Economics Matter: Critics of Alberta Oil Sands Development never give an Alternative

 “And so here we are, a country with a government that boasts of our “energy superpower” status but doesn’t even have a national energy plan. A country willing to sacrifice its manufacturing industry, its opportunities in the green-energy economy, its future, and the health of its people for the sake of short-term profits. A country hell-bent on selling its industry and resources wholesale to any country that wants them, without regard for the ethics or activities of those countries.

Our government is supposed to represent the interests of all Canadians, and not just those who voted for it or the corporations that support it. Instead we have a government that hurls insults at its citizens.

Canadians are better than that. While an investment banker like Joe Oliver or a former oil industry economist like Stephen Harper may look at Canada and only see numbers, we see a country rich in natural resources, wildlife, clean water, a diverse population of educated and caring people, and institutions that have been built up over the years to put the interests of Canadians first.”

  • By David Suzuki with contributions from David Suzuki Foundation Editorial and Communications Specialist Ian Hanington, Published on David Suzuki.org, What’s so radical about caring for the Earth?, January 19, 2012

 

The NDP, Greens and other Progressive Forces have argued for the longest time that Canada – specifically Alberta – needs to change our ways. The reason for this is simple: Progressive Forces have argued that Climate Change is on its way. Now let me be clear, I am very sympathetic to this argument. One of my first jobs was created by a grant from the Government of Ontario. Given to FutureWatch Education Partners and the Metro Toronto and Region Conservation Authority, the grant allowed me to learn about how watersheds work. It was just one of many experiences that led me to an environmentally friendly position on most issues.

As a geek/nerd, I love the idea of the electric cars and I like the idea of wind farms and a zero CO2 emission world. As a Liberal, I believe that we should look after “the Other”. In this case, that means not polluting the environment so that someone else could get sick or destroying our environment so our kids don’t know what a forest looks like.

However, I also possess a Bachelor of Arts in Political Science from York University. Therefore, I understand one very important thing: Political Change only happens when people are comfortable with that change. Just look at the resistance to Kyoto in Canada. Most of it came from areas that either depended on the recovery of oil and natural gas or on areas that wanted to become dependent on the recovery of oil and natural gas. Consequently, a number of places wanted to defeat Kyoto. While the province of Alberta did lead the charge, there were a number of areas in the interior of BC and Southern Saskatchewan which supported the drive. One will note that Atlantic Canada was not fond of Kyoto because they were likely to see benefits from the ramping up of the Hibernia project.

However, one does not have to look to the oil and natural gas industries to see this trend. Just look at Ontario. In the late nineties, while in opposition, the provincial Liberals became very comfortable with the notion of moving to a coal-free energy grid. They made the argument to the people of Ontario that the goal was both achievable and cost neutral. This, as it was argued, was what Ontario could do for the country and the world. People went along with that idea. The only problem is that the change has not been as neutral as people thought.

For when Dalton McGuinty was elected, he had to figure out how he could achieve the goals laid out in an election. He had to figure out how Ontario could produce energy without using coal. This was the mantle he assumed upon becoming the Premier of Ontario. Options were presented and none of them were politically palatable. Some experts argued that creating or expanding Nuclear Plants was the way to go. The only problem was that that was not political viable solution. Consequently, the McGuinty Government settled on the idea of encouraging natural gas, wind and solar generation. The only problem was that those solutions were more expensive. Between grants and rich contracts, the citizens of Ontario had to pay more. Or put differently, instead of paying for cheap and high emission power, the citizens of Ontario started paying for more expensive, low impact solutions. This meant higher energy bills and people were not happy about it. So much so that one could argue that the results of the policy eventually led to Mr. McGuinty’s resignation. For, in some parts of the province, there was anger with new wind farms. In other parts of the province, it was because new power plants were built or moved. In almost the entire province, voters were angry with higher energy prices. All of this made it difficult for McGuinty to continue in office. Accordingly, it is the contention here that politics and economic shocks are linked and sometimes the two can have devastating consequences.

For that reason, as has been shown, when New Democrats, Greens and other Progressive Forces argue for a different economic structure, they need to have solid arguments full of examples or theories or evidence. If New Democrats, Greens and other Progressive Forces want to change our economic system, they need to have a plan that is solid. To date, no one has come up with a solid plan to deal with Climate Change and that is why the Conservative Harper Government can move forward on their agenda. So to my friends to the left, here is an idea of what a plan might look like.

