A new study on trophy hunting in BC’s Great Bear Rainforest found that bear-related ecotourism generates “12 times more in visitor spending than bear hunting and over 11 times in direct revenue for BC’s provincial government.” The study, from the Centre for Responsible Travel (CREST), also found that bear viewing companies create roughly 50 times as many jobs as do bear hunting guide outfitters in the same region (510 vs. 11 in 2012).
In other words, conservation pays. That should be common sense. A bear shot by a camera instead of a rifle lives another day, providing further economic opportunities. Naturally, bears have their own reasons for living – and there are many other strong reasons to ban trophy hunting in BC – but since politics seems to be all about money and jobs these days, it’s a point worth considering, and one which applies far beyond bear viewing.
Tourism worth far more than pipelines to BC
Though you’d hardly know it from listening to Christy Clark or Stephen Harper, tourism is the cornerstone of BC’s economy, at a value of $13.4 Billion a year. Critical to the larger toursim sector is the billion-dollar wilderness tourism industry and “Super, Natural BC” brand upon which it is rests. So when you hear about oil and gas pipelines, terminals and tankers and the short-term jobs they will provide British Columbians (Enbridge would offer just 78 direct, permanent jobs in BC), consider the potential trade-offs they carry in the damage a single spill would wreak upon that brand.
Kayaking more valuable than logging
Another example of the economic value of conservation lies in a proposal to log 60 hectares near Boat Bay on West Carcroft Island. The logging would destroy kayaking values in a world-famous orca haven in nearby Robson Bight. The kayaking company operating there did some math to determine which form of mutually exclusive economic development was of greater value to the local economy. As Ray Grigg described in a story last year:
[quote]It calculated that the economic value of the 60 hectares of timber to be logged was $3,600,000. Since the regeneration cycle meant the area could be cut only once every 60 years, the yearly economic value of the timber was $60,000. The economic value to the kayaking company, however, was $416,000 per year, or $24,960,000 for the same 60 year period.[/quote]
The kayaking operation would provide 20,160 person-days of employment versus just 300 person-days from logging. “And this simple economic analysis didn’t include the employment and earnings for the 40 other ecotourism businesses using the same area,” Grigg continued. “These calculations suggest that logging, when it is in conflict with high-use ecotourism areas, is economically and socially indefensible.”
Conserving what precious little nature we have left in BC – in the world, for that matter – is about far more than dollars and cents. But, for what it’s worth, let us not forget that the principles of sustainability and conservation often apply as much to the economy as they do to the environment.
Yet, in all these cases, there is no real burden of proof on project proponents to demonstrate the value of their economic arguments. “The economy” means many things to many people and groups within society – not to mention regions around the globe – as it means something very different in the short-term versus the long. And there is often just as much evidence that these projects are harmful to another segment of our economy.
Whose ‘economy’?
In short, “the economy”, according to Enbridge or the NEB or the Harper Government is more accurately described as “the economy as they see it”. It’s their economy. And in today’s regulatory landscape, it’s sufficient simply to say that a project is good – even necessary – for the economy, and Bob’s your uncle.
That, in a nutshell, is the attitude of governments and regulators in todays’s Canada.
But let us put some of these assertions to the test.
Enbridge paints false picture of economic benefits
With Enbridge, the central premise is that, because international oil markets typically pay a higher price than the domestic West Texas Intermediate exchange, Canadian producers are land-locked and stuck getting a lower value for their product than they merit. The Western Canadian Select discount on Tar Sands products, taking into account the lower quality and higher processing costs of bitumen, adds further insult to injury, we’re told. If only Canada could reach out to new markets, we’d see hundreds of billions of dollars of added value gush into the Canadian economy (only bitumen doesn’t gush, it oozes).
Yet throughout the Enbridge hearing, we heard compelling evidence about the economic risks associated with this bitumen export strategy. Independent economist and former ICBC CEO Robyn Allan has written extensively about the dangers of banking our economic future on this plan, while cautioning that the job claims made by Enbridge are wildly exaggerated.
[quote]As an economist, I am troubled by continued attempts by Enbridge to misrepresent the facts of this project…Enbridge executive Janet Holder claimed, ‘The Northern Gateway pipeline represents a $6.5-billion investment in our economy. It will create 3,000 jobs during construction and 560 permanent British Columbia jobs.’ This is just not true…Digging deeper into Enbridge’s own analysis reveals that construction jobs from Northern Gateway are just over 1,000.[/quote]
As for permanent jobs, Allan continues, “Only 78 jobs are related to the actual project.”
There is the well-documented issue of the Dutch Disease – the concept that in hitching one’s economy to the oil and gas industry results in an inflated dollar, which in turn hollows out other industries like our manufacturing sector. The topic, especially when raised by Opposition Leader Thomas Mulcair, has produced a flurry of denials, demonstrating the danger it poses to the status quo.
This is more than some fringe theory – it is widely-acknowledged by such pillars of the global financial community as the Organization for Economic Cooperation and Development, which concurs Canada suffers from this financial affliction.
Yet, Enbridge went as far as arguing at the hearings that the fate of Canada’s entire economy hinged on the success of its project. Company counsel Richard Neufeld made the laughable claim to the Joint Review Panel that if Northern Gateway were rejected, ”Canada would be facing, we submit, an economic catastrophe of unprecedented proportions.” What’s not so funny is that the JRP bought it, hook, line and sinker.
