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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

What do Norwegians know that Albertans don’t?

November 11th 2014

Visual: At first, the oil companies balked at Norway's proposal and took their efforts elsewhere, but the Norwegian government took a "take it or leave it" stance and about a year later the oil companies agreed to Norway’s terms. In contrast, in 2007 an independent Alberta Royalty Review Panel advised that the total government take (Alberta and Canada, taxes and royalties) should be increased, and Alberta could still remain an attractive investment destination. The total take was increased temporarily, but after criticism from the oil and gas industry, royalties were rolled back again in 2010.

Keeping it in the ground

Lorne Stockman and Steve Kretzmann | Oil Change International - November 7th 2014

Blog Post: Public opposition isn't just having an impact on carbon emissions -- it's having a MASSIVE impact. This chart compares these emissions savings against those of key climate policies of the Obama Administration. Should the emissions saved from demand-side policies, such as vehicle efficiency standards (CAFE) and power plant carbon rules, be compared to those saved by supply-side changes such as the cancellation of oil production projects? We believe the answer is yes.

Public opposition has cost tar sands industry $17bn, says report

Feature

Arthur Neslen | The Guardian - November 4th 2014

Press Clipping: “Tar sands producers face a new kind of risk from growing public opposition,” said Tom Sanzillo, director of finance at IEEFA, and one of the lead authors on the report. “This opposition has achieved a permanent presence as public sentiment evolves and as the influence of organizations opposed to tar sands production continues to grow.”

Material risks: How public accountability is slowing tar sands development

Feature

Hannah McKinnon | Oil Change International - October 29th 2014

Publication: A new report by the Institute for Energy Economics and Financial Analysis (IEEFA) and Oil Change International quantifies for the first time the financial and carbon impact of public opposition to pipelines and other expanded investment in tar sands production. The report estimates tar sands development lost revenue at $30.9 billion from 2010 through 2013, largely because of a fierce grassroots movement against tar sands development.

Subsidy Spotlight: Paying the price of tar sands expansion

Feature

Anna Simonton | Oil Change International - October 17th 2014

Blog Post: In order to take full advantage of Canada’s tar sands-driven energy boom, American refineries need to make costly retrofits to century-old facilities designed for the light crude that once flowed plentifully from domestic oil wells. Sen. Chuck Grassley (R-IA) introduced a tar sands refinery equipment tax break to the Energy Policy Act of 2005, a bill that cost the government $1.2 billion and increased emissions by more than two million metric tons of carbon.

Oil producers enter supercycle’s dark side: Kemp

John Kemp | Reuters - October 15th 2014

Press Clipping: Oil producers are getting another brutal reminder that theirs is a business characterized by long, deep price cycles. Benchmark Brent futures have dropped below $90 a barrel, the lowest level since December 2010, but that actually understates the extent of the damage. And such low oil prices make it difficult for tar sands producers to invest the big billions required to keep producing this costly (and dirty) crude.

The tar sands bubble

Brian Palmer | OnEarth - October 6th 2014

Press Clipping: The Canadian tar sands industry has seen better days. Energy giant Statoil announced last week that it would postpone a major mining project in Alberta for at least three years. It was just the latest in a string of major setbacks for tar sands oil, which has become nearly as bad for corporate profits as it is for the environment.