The Problem with Relying on Assumptions About Our Energy Industry

Natural resource extraction has proven to be a particularly volatile source of revenues for Canada, says Tzeporah Berman.
By: /
June 16, 2014
pipeline.png

Following intense debate over Canada’s use of its own natural resources and the conduct of its mining companies abroad, the Canadian International Council is curating a project on natural resources over the next five weeks to examine Canada’s future policy environment for domestic resource extraction, energy security, and international regulatory standard-setting. The project will glean its insights from a variety of stakeholders from government, the private sector, and nongovernmental organizations in order to present a number of perspectives to better explain the challenges that we face moving forward and to delve into some of the controversial aspects of international, national, and provincial politics.

Below is the third response from Tzeporah Berman, the prominent Canadian activist, campaigner and writer, discussing the trade-offs associated with the exploitation of Canadian resources in light of global market trends and efforts to mitigate the effects of climate change.

Natural resource extraction has proven to be a particularly volatile source of revenues for Canada. From fishing to logging to oil and gas, we are all too familiar of the boom and bust cycle of natural resources in this country and the fragility of local economies dependent on global price fluctuations. The oilsands represent another clear, current example of both volatility and fragility for the local economy. The CD Howe Institute reports that the volatility of Alberta government revenues over the last ten years was three times higher than that of BC, Saskatchewan or Ontario. In fact, despite record levels of oilsands production in 2013, Alberta announced an austerity budget due to an overestimation of CAD $6.2 billion in the collection of resource revenues.

Focusing our global economic strategy on oil and gas resources in Canada is predicated on some very serious assumptions: First, that global demand and price will continue to rise. Yet, US demand is falling and technological advances in efficiency, electrification and renewable energy forecast opposite trends.

If Canada and the United States were to adopt the proposed new European standard for vehicle efficiency, the amount of oil needed for new cars would fall by close to 50 percent, with zero loss in personal convenience or jobs.[1] VW has already announced it already offers 36 models that can meet this standard and will ensure its entire fleet meets the standard by 2020.

Changes in transportation are happening very quickly. In the last two years, sales for electric vehicles have gone up 400 percent. During the same time period the price for electric vehicle batteries has fallen 37 percent.

RELATED

Second, an aggressive natural resource strategy focused on oil and gas also assumes that the world will fail to ensure a safe climate. The International Energy Agency reports that tar sands extraction consistent with the “2-degree scenario” would grow far slower than industry and governments in Canada predict today, reaching 3.3 million barrels per day (mbpd) by 2035 rather than the 5.2 mbpd the Canadian Association of Petroleum Producers foresees for 2030, five years earlier than the IEA’s far lower production forecast. Current production is 2.1 mbpd and the Alberta government has already approved 5 mbpd to be developed while oil companies have announced projects that will result in production levels across Canada of up to 10 mbpd.

If the world moves to recognize and ensure we stay within safe climate limits, this necessarily means adhering to a ‘carbon budget.’ The United Nations reports that the global carbon budget is about 565 gigatons of CO2. Presently, we are using 31GTCO2 a year globally. This means the world will use up its entire carbon budget in about 15-25 years. Here is where Canada’s oilsands come in. The oilsands hold about 170 billion barrels of economically viable reserves. This alone would take up 17 percent of the worlds remaining carbon budget. Last year, Carbon Tracker and the London School of Economics concluded that if the world is to stay below 2 degrees, then much of the value of booked carbon reserves (oil, gas, coal) could not be realized. That we are in fact, facing a ‘carbon bubble’ in the market and the majority of the world’s known fossil fuel reserves are in fact ‘unburnable.’ In a recent report that looks at what that “unburnable carbon” scenario would have on oil and gas development, they conclude that heavy oil and oilsands projects would be at the greatest risk of becoming ‘stranded assets.’ Far from ensuring our global competitiveness—and in a world that addresses climate change—heavy reliance on our oil and gas resources could be sending Canada’s economy hurtling towards a cliff.