Economic risks posed by Enbridge
Then there are the relative lack of economic benefits versus the huge risks to BC’s economy from the pipeline. Premier Christy Clark included a “what’s in it for BC” clause in her famous 5 conditions for Enbridge. To date, nothing has been done to meet this criteria. Moreover, changes in Canada’s immigration laws are designed to ensure a steady stream of foreign temporary workers building these projects – at a 15% discount over Canadian labourers for doing the same job.
BC’s billion-dollar sport fishing industry is threatened by tanker traffic
The cornerstone of BC’s economy today is tourism – a $13.4 Billion industry based on our “Supernatural BC” brand, which is severely threatened by the very real risk of an oil spill.
On that note, the risk factor from the proposed pipeline and tankers was virtually ignored in the NEB’s review of Northern Gateway – this despite the concerns of professional fossil fuel port and shipping engineers who intervened with detailed concerns regarding the tanker component of the proposal. In their professional opinion, the risks are too great, the math too faulty, the questions too many – despite the panel’s downplaying of these concerns.
The economic myths of fracking and LNG
The same pattern of economic arguments without evidence repeats itself throughout the resource sector today.
According to leading unconventional energy expert David Hughes – a 32-year senior geoscientist for the Geological survey of Canada and leader of its national Unconventional Gas Potential Review – America’s fracking boom is quickly going bust. Hughes analyzed actual wellhead data across the five biggest US shale gas plays – accounting for 80% of total national production – and found that the average decline rate of these wells over 3 years is a staggering 84%. That means that in 3 years, a well is pretty much tapped out.
Hughes predicts that in order for America’s shale gas production to remain flat – not grow, or supply new markets – it would require 7,000 new wells every year, at a cost of $42 billion. This is what Thomas Homer-Dixon has aptly labelled “fracking to stand still” – the title of a recent Globe and Mail editorial on the subject.
So is fracking an economic miracle or a fantasy with nightmarish consequences? And even if the economic myth were true, would it justify all those holes in the ground, all that carbon in the atmosphere, all the spoiled water?
Many holes in LNG’s sinking ship
As for LNG, there are myriad reasons why the current gold rush will not pan out – at least not for regular British Columbians. For starters, while the BC Liberal government promises tens of billions in provincial revenues, out of the other side of their mouth they talk of slashing royalties and amping up public subsidies in order to woo foreign investors. In the end, the government cannot have its cake and eat it too.
Meanwhile, as to the entire premise for LNG – that BC producers will fetch a higher price in Asia with this gas (echoing Enbridge’s argument) – Bloomberg predicts a 60% decline in the Asian price by 2020, the very year we’re supposed to first enter the market. That would amount to a $6 million loss per tanker!
Again, how does this benefit our economy? If the oil and gas industry requires massive public subsidies to make its projects worthwhile than how solid is their economic foundation to begin with? And what about the economic value of farmland – not to mention its necessity to our survival?
You can’t eat money
In 2011, in defense of port expansion projects atop the province’s best farmland, Port Metro Vancouver CEO Robin Sylvester actually stated:
[quote]Agriculture is emotionally important, but economically [of ] relatively low importance to the Lower Mainland.[/quote]
BC’s agricultural land faces extreme pressure from development
And yet, the year prior to that statement, agriculture yielded $2.65 Billion for BC’s economy (that’s legal agriculture alone), with $728 million coming from the Lower Mainland – compared with $180 million in revenues for the port authority.
Also in BC, there has been great concern about the impacts of open-net-pen salmon farms on wild fish and the marine environment. We’re told that the industry is essential because of all the economic benefits it provides. And yet, the entire aquaculture industry in BC provides just 1,700 direct jobs, with about 800 coming from salmon farming. Meanwhile, being over 90% Norwegian-owned, the lion’s share of the industry’s profits flow out of the province.
Of course, these decisions should not be solely about “the economy”. One would hope, if our species has any chance of survival in an era of climate change, we would somehow move past this argument that the economy trumps all. But if we’re going to talk about the economy, then let’s have an honest, factual, holistic debate about the economic advantages and trade-offs of a given industry or project.
If you live in BC, it will cost you, conservatively, $10 Billion – paid through skyrocketing power bills and taxes. It will flood tens of thousands of acres of excellent farmland – sacrifices you will make entirely for the benefit of multinational oil and gas companies.
And here’s the kicker: you have no say in the matter. The environmental hearings into the proposed Site C Dam currently underway in northeast BC have utterly excluded the people who will be paying the lion’s share of the financial costs: you. No hearings in Vancouver, Victoria, or anywhere outside of the Peace Valley, of which 50,000-plus acres of quality wildlife habitat and farmland would be flooded for the project.
Debunking Site C’s myths
Let’s begin by setting aside a few popular myths, peddled by your government, often repeated by the mainstream media.
First, when you hear $7.9 Billion, remember that dams all around the world run notoriously over budget – an average of 27%, according to the World Bank. Add to that the dismal track record of cost overruns for major capital projects under the supervision of the BC Liberal Government – from the convention centre to the stadium roof to the Port Mann Bridge – and we’ll go ahead and call Site C Dam a $10 Billion project…at least.
Second, whenever you read that Site C Dam would power 450,000 homes, remember that this power is not for yours or anyone’s home or small business. And that comes straight from the horse’s mouth – BC Premier Christy Clark, that is. She has told us repeatedly that Site C is necessary to power BC’s much-vaunted, proposed liquefied natural gas (LNG) industry.