Firstly, let us understand that we have a big dilemma. As the University of Calgary loves to boast, Calgary has the highest concentration of engineers and geoscientists in Canada and it is obvious why that is the case: the Oil Sands and other material recovery companies. Historically, Calgary has been a city that has been the base for some of the most important mining, oil and natural gas extraction companies in Canada. This is why the Alberta Stock Exchange was located in Calgary. Furthermore, when the ASE and the Vancouver Stock Exchange came to be the Canadian Venture Exchange, it created the largest small-capitalization exchange in the country. Most of the firms listed there were mining, oil and natural gas. To this day, the TSX Venture – the new name for the Canadian Venture Exchange – is a world leader in the trading and creation of material recovery companies.

This being the case, much of Calgary’s economy is dependent on material recovery. This includes the recovery of oil and natural gas. One just needs to look at the companies in Calgary to see this. International Players like Chevron, Shell, Murphy Oil Company Ltd, Statoil, Apache, ConocoPhillips Canada Resources Corp, CNOOC, Total and Kinder Morgan use their Calgary Offices to manage projects that are located through North, Central and South America. Consequently, Calgary has a disproportionate voice in the world’s oil industry. Equally so, the loss of that industry has a disproportionally large economic effect on Calgary. However, that is the just the first problem.

The second problem comes in the fact that much of Alberta’s – and some of Canada’s – blue collar work force is also tied to Alberta’s fossil fuel economy. If Calgary is slow, Electricians, Welders and other Construction personnel go up to Fort McMurray for work. Many people from Atlantic Canada come to Alberta for the same reason. Meanwhile, truckers run equipment and material to various parts of Western Canada – both rural and urban – to ensure that Alberta’s oil flows. No progressive force – the NDP, Greens or some left leaning Liberals – takes these things into account when they say that they want Alberta to change its economic focus.

When one looks at a theoretical green economy, one realizes that Alberta could be harmed. In other words, the economic activity created by Alberta’s Oil Sands cannot be easily replaced. Let me just take one example.  According to Markus Ermisch – at the time of the Calgary Sun – he reported that “Calgary-based Greengate Power Corp just got the regulatory nod to build a wind farm capable of generating 300 megawatts of power in Vulcan County, roughly 165 kilometres southeast of Calgary. Once built, 166 turbines will dot 200 square kilometres of farming and grazing land and feed green power into the provincial grid by 2013.” (Country’s biggest wind farm planned for Alberta, Updated: Thursday, March 10, 2011 01:35 PM MST). This project would provide energy for 70,000 to 150,000 homes and, based on an investment of Enbridge and EDF Canada, one could easily say that the project costs between $300 and $400 million dollars.  (Enbridge Invests $170 Million in Quebec Wind Farm, Posted on January 12, 2013)

Compare that small investment to Alberta’s Oil Industry. According to Alberta Energy, Alberta has 11 percent of total global oil reserves. This is the third largest proven crude reserve in the World. In 2010, Oil sands investment increased to $17.2 billion. That was a 63 percent increase over the 2009 investment (i.e. $10.6 billion).  While in 2011, oil sands investment has been projected to further increase to $21.6 billion. Therefore, it should not be a surprise that in the fiscal year of 2011/12, the Alberta government collected about $4.5 billion in royalties from oil sands projects. Accordingly for the last three years, oil sands royalty provided the top source of Alberta’s non-renewable resource revenue.  Simply put, wind farms and a change to “Green Power” cannot replace all of the economic activity generated by the Oil Industry and that is the plan truth.  So the question is what to do?

A good friend of mine suggested that Alberta not think of its economy as an energy economy. It sounds like a crazy idea, but here me out. Alberta has spent the last forty years developing an economy that can recover oil sands crude. Given the need for oil, companies are willing to pay any cost necessary to get the oil in Alberta to various markets. This has led to a very expensive process and a very expensive product. This has become obvious to all observers. It is obvious in the amount of capital that is required.  It is clear because we can see the increases in the cost of labour in Alberta. The market is distorted. For many reasons, the green power market cannot replace that type of activity. Firstly, it is small.

