The current trajectories of Canada’s predominant political economies are increasingly dysfunctional, due in no small part to the fact that we have become, in many respects, a petro state, rather than the much vaunted “Energy Superpower” that we were promised.
A petro-state, as defined by Bruce Campbell, executive director of the Canadian Center for Policy Alternatives (CCPA) is “dependent on petroleum for 50 per cent or more of export revenues, 25 per cent or more of GDP, and 25 per cent or more on government revenues.”
While Alberta is not a sovereign nation, it does qualify for “petro-state” status under these criterion. So does Norway. But the differences between the two polities ends there. While Norway manages its resource wealth extraordinarily well, Alberta — and Canada, by extension — does not.
Norway: $656 Billion / Alberta: $16 Billion
One significant difference is savings. Norway has a savings fund, known as a “Sovereign Wealth Fund” which is worth about $656 billion for a population of under 5-million people.
Alberta’s Heritage Trust Fund, on the other hand, is worth a relatively paltry $16.6 billion, for a population of about 3,847,100 people.
The differences in the sizes of these savings funds has far-reaching impacts. As author Terry L. Karl explains in “Understanding The Resource Curse,” a country (such as Norway) that diverts its resource revenue to a savings fund, is necessarily compelled to use its tax base for government funding. Consequently, citizens pay higher taxes, but the politicians represent those who pay the bills (the citizens) rather than representing the insular interests of oil-producing corporations, to the detriment of the public sector, and democracy.
Unlike Norway, Canada, is quite dependent on its resource revenues for government funding. About 40 per cent of Canada’s resource revenues go to Ottawa, and about one third of Alberta’s bills are paid by oil and gas revenues. According to Karl, these differences explain why Alberta’s tax rates are so low, (the lowest personal taxes in Canada) and why its governance is more top down, corporation oriented. As long as taxes are low, people remain relatively disinterested in issues of governance. In the 2008 elections, 60 per cent of eligible voters in Alberta stayed home.
There are other significant problems which are generated by this dependency on resource revenue. One of them is wealth distribution.
Rich get richer from energy wealth
Stephen Leahy explains in “The Bigger Canada’s Energy Sector Gets, The Poorer People Become” that economic markers can be deceiving. Consider statistics for Gross Domestic Product (GDP), which is a measure of economic activity. The GDP averaged about $600 billion per year in the ’90s and by 2012 it had increased to $1.7 trillion. On the surface, this seems laudable, but little of the wealth stayed in Canada, and what did stay went to a small percentage of the population. Consequently, income inequality has also increased.
Similarly, our reliance on the boom/bust cycle of resource revenue funding (without setting aside sufficient funds) means that governments habitually overspend. Resource rich Alberta has run a deficit for the last six years running.
This boom/bust revenue model, a hallmark of neoliberal economic theory, impacts the whole country. Safety, environmental, and human rights have become less important; international efforts to address global warming, such as the Kyoto Protocol, and the United Nations Convention to Combat Desertification (UNCCD) have been rejected; real science is now seen as an enemy to overcome; and democracy is an inconvenience.
16,000 jobs gained, half a million lost
Our mixed economy is also being decimated. Leahy explains that from 2000-2011, the oil and gas sector created about 16,500 jobs, while, at the same time, Canada lost 520,000 manufacturing jobs.
Much of the manufacturing losses are tied to the rise of the petro-dollar which tends to rise and fall with the price of petroleum. Ten years ago, the Canadian dollar was worth about 65 cents relative to the U.S. dollar. Now both dollars are at about the same level. This parity negatively impacts exports and, therefore, the manufacturing base.
Even Industry Canada acknowledges the problem. Their report notes that between 2002 -2007, from 33-39 per cent of Canadian manufacturing job losses were due to “resource-driven currency appreciation.”
Major banks, think tanks warn against Canada’s economic model
Despite the overarching negatives, including job losses and deficits, trajectories of Canada’s reigning political economies have remained unchanged. Continued on-the-ground realities, however, may force the government’s hand. Sources as varied as the International Energy Agency (IEA), HSBC, the Conference Board of Canada, and the International Monetary Fund (IMF) are increasingly concerned about Canada’s misdirected obsession with extreme energy extraction.
The International Energy Agency’s (IEA) World Energy Outlook states that “no more than one third of proven energy reserves of fossil fuels can be consumed prior to 2050.” (Barring the unlikely and exponential growth in carbon capture storage strategies.)