You see, BC is totally self-sufficient in electricity now and well into the future. According to Stats BC, we exported a surplus of over 5,800 gigawatt hours last year – about 10% of our total domestic demand. That trend shows no sign of reversing for decades to come…unless, that is, we decide to power enormously energy-intensive LNG plants on the coast with subsidized public power.
These plants have been granted special permission to break the Liberals’ own climate laws and burn some gas to power the cooling of the rest of the gas into liquid – bringing massive air pollution and climate impacts. Site C would provide only enough energy for one of the larger proposed LNG plants, so it makes little sense for the beautiful Peace Valley, its environment, farmland, First Nations and citizens to make such a costly sacrifice at the altar of LNG.
With these hearings scheduled over the holiday season and only in the north, the message from the BC Liberal government could not be clearer: They do not want your voice to be heard. Just sign the cheque, give the land and the power to someone else, and keep your mouth shut.
$10 Billion of your money for a dam you do not need: That’s Site C Dam in a nutshell.
So whether they want to or not, this BC Liberal Government needs to hear from its constituents in the Lower Mainland, the Kootenays, the Cariboo, the Interior the coast. With a government that’s already racked up more debt – both hidden and obvious – than all its predecessors over the past century combined, the people of BC cannot afford to allow it to add another $10 Billion to their children’s Visa.
The founders of the American republic had it right: No taxation without representation. This government badly needs a refresher in that concept.
Bill Bennett, the BC Hydro point man in the government, tells us that there will be a 28% increase in Hydro charges over the next few years, which NDP critic John Horgan says will raise a family’s costs by $300 dollars annually.
The NDP sent out a fundraising plea last week “to fund our work to protect British Columbians from these gigant rate hikes.” Simply campaigning to kill the increases without getting to the root of the matter will do nothing to solve the problem long-term, as our independent economist Erik Andersen has explained in these pages.
Mr. Bennett didn’t tell the whole truth about the need for this rate increase and Horgan, who talks about the obvious impact this will have on families, doesn’t seem to want to go to root of the matter. I will get to that in a moment. First, an obvious question which doesn’t get raised much if at all.
Bleeding Hydro still pays dividends to Liberal Govt
With all its financial woes, BC Hydro still pays a dividend to the government. How can a corporation bleeding to death financially pay a dividend?
The answer is – are you ready for this? – The cost is passed onto us, the beleaguered ratepayer/taxpayer. What is happening is simple – the government takes the dividend that can only be paid by a Hydro rate increase. So, the government steals from our pocket then makes up the theft by raising rates!
The real reason for Hydro’s financial woes
Let me spell it out – these hikes have very little to do with upgrades and everything to do with rank fraud perpetuated by the Campbell/Clark government and placed on the shoulders of BC Hydro, then passed on to us!
Let me pause for a moment to observe that this sleight of hand is indeed happening and raise Mair’s Axiom I to the forefront: “You make a serious mistake in thinking that those in charge know what the hell they’re doing.”
Now the grand theft, entirely unmentioned by the mainstream media.
Here’s the skinny. In 2003 the Campbell government took away BC Hydro’s right to generate any new energy (except Site “C”) and all new energy must be created by private power companies.
(As we go on here, remember Mair’s Axiom I.)
For the most part, private companies – the so-called “run of river” projects – produce the majority of their power during the Spring run-off, just when Hydro has full reservoirs and has no need of private energy.
Well, then, I guess BC Hydro simply doesn’t buy energy from these companies, right?
Ah! You say, Hydro would be able to get this power cheaply, right?
Wrong. Remember Axiom I – they must pay 2-3 times the market price and about 10x what they can make it for themselves!
What are the consequences from this for Hydro?
Over the next 20-40 years they will have to shell out over $50 BILLION dollars to these private companies, somewhere between $1.5 and $2 BILLION per year for power that don’t need and must pay at least double its worth. Note, that these private contracts, by all accounts, are indexed to increase over time, so that they are protected from the marketplace.
Now the scandals: Bill Bennett is shielding this $50 BILLION from his reasons for Hydro increases – and for reasons I can’t fathom, the NDP critic, John Horgan, isn’t talking about it.
Asian investment explodes in BC’s LNG market, rivalling the scale of resource development in the tarsands, as new trade deals threaten to entrench foreign state ownership of Canada’s key energy assets.
For the last number of months, politicians, media and the talking heads have repeated the story that foreign investment – read Chinese – has fallen of a cliff and bi-lateral relations are frosty due to Harper’s “tough” new, yet undisclosed, policies on investments from foreign state-owned-enterprises (SOEs) in particular.
Chief among the irritants causing the Chinese-Canadian bilateral “suffering” is the “delays” in ratifying the Foreign Investment Promotion and Protection Act (FIPPA).
But how does that square with reality?
Yes, overall “investment” from Chinese specific SOE’s has fallen slightly, but that is largely because politicians and media compare it to when the largest investments in Canadian history occurred with the Progress Energy and Nexen takeovers – totalling over $20 billion.
Were they expecting a never-ending flow of SOE dollars at that rate?
Foreign investment still going strong
Well, as it turns out, that is exactly what has occurred despite the rhetoric. Asian SOE investment has at least doubled and more private Chinese investment was just announced this week!
