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Economic Factors

The rapid expansion of tar sands development has created tremendous economic risks for Canada. Frenzied expansion – 71 per cent of which is owned by non-Canadian companies – has undermined important sectors of Canada’s economy. Expansion has also lured governments into relying on easy oil revenues and tied Canada’s economic future to the unstable world of global oil demand.

Who benefits from tar sands development? Unlike Norway, which has used oil revenues to pay of its debt and save a public petroleum pension fund worth $600 billion, Canada has no federal savings fund to share this wealth with future generations, while Alberta is currently making cuts to education and health care.

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Overview:
Over-investment in a fossil fuel economy carries numerous risks
Key Issues:
- 71% of the tar sands are foreign owned
- Canada has no national fund from this resource wealth 
Current Status:
When a global price on carbon eventually comes, Canada will be left with an unaffordable product

The $1.3 billion spent to subsidize the oil and gas industry has prevented Canada from pursuing a clean energy economy that can create 10 times more jobs (per dollar invested) than oil and gas development, and spur an innovation rather than raw resource extraction driven economy.

Tar sands development has transformed the Canadian dollar into a volatile petro currency that has contributed to the destablization of its manufacturing base. Rapid tar sands development has arguably resulted in a Canadian outbreak of Dutch Disease, which means the increase in the value of the Canadian dollar has made manufacturing goods in Canada more expensive. As a result, at least a third of Canada's 500,000 lost manufacturing jobs in the last decade are a result of its soaring petrodollar. This has created regional wealth disparities, with Alberta enjoying the economic benefits of tar sands expansion while Ontario, Quebec and the Maritimes suffer the consequences of a less diverse economy.

Canada’s economy is an example of a “carbon bubble” that will likely have significant consequences for its economic future. The International Energy Agency has determined that two-thirds to four-fifths of known fossil fuel reserves must be left in the ground because they cannot safely be combusted without leading to catastrophic climate change. Because Canadian financial markets, and pension funds in particular, have over-invested in fossil fuel industries as part of their portfolios, they are at great risk of economic collapse when the global community finally gets serious about limiting greenhouse gas emissions from hydrocarbon energy sources. 

When a global carbon pricing scheme is eventually created – as it must for the planet to be livable in the future – countries who overinvested in fossil fuels will be left with a product no one can afford to buy, and few other options for wealth creation. 

Many of the ancillary developments necessary to facilitate tar sands expansion, such as refineries, pipelines and oil tankers, provide little economic benefit to local communities while exposing them to the economic risks associated with the inevitable oil spills, such as those in Kalamazoo, Michigan and Mayflower, Arkansas.

Preventing the expansion of the tar sands, and eventually phasing this dirty source of energy out of existence, is the only way to create the sustainable clean energy economy that Canada, the United States and the rest of the world needs to embrace.

Economic Factors Updates & Resources

How the oil sands could very quickly become unviable

Feature

Andrew Leach | Maclean's - April 17th 2014

Press Clipping: It was reported today that Exxon-Mobil will begin disclosing the degree to which its assets are exposed to future greenhouse gas policies. This risk is at the heart of what has become known as the carbon bubble, a term advanced by UK group Carbon Tracker, which suggests that assets may be over-valued as a result of not accounting for potential future limits on fossil fuel extraction imposed to fight climate change.

Oil sands investment slowing because of tough market, not new SOE rules, execs say

Claudia Cattaneo | Financial Post - April 12th 2014

Press Clipping: After binging on Canadian oil and gas assets at top prices, state-owned enterprises (SOEs) from Korea, China and Abu Dhabi are focused on making them profitable rather than looking at more acquisitions, executives said. Efforts to turn Canadian holdings into good businesses amid unexpectedly tougher conditions are playing a bigger role in discouraging new purchases than rules adopted by the federal government restricting SOE investments in the oil sands to minority positions.

Canada’s economy battered by climate change catastrophes in 2013

Dene Moore | Canadian Press - April 7th 2014

Press Clipping: Extreme weather events such as the flooding in Calgary and Toronto nearly kept the federal government from meeting its budget targets last year, says an insurance industry official. Barbara Turley-McIntyre of the Co-operators insurance agency told delegates at a forum on livable cities in Vancouver that the Alberta flood alone cost the Canadian economy $4.8 billion in economic losses. “Those are huge numbers,” Turley-McIntyre said in an interview. “There must be a way that we can come up with adaptation plans that lower those numbers in the future, being proactive rather than reactive.”

IMF says oil exports aren’t so key to Canada’s economic future after all

Andrew Jackson | Globe and Mail - April 7th 2014

Press Clipping: We are told on a daily basis that approval of new pipelines to export oil and gas are central to Canada’s economic future, but sober economic analysis suggests these claims are exaggerated. A recent International Monetary Fund study of energy development in Canada finds that further expansion of oil sands investment and exports would be economic plus, but the report also shows that the positive impacts of additional oil sands exports are surprisingly modest.

Why the loonie’s fortunes are still tied to oil

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Jeff Rubin | Globe and Mail - January 17th 2014

Press Clipping: Prime Minister Harper still has visions of Canada becoming an energy superpower. Financial markets have more doubts. The shine has come off the oil sands, as more investors have started to question whether oil sands development is really a sure thing, particularly at the speed projected by bullish petro-boosters. Instead, there’s an increasing likelihood that much of Canada’s impressive oil sands reserves will never be produced. Even if Keystone XL is eventually approved, it would still only provide a fraction of the pipeline capacity the energy industry will need to increase production by several million barrels a day. To reach those levels, a number of major projects will have to get the green light. If public opposition to Northern Gateway and Keystone are any indication, getting multiple new lines built could turn out to be little more than a pipedream for the energy industry.

The shakedown of the century

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Chris Wood | Facts and Opinions - December 13th 2013

Press Clipping: Why do fossil fuel companies continue to spend hundreds of billions of dollars a year hunting for hydrocarbon sources of fuel when they already own four times more oil, gas and coal than we can safely burn? Because thanks to the ‘no-expropriation-without-compensation’ rule ubiquitous in trade agreements, companies can look forward to a healthy return on those discoveries even if they stay buried.

Harper’s distaste for carbon taxes is bad for the economy

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Christopher Ragan | Globe and Mail - December 11th 2013

Press Clipping: Christopher Ragan, associate professor of economics at McGill University and the David Dodge Chair in Monetary Policy at the C.D. Howe Institute, argues that Harper’s distaste for a carbon tax is not only preventing Canada from achieving its GHG-reduction goals, it’s also an expensive ruse that defies the logic of the market-based policies most economists and environmentalists support.

Our national obsession with a lack of productivity

Andrew Leach | MACLEAN'S - November 28th 2013

Press Clipping: The CEPA study is the perfect example of what’s wrong with using I/O models to measure the benefits of infrastructure, either existing or proposed. Ideally, pipelines would be cheap to build, would use little energy, and thus would allow resources to reach their markets at minimal cost, maximizing the value realized from extraction of our scarce resources. By enhancing the value of resources, efficient transportation would enhance the implied productivity of labour in the resource sector. The method used in the CEPA study would value a pipeline system which was costless to operate at something approaching zero, and leave us all wishing for more expensive pipelines so that they’d have more economic impact. If you can’t see how that’s backwards, you’re just not giving it enough thought.