Finally, despite the dominant rhetoric and assumption from the Harper government and oil industry in Canada that we have no choice but to depend on our natural resources to ensure global competiveness, the fact is that other sectors contribute far more to our economy and result in more jobs than the fossil fuel energy sector. Additionally, global trends on clean technology, clean energy and what is being called the ‘innovation economy’ predict more growth and global competitiveness than resource dependence.

Today, the oil and gas sector funds only a small majority of social programs – despite the rhetoric surrounding building schools and hospitals. Moreover, in Canada oil and gas revenues lead to just 4.2 percent of corporate taxes. By way of contrast, the finance, trade, manufacturing, and construction sectors pay the vast majority of Canada’s taxes. Unconventional oil and gas are responsible for just 2 percent of our national GDP, and if you include the conventional oil and gas sector, that number only rises to 6 percent. My point being that despite the oil sands sector’s rapid growth, Canada’s government is not currently dependent on oilsands revenues to any significant degree. Nor is it too late to avoid being locked into ever-growing oil sands development as Canada’s pre-eminent economic strategy. Global trends demonstrate that other sectors are rising in importance in global financial markets. In 2013, global investment for clean energy was CA$254 Billion, a 400 percent increase in just under ten years (2004: CA$54 Billion). Clean energy investments are now 40 percent of all new electrical generating capacity in the grid. By 2030, according to Bloomberg New Energy Finance CEO Michael Liebreich, clean energy investments will be CA$630 billion, or 73 percent of total energy investments.

There are a number of clean energy and export revenue options that we haven’t even really explored yet. For example, recent studies estimate that Canada could develop 5,000MW of geothermal power within three years, creating 9,000 permanent jobs.

Interestingly, 5,000 MW of geothermal power would be almost six times larger than the generating capacity of the proposed Site C dam in British Columbia, could be built in half the time, and would be 45 per cent more cost effective per unit of energy.

The Canadian Wind Energy Association also estimates that wind energy can satisfy 20 percent of Canada’s electricity demand by 2025. Achieving this vision will pay huge dividends, generating $79 billion of investment and creating 52,000 high quality, full-time jobs. (It’s worth noting that total direct employment in the oilsands in 2012 was 22,340 workers, representing only 0.2 per cent of Canada’s full-time workforce.)

The good news is that despite federal government cuts and a lack of policy consistency across the country, this year Canada recorded the second fastest clean energy growth in all of the G20. Strong clean energy investments in 2013 catapulted Canada up five spots to seventh place in the G20. Investment rose by 45 percent, to $6.5 billion. The wind sector grew by more than 40 percent, to $3.6 billion. Canada’s solar sector also recorded impressive growth in 2013, attracting $2.5 billion. The fact that this is in large part because of the activities in one province, (the Green Energy Act in Ontario has stimulated the industry) shows the enormous potential the industry has in the country if these policies were supported in other provinces or through federal initiatives.

With the right policies, clean technology could become a CA$50-billion industry and employ 100,000 Canadians by 2022.

The Canadian clean technology industry is currently worth about CA$11 billion and grew by 9 per cent from 2011 to 2012, easily outstripping the performance of the Canadian economy as a whole. The industry’s success is one of Canada’s best-kept secrets. That is partly due to its structure. It is made up of about 700 small to medium-sized enterprises, most with less than CA$50 million in revenue. However, together they invest CA$1 billion in research and development and employ 41,100 Canadians, 20 per cent of whom have not yet celebrated their 30th birthday. Other countries have already taken notice. Three-quarters of Canadian clean technology companies are exporters, with 42 percent of product sales going to countries other than the United States. Domestic demand, however, remains underwhelming. New lending tools are needed. And too often governments at all levels fail to engage with these companies for their own purchasing and infrastructure needs.

[1] The proposed EU new standard is that from 2020, all new cars in the EU should not emit more than 95 grams of CO2 per km (95 g/km) and from 2025, 68-78 g/km. The current average is 170 g/km.