What’s more, it’s been happening regiularly since the big takeovers, as investment from PetroChina in western Canadian natural gas plays occurred immediately after Harper announced his “new tough laws,” as we reported on their partnership with Canadian energy giant Encana at the time.
And foreign SOE investment has never really stopped since. Despite Harper’s bold claim at the time that the takeovers marked the “end of a trend and not the beginning of one,” and his infamous hard line:
[quote]To be blunt, Canadians have not spent years reducing the ownership of sectors of the economy by our own governments (Petro Canada), only to see them bought and controlled by foreign governments instead.[/quote]
The Floodgates have opened despite media, government claims
Earlier this week, it was announced that in addition to PetroChina and CNOOC, Sinopec was in discussions with Rich Coleman about their LNG intentions for our coast, all negotiations are under non-disclosure as we were the first and ONLY ones to report.
Also this week came the news that ENN, China’s largest natural gas distributor, intends on building two LNG processing facilities, one in Vancouver the other in Edmonton, to supply “gas stations” across the country with our LNG – making them the first, largest and only Canadian domestic retail distributor.
This all puts the lie to Harper’s claim that “it’s the end of a trend” and that we’re not divesting Petro Canada only to have foreign governments replace it..
Asian SOEs have lock on both export markets, domestic distribution
Thus far, of the approximately 80 million tonnes in 25 year LNG export licenses the Harper government has approved, or intends to, four Asian SOEs are on the receiving end. (PetroChina, Sinopec, CNOOC and Petronas)
To put that in perspective, 80 million tonnes of LNG is the oil equivalent of over 2 million barrels a day, every day, for twenty five years.
In this recent NEB filing, a total of six LNG project proposals in BC have received, or have submitted an application for, an export licence. According to a BC government press release, these projects include:
Douglas Channel Energy Project – Proponents are LNG Partners and Haisla Nation. Located in Kitimat (floating facility). Received a 20-year export licence in February 2012, authorizing the export of 1.8 million tonnes of LNG a year.
Kitimat LNG – Proponents are Apache Canada Ltd. and Chevron Canada Limited. Received a 20-year export licence in October 2011, authorizing the export of 10 million tonnes of LNG a year.
LNG Canada – Proponents are Shell Canada Ltd., Korea Gas Corporation (KOGAS), Mitsubishi Corporation and PetroChina Company Limited. Located in Kitimat. Received a 25-year export licence in February 2013, authoring the export of 24 million tonnes of LNG a year.
Pacific NorthWest LNG – Proponents are Petronas, Progress Energy Canada Ltd. and Japan Petroleum Exploration Co. Located in Prince Rupert. Submitted an application to the NEB on July 5, 2013, to export 19.68 million tonnes of LNG annually for 25 years.
Prince Rupert LNG– Proponent is BG Group plc. Submitted an application to the NEB in June 2013, to export 21.6 million tonnes of LNG annually for 25 years.
WCC LNG Ltd. project – Proponents are Imperial Oil Resources Limited and ExxonMobil Canada Ltd. Will be located in the vicinity of Kitimat or Prince Rupert. Submitted an application to the NEB in June 2013, to export 30 million tonnes of LNG annually for 25 years.
These figures were as of June of last year and totaled 105 million tonnes per annum (mtpa) for 25 years. There has been some shuffling since, and this does not include Sinopec who is scoping out a 30 million tonne project, and suggested this week it was making good progress with its BC LNG negotiations.
LNG plans rival tarsands in scale
But at the much lower 80 mtpa figure, that is still larger than the equivalent current tarsands production in oil. (conversion chart here)
Petronas’ proposed Prince Rupert LNG plant (artist’s rendering)
Or put another way, at 80 mpta, it is four times the entire existing Australian LNG export market, and they are third largest exporters of the product in the world behind Qatar and – you guessed it – Petronas (Malaysia).
There, the Haperites leveraged investment into the risky and marginal tarsands by handing over nearly the entire natural gas industry of BC. These deals are so sweet that Petronas has already begun selling off their piece by offering huge, lucrative partnerships in the whole LNG train from fracked well to regasification for their prospective partners to enjoy. Japan is already on board and we may see even more Chinese SOE involvement in this deal when all is said and done.
That covers off the export market, and this week’s ENN announcement that it intends to be the primary distributor across Canada means that foreign-based companies will have a head start on supplying retail LNG from coast to coast, as they intend to begin pumping by 2016.
BC Minister of Natural Gas Development Rich Coleman (Damien Gillis)
Apparently, negotiations with the mostly Asian companies involved are so complicated that not only are they done under non-disclosure agreements, but the results we have been promised this month are now delayed until his government tables its budget next year.
You will also learn that Coleman intends to lock down the world’s lowest royalty and taxation regime, streamline approvals and that peace and stability exist among environmentalists, the government and First Nations as a result of revenue sharing agreements and “world-class” environmental regulations, as I recently wrote about.
Trade Agreements and Democracy Collide with TPP
The controversial Trans-Pacific Partnership will revolve around natural gas – BC’s in particular – as many of the proponents of the TPP are in on the BC LNG play that has been trumpeted as the largest deals in history.
There is still no word on the TPP text outlining the new paradigm for Canada’s natural resources, but it is clear we are not on the winning side, as we are treated to more secrecy and backroom deals.
