Opponents of the oil sands warn that Canada will pay a hefty price if it allows the development of this vast resource to continue at its present pace. Persuaded of Stephen Harper’s fealty to the oil lobby and Alberta’s interests, they are asking U.S. President Barack Obama to save Canadians from their own government by killing the Keystone XL pipeline. In the pursuit of their goal of permanently shutting down the oil sands, they even warn that Canada risks becoming a “petro-state” akin to Iran or Nigeria.
Read Thomas Homer-Dixon’s counter-argument here.
These are serious charges, but they are hard to take seriously. Petro-states are so dependent on oil revenue that their governments, often democratic in name only, suppress any interests inimical to oil development. Despite their vast (but unequally distributed) oil wealth, they slide backward in social and economic development. Does that sound at all like Canada? The Economist Intelligence Unit’s Democracy Index for 2012 ranks Canada in eighth place. Other than Australia and Switzerland, the only nations that rank higher are tiny, unitary states with (until recently) entirely homogenous populations.
Meanwhile, our economy is among the world’s most diversified. The oil and gas industry accounts for about 8 per cent of Canada’s gross domestic product, a smaller share than manufacturing. Oil sands crude makes up a growing share of overall petroleum production, but remains below 60 per cent of the total as conventional sources and Newfoundland’s offshore industry continue to experience growth.
To be sure, oil sands royalties are critical to Alberta’s fiscal health. And Ottawa relies on oil-related tax revenue from Alberta to fund federal programs. But Canada’s economy is not a single-cylinder engine. In fact, it is the most diversified economy among the G7 rich nations, with a “diversification quotient” of 6.25, compared with 5.55 for the United States, according to a 2008 Booz & Co. study.
While the oil sands will likely account for a greater share of Canada’s economy in the future, they are unlikely to expand at the furious pace their critics fear. (Indeed, they have rarely matched growth projections in the past.) Rising costs, a stubborn price discount on Alberta crude and fast-rising U.S. shale oil production are likely to temper the rate of oil sands development for the foreseeable future.
Still, the government would be foolish not to encourage such development. It is a source of valuable foreign investment that contributes to the country’s economic prosperity. The oil sands provide employment for thousands of highly skilled engineers and tradespeople, precisely the kind of workers Canada needs more of to ensure the survival of middle-class lifestyles.
What’s more, the Conference Board of Canada has demonstrated the extent to which the wealth generated by the oil sands flows across the country through interprovincial trade. That would accelerate with the proposed reversal of Enbridge’s Line 9 and the construction of TransCanada’s proposed Energy East pipeline, which would send Alberta oil eastward, fulfilling the long-elusive goal of a national energy strategy.
The oil sands also represent a tremendous opportunity for innovation through the development of low-carbon extraction methods. Made-in-Canada technology has allowed for a significant reduction in per-barrel carbon intensity of oil sands crude since 1990. Though oil sands crude is not the environmental scourge its critics make it out to be, faster progress needs to be made to lower its carbon profile. If it takes a carbon tax (higher than Alberta’s current $15-a-tonne levy) to accomplish that, the sooner the better.
Indeed, the environmental movement’s fixation on the “tar sands” has crowded out discussion of other important policy issues. Keystone has sucked up all of the oxygen in our national conversation and is tying up Canadian diplomats in Washington, whose precious time would be better spent on other files.
The Keystone obsession is actually proof of the vigorous debate and heightened scrutiny to which the oil sands are being subjected. Funny, then, that Thomas Homer-Dixon conflates the backlash against NDP Leader Thomas Mulcair – who, in 2012, said the oil sands had given Canada a case of Dutch Disease – with the erosion of our democracy. Mr. Mulcair can speak for himself. But it is unlikely his decision to tone down his rhetoric in the past year has anything to do with a suppression of his freedom of speech (see The Economist index). It probably stems from recognition that such talk is unbecoming of a national leader.
Distrust of Mr. Harper has blinded environmentalists to the fact the oil sands are not the pet project of one government or party. Campaign promises notwithstanding, it is debatable whether another federal regime would have moved faster to introduce climate-change legislation. But it is certain none could or would “shut down” the oil sands. For that would be truly undemocratic.
Konrad Yakabuski is a columnist with The Globe and Mail.