Jason Markusoff is a CBC producer and writer. He analyzes what's happening — and what isn't happening, but probably should be — in Calgary, in Alberta and sometimes farther afield. He's covered Alberta for more than two decades, previously reporting for Maclean's magazine, Calgary Herald and Edmonton Journal. He appears regularly on Power and Politics, West of Centre and various other CBC current affairs shows. Reach him at jason.markusoff@cbc.ca