FIPPA implications and why we need to act now
Which brings us back to FIPPA and how our relationship with Asia is “suffering” as a result of the delay in ratifying this deal. Minister John Baird recently claimed that ratification was imminent, and as we learn more and more about the significance of the Chinese FIPPA – given their majority ownership position in both our LNG export and domestic markets, in addition to the full basket of other natural resource investments and their huge stake in our retail markets – you can see why China is interested in closing this deal.
However, if we are interested in true prosperity for Canadians, it’s high time we take a sober second look at the huge, far-reaching impacts of the FIPPA Treaty. You may recall the work done here at The Common Sense Canadian to bring attention to how the FIPPA Environmental Assessment was carried out against the letter of the law, and how it dismissed any impact on the environment whatsoever as a result of Chinese investment.
These conclusions are patently ridiculous as we learn to what extent Chinese investment permeates the entirety of our economy.
It’s time to follow up with the Cabinet and Chief negotiator of the FIPPA treaty on our request to clarify how they completed a successful Environmental Assessment, based on the flaws we pointed out and I detailed in a submission through the public process.
The LNG export approvals alone are going to result in such a massive escalation of fracking that we cannot let the FIPPA EA conclusions stand based on that one issue alone.
GO HERE for the orignal letter and instructions on how to register your concerns with the Harper Cabinet on this vital subject.
First Nations and supporters protest fracking in Vancouver last month (Damien Gillis)
Canada’s largest private sector union, Unifor, has joined the growing chorus of concern over controversial shale gas development. The labour organization representing over 300,000 members in a wide range of economic sectors, including energy, is calling for a national fracking moratorium.
Unifor issued a statement from its 25-member National Executive Board Thursday raising concerns about the impacts of shale gas development on the environment and on First Nations’ rights.
“Unconventional gas fracking has the potential to have catastrophic effects on our environment and economy. The safety risks are also a major concern for our union,” said Unifor National President Jerry Dias.
[quote]Just because we can carry out this activity does not mean we should. We must enact a national moratorium on fracking activity.[/quote]
That last point was a key factor in Unifor’s decision to come out against fracking – as the union noted in its statement:
[quote]Any resource extraction industry in Canada must confront the problem of unresolved aboriginal land claims, and the inadequate economic benefits (including employment opportunities) which have been offered to First Nations communities from resource developments. [/quote]
Despite the potential job benefits to its, members, Unifor remains highly critical of the shale gas industry, concluding:
[quote]Instead of being guided by short-term swings in prices and profits for private energy producers, Canada’s federal and provincial governments must develop and implement (in cooperation with other stakeholders) a national plan for a stable, sustainable energy industry that respects our social and environmental commitments, and generates lasting wealth for all who live here.[/quote]
Council of Canadians calls for national fracking moratorium
Unifor’s call for a national moratorium echoes recent statements by public interest group The Council of Canadians.
Canada’s big energy workers’ unions are increasingly taking a critical look at the job promises from fossil fuel development. Watch this speech by president of the Communications, Energy and Paperworkers Union, Dave Coles, at last year’s Defend Our Coast rally in Victoria, explaining why his members are “diametrically opposed” to Tar Sands pipelines to BC’s coast:
Financial crashes are common in modern market economies. The first notable one occurred in Amsterdam in the 1630s when a bursting speculative bubble on tulips caused enough financial ruin for wealthy investors to create a recession. Other crashes occurred in the 1700s and the 1800s linked to risky colonial exploits and the adventurous building of canals and railroads. The stock market crash of 1929 that initiated the Great Depression was followed by a succession of postwar collapses throughout Europe. The Great Recession of 2008 — some effects are still echoing throughout the global economy — is just the latest in this parade of financial crashes.
Five steps to crashing a market
A brilliant analysis of these crashes is provided by the Canadian-born economist John Kenneth Galbraith (1908 – 2006) in his book, A Short History of Financial Euphoria. His ideas form the basis for an illuminating commentary by Professor Christopher Ragan, an economist teaching at McGill University (Globe and Mail, Sept. 17/13). Each financial crash, according to Galbraith, contains five common elements.
The first is a novel “investment or financial instrument” that attracts and excites investors. A creative and new mechanism for making money is an irresistible lure for those looking for quick and generous profits. The result is a flood of speculative investing.
Complex problem
The second is the complexity of many of these “investment and financial instruments”. Investors may not fully understand how they work but the high returns confirm that a valid strategy is operative. Adding to this allure is the investor’s feeling that someone of superior intelligence or special insight has found an undiscovered investment mechanism for success. Investors commonly overlook the reality that much of the activity in market economies is irrational, more the result of group psychology than financial acumen.
The “L” word
The third element in financial crashes, according to Galbraith, is too much borrowing — excessive “leverage” is the technical term. The temptation here is frequently irresistible. If $10,000 in personal capital is used to borrow $1,000,000 at 5% interest to invest in a scheme that will yield a 15% return, then the original $10,000 risk earns $100,000 in profit once the debt plus interest is repaid.
Leverage vastly magnifies profits. But it similarly magnifies losses if the investments fail. When a large number of individuals and financial institutions are too heavily leveraged because of an euphoria of loaning and borrowing, then the entire economic system is exposed to structural collapse. The lost capital results in recessions or depressions.