The HSBC Global Research Report (2013) cautions investors about capital intensive extreme resource extraction such as bitumen extraction, and recommends instead low cost companies with a “gas bias.”
Alberta needs more sustainable model: Conference Board
The Conference Board of Canada in an article entitled “Opportunity Lost? Alberta is Facing Short And Long Term Financial Challenges Despite its Oil Wealth” observes that Alberta is facing a $4-billion budget deficit, and recommends a “more sustainable fiscal model.”
Meanwhile, the International Monetary Fund (IMF), recognizing the imperatives of transitioning to a low carbon world, is urging nations to slash carbon subsidies, which would drastically slow bitumen extraction developments.
Unlike Norway, Canada’s economic and political self-determination is already curtailed by NAFTA, and by the time Harper’s next suite of corporate empowerment treaties (FIPPA, CETA etc.) are ratified, our ability to determine better political economies will be further hamstrung.
However, despite the restrictions, there still remain some possible alternatives to our current self-defeating political economy.
End subsidies, raise taxes
The Pembina Institute, paralleling views of the IMF, argues that the $1.3 billion in subsidies handed out to the oil and gas industries would be better spent on transitioning to clean energies, as it would create 18,000 more jobs as well as “a healthier economy, and a cleaner environment.”
Meanwhile, Shannon Stunden Bower, Research Director for the Parkland Institute, advises that Alberta needs to raise taxes:
[quote]Alberta could collect nearly $11 billion more in taxes and still remain the country’s lowest tax jurisdiction.[/quote]
Clearly Canada’s economic direction, which is to increase rather than decrease extreme energy extraction, is hitting the wall.
Evidence shouts that we should be transitioning to a low carbon model. Creating a strong Federal Savings Fund, reducing carbon subsidies, and increasing taxes in certain jurisdictions (like Alberta and New Brunswick) would be a start, but we also need more evidence-based policy making, and therefore different governance.
The longer we wait before the inevitable and necessary transitions, the more it will cost.
20 thoughts on “Fossil fuel economy costs Canada far more jobs than it creates”
We don’t solve our economic issue, nor our climate issues, with the same thinking that created the issues in the first place. We need a retrofit, world-wide. Some are thinking, finally, outside the boxes we’ve built: http://www.ellenmacarthurfoundation.org/
Change? Hurts the brain a bit. But ‘brain-pain’ means we’re growing, and it’s time we grow beyond the linear economy.
Harper is an idiot. End of story.
While appears to be an idiot, he is doing a very good job of looking after his own kind in the oil and gas industry, and I am sure he will benefit greatly from that when we are not looking. His benefactors will make sure of that. I admire his ability to get done what he wants to get done, and at the same time I think he is doing his own country a great dis-service.
Great article, I will add it to my bookmarks on why the Alberta Tarsands should remain undeveloped. I suspect some of the other commenters have a vested interest in the Tarsands because simply the facts add up to a very clear picture to most Canadians.
We still have a lot to learn, for instance the recent article titled “New poll shows Canadians vastly overestimate role of tar sands in the economy” let me quote “A new poll shows Canadians are confused about the tar sands’ significance to our economy. According to Statistics Canada, the tar sands account for just two per cent of Canada’s GDP. But polling conducted by Environics and released today by Environmental Defence shows that the majority of Canadians, 57 per cent, overestimate the tar sands’ contribution to the Canadian economy. Forty-one per cent of Canadians believe the tar sands’ contribution to our economy is between 6 and 24 times higher than it actually is.”
Then from the Tyee this headline “$1.7 Billion and Rising: Taxpayers’ Gas Bill for Oil Sands”
“The numbers are huge. Oil sands operations currently consume about one billion cubic feet of gas per day, heating thick bitumen so it can be extracted from surrounding rock and gravel. This reverse-alchemy eats up about 20 per cent of Canada’s natural gas demand and may balloon to 40 per cent by 2035.
The price is huge, too — much of it written off against corporate taxes. Bitumen recovery and upgrading will eat up more than 15 billion cubic metres of natural gas this year according to data from the Alberta government. At current prices this will cost $3.4 billion, of which $1.7 billion will be paid for by the public.
Once you see all the facts on the table, its not hard to come to the conclusion, the public is getting ripped off, its not seeing anywhere near the benefits that promoters are claiming exist.
Damien, I agree with a lot of what you say in regards to developing renewable energy and manufacturing jobs. I just believe that we can do that while exporting energy.
