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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

Cash flows from Canada oil sands to fall by $23 bln in 2 yrs

February 25th 2015

Press Clipping: Cash flows from the Canadian oil sands will fall by $23 billion and turn negative in the next two years, energy consultancy Wood Mackenzie said in a report on Tuesday, as low crude prices make it less economical to extract tar-like bitumen from the sands. Given the price dive, Wood Mackenzie said the oil sands region's 2015 through 2016 cash flows would drop from $19 billion to minus $4 billion, a 120 percent fall.

Tar sands industry must cut costs or face “death spiral”

Editors | Tar Sands Solutions - February 23rd 2015

Blog Post: The president of one of Canada’s biggest oil and gas producers confirmed that the industry needs cheaper infrastructure if it wants to expand production of its highly polluting tar sands crude. At a meeting of the Fort McMurray Chamber of Commerce, Canadian Natural Resources Ltd. President Steve Laut said that unless the industry cuts costs it will fall into a “death spiral.” Proponents of the Keystone XL pipeline argue that tar sands will make it to market with or without pipelines like Keystone, but comments from Canadian government and industry officials have long told a different story.

Alberta’s Prentice seeks to avoid carbon-tax rise amid oil drop

February 10th 2015

Press Clipping: The premier of Alberta, a province that relies on crude revenue to help fund public services, wants to defer raising a levy on greenhouse gas emissions until other oil-producing jurisdictions introduce their own carbon taxes. “I believe in conservation but I don’t believe in damaging our industrial competitiveness,” Prentice said. Regarding the current carbon regime, “some people would say it’s weak, but most people would also point out no one else has a policy at all, at least no one in the energy business. So this is a balance.”

World’s biggest sovereign wealth fund dumps tar sands, coal companies

Feature

Damian Carrington | The Guardian - February 6th 2015

Press Clipping: The world’s richest sovereign wealth fund removed five tar sands producers and 32 coal mining companies from its portfolio in 2014, citing the risk they face from regulatory action on climate change. “Our risk-based approach means that we exit sectors and areas where we see elevated levels of risk to our investments in the long term,” said Marthe Skaar, spokeswoman for GPFG. “Companies with particularly high greenhouse gas emissions may be exposed to risk from regulatory or other changes leading to a fall in demand.”

Lower oil prices strike at heart of Canada’s oil sands production

Feature

Ian Austen | New York Times - February 3rd 2015

Press Clipping: Canada’s oil sands — and the 167 billion barrels of reserves — prompted an unprecedented expansion over the last decade. But the roughly $155 billion spending spree left the industry with unusually high production costs. Now, oil sands operators are scrambling to limit the damage, as crude prices hover near seven-year lows.

Understanding oil demand, oil prices and climate

Marc Jaccard | Simon Fraser University - February 2nd 2015

Blog Post: It is amazingly difficult to get people to understand that if humanity acts seriously to reduce CO2 emissions, the price of oil would fall to very low levels -- and stay there. In this op-ed in the Globe and Mail in December 2014, I explain the competitive drivers of oil prices, and why these prices have been really low for most of the past 100 years, even though human self-deception has most people thinking otherwise. In future op-eds and blogs I will present our research of the last two years on the path and level of the price of oil.

If every Norwegian’s a millionaire, why’s Alberta in hock?

Mitchell Anderson | Canadian Dimension - January 26th 2015

Press Clipping: While Norway cut a proper deal with oil corporations, Canadians got screwed. Norway has amassed a huge pot of petroleum money, now totaling CA$909.364 billion, which has made every citizen a millionaire (in Norwegian kroner). That works out to about $178,000 for every man, woman and child in the country. By contrast, every Canadian lumbers under an individual debt of $17,000 as Ottawa is in hock to the tune of $600 billion.