Passing the buck
The fourth element in Galbraith’s analysis is the “assignment of blame”. Failure is usually ascribed to incompetent developers, to unscrupulous mortgage lenders, or to financial institutions inaccurately rating risk. But, according to Galbraith, no one questions “the system” itself because to do so would cast doubt on the belief in market economies. Investors — indeed, entire cultures — are not willing to honestly examine their faith in an economic system that has generated so much wealth in its brief history.
Those who don’t learn from history…
Galbraith’s fifth and last element notes the failure of investors to learn from experience. Forgetting guarantees that the repeated lessons of history keep disappearing into a renewed innocence that will continue replaying variants of the same mistakes. So, in Galbraith’s analysis, financial crashes are sure to be a recurrent and disruptive rhythm in market economies.
The cost of these financial crashes in a market economy, however, may be a small price to pay for the material benefits that accrue to a culture embracing such a system. Despite the flaws, a market economy is a powerful and effective technique for producing wealth. Significantly, the system routinely survives the shocks of these crashes, invariably reassembling itself from the financial and social wreckage to carry on with bigger and more ambitious endeavours. Regardless of its failings and the temporary traumas that result, the system itself may be so resilient as to be almost immune to destruction.
The system is never doubted
This resilience may explain why, as Galbraith notes, “the system” is never doubted by those whom it damages or destroys. Its adaptability, flexibility and durability is such a perfect image of humanity’s own character that we would only modify or abandon it under the most extreme of circumstances.
This entanglement of resilience and image has profound environmental implications. What if a fundamental mismatch exists between market economies and nature’s structural integrity? What if the insatiable wealth ethic that governs market economies is incompatible with the constraining limits inherent in ecosystems? What if we have invented an economic system whose durability renders it unstoppable, whose destruction of nature is inevitable, and whose reflection of our own image precludes us from changing it without a radical change in ourselves?
If the answers to these questions are all affirmative, then the economic system we have devised may be on an unavoidable collision course with nature. While we can stoically and patiently endure the costs and inconveniences of repairing financial crashes, crashing any of the planet’s essential ecosystems may be permanent, catastrophic and far more difficult to survive.
The ever slippery Joe Oliver, Canada’s minister of natural resources – who never misses a chance to put a positive spin on Canada’s horrendous energy track record – is happily trumpeting the International Energy Agency’s (IEA) alleged recognition of Canada “as a world leader in energy efficiency”.
Says Joe, “The IEA’s Energy Efficiency Market Report 2013 ranks Canada second, along with the United Kingdom, for its rate of energy efficiency improvement between 1990 and 2010. It also highlights Canada’s successful energy efficiency programs, which provide consumers with greater market choices and help industry reduce costs and improve the bottom line.”
The efficiency improvement being bandied about is 23.5%, which sounds impressive but clearly isn’t producing results in carbon emissions reductions, proving once again that you can’t always rely on the numbers, particularly those emanating from the PMO.
Moreover, whatever gains Canada has made in terms of energy efficiency to this point, our future potential in this area is severely undermined by the Harper Government’s recent decision to cut all innovation funding for 2013-14. Compared with other nations like China, the US and Germany, Canada is falling far behind on the development of renewable energy and green jobs.
Top per capita energy consuming countries 1990 to 2010 with projections to 2015 Canada versus the rest of the world.
Check out these graphs from the IEA’s “Economist Intelligence Unit” which will give you a sense of Canada’s place in the world in terms of per capita energy consumption. For 25 years we’ve consistently been the bottom of the barrel, with virtually no improvement from 1990 to 2015.
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If “Energy Efficiency” isn’t the answer then what is?
What Joe also neglects to point out is that the IEA, in its Worldwide Trends in Energy Use and Efficiency Report, promises that “the overall message from the indicators is clear; the current rate of energy efficiency improvement is not nearly enough to overcome the other factors driving up energy consumption. As a result we are heading for an unsustainable energy future. We must find new ways to accelerate the decoupling of energy use and CO2 emissions from economic growth.”
Using the PMO’s office as tar sands bully pulpit hardly helps with said decoupling – in fact, it is quite the opposite.
In its latest report the Intergovernmental Panel on Climate Change (IPCC) gave global greenhouse gas emissions a worldwide limit, know as the global ‘carbon budget.’ In order to prevent temperatures from rising above the 2 C threshold scientists have designated to avoid “dangerous” climate change, total global emissions need to stay within about 921 billion tonnes or gigatonnes (Gt).
As Marc Lee, senior economist with the Canadian Centre for Policy Alternatives recently pointed out, the carbon budget “should be a wake-up call for Canada.”
“With a development model based on ever more fossil fuel extraction, Canada’s economy and financial markets are on a collision course with the urgent need for global climate action,” he said.
As Lee explains the global carbon budget of 921 Gt gives the planet a 66 per cent chance of staying within the 2 C limit. But that chance gets drastically worse if we surpass the budget: emitting as much as 1068 Gt leaves us with a mere 50 per cent chance.
The warming potential of all global carbon assets, from the Carbon Tracker report Unburnable Carbon
Canada’s portion of the emissions pie would depend on negotiations, but would likely end up being between 4 (given our population size) and 24 Gt (given our gross domestic product).
When pooled together, however, Canada’s proven reserves of bitumen, oil, natural gas and coal add up to 91 Gt. If you add our probable reserves in you end up with a whopping grand total of 174 Gt.
Even if Canada’s negotiators were shrewd, Lee allows, and end up with a 30 Gt national budget because Canada relies on fossil fuel exports, still two-thirds of Canada’s proven reserves, and 83 per cent of proven-plus-probable reserves would need to remain unburnt.