Comparing Norway to Alberta doesn’t make sense. Not only has Alberta had to pay the half billion dollars that I mentioned previously because of equalization, but Alberta also produces a heavy oil that trades at a large discount to Norway light Brent crude. Alberta also has to deal with disasterous federal policies like the National Energy Program. Give Alberta that half billion back and put us next to the ocean with no limits on distribution and we would be outperforming Norway without question.
The Industry Canada report you cite only blames Dutch Disease for the loss of a third of the manufacturing jobs in Canada. You completely ignore international factors such as the rise of Chinese manufacturing, the demise of the auto industry, mismanagement of the Ontario and Quebec governments, and the debasing of the US dollar. Some economists even argue that Dutch Disease can create a stronger economy: http://ww2.nationalpost.com/m/wp/blog.html?b=news.nationalpost.com/2013/09/05/so-called-dutch-disease-has-actually-left-canadas-economy-stronger-economist-says
There is a lot of misinformation and omissions in this article that I would like to clear up. The difference in each jurisdiction’s savings account can be explained by the obligation that Alberta has to pay into equalization. Since 1961 Alberta has paid nearly $500 billion to the federal government to pay for services in have-not provinces. The HSBC report is to investors predicting that natural gas companies will out perform oil companies on the stock market, not that Canafa should stop producing oil. The Conference Board report stating that Alberta is running a $4 billion deficit is old. Alberta is nearly in surplus again. Blaming resource extraction in the west for the loss of manufacturing jobs in the east because of exchange rates is laughable. The heart of manufacting in the east, the auto industry has been in decline for a decade because of bad management and expensive labour. The CDN dollar has risen because of the outperformance of the Canadian economy since 2002 but has been kept high because of US policies to weaken their currency with quantitative easing and a near zero federal reserve rate.
Come on, Darcey. Alberta is NEARLY in a surplus position again?! The fact that the province has a deficit at all is appalling and underscores the relative lack of benefit the public receives from its resource. Mark’s comparison with Norway is striking and perfectly illustrates what’s wrong with the Alberta and Canadian government’s mismanagement of the resource.
Maybe Alberta’s fiscal situation has rebounded somewhat but how long before it plunges back into the red, given this boom-and-bust cycle it has become so wedded to? Heck, just last year, Redford and former Industry Minister David Emerson were floating eliminating the Alberta Advantage!
As for the issue of “resource-driven currency appreciation,” Mark bases his conclusions on those of Industry Canada. That’s right, the Harper Government’s own economic bureaucrats concede that Ontario is in fact losing good manufacturing jobs (you know, the kind where Canadians earn good wages and benefits adding value to our raw resources, instead of shipping them half way around the world for poorly paid children to fashion them into cheap goods that end up in the landfill next year) due to the oil sands. If you dispute that, take it up with Industry Canada.
The big question is this: Do you really believe Albertans and Canadians are getting maximum economic value out of the oil sands? If so, I think you need to aim higher.
At least let us dispense with this myth that our entire nation’s economic future is utterly dependent on the oil sands – this industry that creates a whopping 125,000 direct jobs in a country of 35 million.
There are plenty of other healthy forms of economic development and job creation we could be focusing on that don’t pollute our water and atmosphere. Let us put at least some of the focus there – like so many industrialized nations are doing and reaping huge benefits from:
Nonsense. Canadian citizens resident in Alberta have paid federal income tax, some of which has been used to finance programs in other, poorer, Provinces. That has nothing whatsoever to do with the Provincial tax or royalty regimes. If Alberta has run it’s budget into the ground and blown 30 years of opportunity to collect, save and invest royalties, the people of Alberta have no one to blame butt themselves. Albertan’s who wish to been taken seriously in discussion of these matters should stop beating their bosoms and lighting their hair on fire over the existence of a federal government.
The points you make are correct but their effect on policy will be minimal. We are basically the same as Norway yet Norway’s policy is enlightened, our retrograde. Why? Well the argument in Norway in defense of the savings (Sovereign Fund) is that their oil will run out so its benefit must be spread over many generations, hence they can only spend a small amount of the available money and must save the bulk of it. It’s a question of fairness to later generations. That’s clear, simple and, above all, compelling. The simple insight that we have to pass on the wealth to share it with generations which will not have the oil resource is the key to the difference. Talk to a Norwegian, they all know the argument and so approve of the saving scheme. Both the left and the right can give easy assent to the argument for generational saving.
I left my home, family and friends to work in the oilfield. I hope we can manage our natural resources better so that it will benefit more Canadians without us oilfield workers having to take too much of a hit.
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