As Lee writes, this has significant impact on Canada’s financial market:
[quote]This math should alarm institutional investors, and pension funds in particular – because stock market valuations are premised on fossil-fuel-producing companies extracting those resources. Analysts have called this a ‘carbon bubble’ in our financial markets.
This is bad news for the Toronto Stock Exchange (TSX), which is highly weighted toward the fossil fuel sector, with total market capitalization of fossil fuel companies of about $400-billion to $500-billion. Fossil fuel companies account for about 24 per cent of the total value of the S&P/TSX composite index.[/quote]
A report recently released by the Carbon Tracker Initiative shows that “currently financial markets have an unlimited capacity to treat fossil fuel reserves as assets.” This unchecked incorporation of what are already considered unburnable carbon reserves is a major market failure, write the report’s authors, that is “creating systemic risks for institutional investors, notably the threat of fossil fuel assets becoming stranded as the shift to a low-carbon economy accelerates.”
The concept of “stranded assets” made international headlines last week after a coalition of 70 investors worth $3 trillion pressured 45 of the biggest oil and gas companies to deal with this concern.
The very real limitations placed on the value of Canada’s carbon assets due to their impact on climate change also casts the Harper Government’s position on resource development in a new light.
Recently Natural Resources Minister Joe Oliver told the World Energy Congress in Daegu, South Korea that “expanding and diversifying our energy exports is a top priority of the Canadian government.”
[quote]Canada is well placed to meet the growing demand for oil and gas. Canada is the world’s fifth-largest producer of oil and has the third-largest proven reserves – 172 billion barrels, of which 168 billion are from the oil sands. Canada is the world’s fifth-largest producer of natural gas, with recoverable gas resources approaching 1,300 trillion cubic feet – some 200 years of production at current rates.[/quote]
In addition to having enormous carbon reserves, Canada is failing to adequately manage its current emissions output. According to a new Environment Canada report, Canada’s carbon emissions in 2020 will be 20 per cent higher than the Harper Government’s promised reductions under the 2009 Copenhagen Accord.
Canada’s emissions are set to be 66-107 per cent higher than its required reductions to avoid more than 2 C of warming.
The aftermath of Colorado’s recent flood in heavily fracked Weld County (David Lavallee)
by David Lavallee
I first heard about the flood that left the Colorado fracking industry underwater by way of a story on The Common Sense Canadian. I happened to be in neighboring Utah on a shoot for my new documentary, entitled To the Ends of the Earth. This documentary focuses on the economic consequences of our “ends of the earth” exploration for oil.
News of the flood did not draw my attention initially – after all, epic floods are commonplace nowadays. In the past year we have witnessed a series of events which, in isolation, don’t seem to add up to much – but taken together tell a powerful story of the shifting carbon balance of our planet, our home.
[quote]Not since the wholesale slaughter of cetaceans 150 years ago has energy been this violent. [/quote]
Cyclone Phailin, a storm the size of France, recently pounded the eastern coast of India. The storm surge for Hurricane Sandy (widest storm in US history) left the global financial capital, Manhattan, underwater. Floodwaters left the town of Canmore and the city of Calgary, Canada’s energy capital , underwater. Meanwhile, an observatory in Mauna Loa Hawaii measured a long-feared milestone – 400 PPM carbon dioxide in the atmosphere – a record last beaten 5 million years ago.
So the simple fact of a flood in Colorado didn’t immediately grab my attention (despite being a “one in 10, 000 year event”). What grabbed my attention was the richness of the metaphor – one of the industries (among many) causing this calamity was actually underwater. Add to that Manhattan and Calgary – where myriad decisions are made, decisions changing the carbon balance of our planet – underwater!
Weld County, Colorado fracking capital
Weld County, Colorado is the site of some of the most intense fracking in the world (a powerful short film on Colorado fracking can be found here.
There are 50, 000 wells in Weld County alone. During the flood, emergency procedures were enacted and the wells were shut in, averting a catastrophic spill of the many hundreds of proprietary toxic waste chemicals that typically get injected a mile below the ground into ancient coral reefs that have lain dormant for many millennia – until violent underground explosions crack open these formations releasing the shale gas.
Concerns over frack fluid leaks overblown
Not since the wholesale slaughter of cetaceans 150 years ago (back then oil came from Spermaceti, not BP) has energy been this violent. Only 75,000 gallons of crude oil/condensate were reported spilled in the flood, an amount that paled in comparaison with toxic waste from the flood that washed over feedlots – agricultural waste, because of it’s volume, is arguably a far greater contaminant than a small amount of condensate.
Yet the social media circles were abuzz with outrage over the spills, and rumours of the coming human health crisis from leaked frack fluid – tempest in a teacup.
I watched this debate unfold and wondered what parallels there were with my own province’s current battle against Enbridge (with its focus on spills) and the fracking of northern B.C. Could it be that the environmental movement is missing the point?
Fracking your front yard
Allow me an alternate view of what the point could be. Consider the daily operations of a frack well. In Weld County, drilling operations are occurring in the one place that big oil has been forced to go now that there is no place else left to drill: your front yard. The proximity of wells to people’s homes, playgrounds, schools in this area is quite simply shocking.
Nosebleeds and ethyl benzenes
Near Longmont, CO. I met and interviewed Rod Brueski, a local organic farmer. He showed me his family’s “blood panel” document, a medical procedure that they underwent as part of a study to determine the effects of living near a frack well (100 metres from his house). “My son has uncontrolled nosebleeds that last three hours,” he told me as he pointed out the variety of hexanes, ethyl benzenes and xylenes that are now in their blood.
Forget the 75,000 gallons that leaked, this industry was a disaster even before the flood hit.
A flood certainly provides an opportunity for environmentalists to point out to an industry its antisocial shortcomings, but let’s not lose sight of the bigger picture.
Governor Hincklehooper sues constituents over fracking ban
Brueski took advantage of an opportunity to point out to the governor of the state his antisocial tendencies. Governor Hincklehooper is thought of in the activist/environmental circles as being a Halliburton puppet, who advocates vociferously for the oil and gas industry at the expense of the general public. As evidence to that effect, Brueski told me he is actually using state taxpayer’s money to sue the community of Longmont for wanting to pass a municipal bill that bans fracking within city limits (a reasonable bill, one would think).
Our cameras rolled as Brueski gave the governor, who was on a flood impacts tour, a piece of his mind. It is destined to be a powerful scene in my upcoming film, one that won’t likely end up on the cutting room floor.
The root of the problem
As easy as it is to vilify the governor though, that also isn’t the point. It’s not the man in power, it’s the culture of people that placed him there. It’s the anachronistic, so-called democratic institutions that allow a person like Canadian Prime Minister Stephen Harper, with so little of the popular vote, to gain and hold power for so long.
It’s a culture of instant gratification, which has turned 40% of our economy into a casino (aka the financial services sector). It’s what turned our economy into a Ponzi scheme – a house of smoke and mirrors that almost collapsed completely in 2008, and will certainly collapse globally someday soon (Communism, which once held sway over half the globe, collapsed – is it that big a stretch to believe that capitalism could too?).
The bigger picture, bigger than oil spills from Enbridge into the Skeena river, bigger than poor leaders who lack a true democratic mandate, bigger than the volume of frack fluids spilled into the South Platte river of Weld County is the culture that perpetuates these things.
The Growth Imperative
If I had to boil it down into a few words, they would be these: the growth imperative. We have created a society in which the fortunes of politicians rise and fall based on the growth numbers they post. A society and culture so out of step with the biosphere that sustains us that we have come to view infinite growth as normal , like it’s always been this way (only since the 1950’s has it been around, really).
Infinite growth is impossible in nature, and that’s a really good thing. To paraphrase Richard Heinberg, author of The End of Growth (whom I interviewed for my film), imagine a 2 pound hummingbird – there’s a reason nature didn’t create such a creature.
The easy stuff is gone
Globalization and our economy today is a ten pound hummingbird, struggling to fly after it has gorged on free-flowing nectar. We are now fat, and the nectar of our civilization, oil and gas, doesn’t flow so freely anymore. It is fracked a mile down and a mile horizontally in Colorado, mined or steamed at enormous cost in the Tarsands – the only free-flowing stuff left is in the Arctic, and we need to dodge icebergs to get it. Just ask Shell how easy it is to access after their prize drill ship, the Kulluk, ended up on the rocks of Kodiak Island last New Year’s eve.
The rise of Extreme Energy
Quick – look around the room you are in and name one object in it that doesn’t have oil’s footprint in it, either in its manufacture or in the transportation of it to your door. This era is all about the rise of extreme energy – can we have avocados from Argentina or apples from New Zealand, brought to us on ships using oil shale (energy return = neutral – it takes a barrel of oil to make a barrel of oil shale!) or fuel our vehicles ten years from when the energy surplus from the tarsands has diminished to a 1:1 ratio because they moved into the final marginal deposits, nothing else being left.
“Economies don’t run on money, they run on energy,” Andrew Nikiforuk told me in a recent interview.
[quote]Money is just a metaphor for energy surplus.
[/quote]
Real solutions
Do I want the fracking industry to clean up their mess in Colorado, and do I want Enbridge to use state-of-the-art spill response systems if they manage to get their stinking bitumen pipe through my province? Absolutely. But I am asking far more than that – of myself and my society. I’m asking that we shift our culture of consumption that is the root cause of all these issues.
I’m asking that we recognize and rebuild a society in which the growth imperative is an anachronism, a barbaric incarnation of yesteryear, not the going concern it is today. I’m asking politicians to help create a structure that helps us plan for a non-growing economy, that helps us localize our food sources and transition off of fossil fuels that are becoming too expensive for our economy to afford anyways. I’m asking those same politicians to restructure political institutions in such a way as to be adaptive of current realities (such as climate change) and to help build a resilient society.
I suspect when we go to a protest against an Enbridge pipeline, it’s more than just the pipe we are protesting. It’s what’s in it, and what that means for us all, either economically or environmentally.
Let’s not lose sight of that, because if we do, we fall into the failed paradigm of economy vs. environment – a paradigm that puts us in a position of winning a few battles here and there but losing the war. Let’s create a new paradigm – a life-after-growth paradigm that focuses on human wellbeing.
If this is too much to ask, then let’s start with this – Halliburton and Hincklehooper: clean up your mess! We’re gonna think real hard on how you can make it up to us.
David Lavallee is the Director and Producer of the award-winning film, White Water, Black Gold. He hopes to complete his new film, To the Ends of the Earth, within a year.
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