Secondly, Alberta’s high labour cost means that it cannot compete with established producers of Wind Power and Solar Power Generators. China has spent millions, if not billions of dollars already, and they have a very low cost of labour. The Government of China is making it very difficult for other players – namely California, Ontario and Germany – to compete. Therefore, Alberta cannot play in that field. Therefore, green energy is not a silver bullet solution for an economy that is dependent on Athabasca Oil Sands.

What we need to do is build a new feedback loop that is good for Alberta. This will mean that people and companies will continue to come to Western Canada. This means that houses will continue to be built, office space will be created and roads will still be constructed. This means we need a feedback loop that will drive our economy. Therefore, what do we do? Alberta essentially needs to replace one high cost industry for another. Or put differently, Alberta should not think of itself as a resource economy. In fact, Alberta should think of itself as an “engineering or knowledge economy”.

Given that Alberta has spent more than fifty years recovering oil and other materials, one can say that Alberta has a disproportionately large amount of Geologists and Geological Engineers. This can be a resource. Alberta has a tonne of Civil Engineers and the project management skill to manage “mountain-moving” projects. This is an asset. One of the reasons why CNOOC bought out Nexen was because CNOOC wanted Canadian Expertise in Engineering, Environmental Standards, Oil Field Project Management and Western Capital Structures. Why can’t we use these skills to do other things?

Let me give you an example. Canadian Oil Sands firms are required to figure out ways to restore our environment. They are required to give life back to a waste land that they created: A waste land that was created for the purpose of accessing the oil underneath what was a virgin forest. The remarkable thing is that they have done this. Canadian Oil Sands firms have spent millions of dollars on research to do this. If that is the case, one could ask whether those same Geologists and Geological Engineers could give life to lands in Australia which are suffering from high levels of salinity.

Or take a look at the Hurricane Sandy reconstruction efforts. Climate Scientists, Insurers, Reinsurers and the Governors of the Effected States believe that this storm is a direct result of climate change. Therefore, they proposed that the rebuilding efforts in many areas – including key parts of New York and New Jersey – take into account the “new normal” that climate change will bring about.  These projects need sophisticated Civil Engineers and the project management skill. Consequently, Alberta could take its “mountain-moving”, “forest building” and “earth shaking” knowledge to adapt the Eastern Coast of the US to a new world – a climate change world; a CO2 neutral world.

The great thing about this world is that many blue collar workers can be retrained, while others just need to be shifted. For example, welders might just create sophisticated water pumps instead of creating sophisticated oil pumps. Truckers will have to learn to move transformers from Calgary to California, New York or Vancouver rather than making runs to Fort McMurray, Lethbridge or Peace River. All of this is possible, if one thinks about the engineering required in this world. We have problems with earthquakes and fresh water provision. Or we can look at human created disasters like the Sidoarjo mud flow. Erupting in Indonesia since May 2006, it is the biggest mud volcano in the world and it was created by the blowout of a natural gas well drilled. It has been estimated that the phenomena will continue for another 20 to 30 years. While levees have been created to hold back the flow, flooding still occurs and disrupts local highways and villages. These are issues that local expertise could be thrown at.

However, this gets to the issue of cost. To date for me, the question has been who pays for the transition. For if entrepreneurs or investors have not seen an obvious business model, the question is does one exist? Or is the question about the models’ sustainability? The Dutch, as an example, moved from using their knowledge of geo-engineering – developed through hundreds of years of building dikes, dams and resource recovery – into the development of strong engineering firms. Given the scope of a number of problems more firms are needed. Alberta could be at the forefront of this revolution. The question becomes who will lead it. Governments don’t wish to because they believe that this might be an area for the private market to exploit. The only problem is that private firms need “governments’ hand” to ensure success. Neither wishes to convert Canadians engineering advantage into a real strength and the start of a new economy.

So to my friends on the left, you have the beginnings of a plan. All you need to do is something that you are reticent to do: solve the economic problem? That issue has burdened you for over a century and it comes to the fore again. The Environment could be a real winner if the issue was solved. The question for the left is are they up for the challenge.

Advertisements

One thought on “Economics Matter: Critics of Alberta Oil Sands Development never give an Alternative

  1. Good post. I learn something totally new and challenging on sites I stumbleupon every day.
    It’s always interesting to read content from other authors and use something from other sites.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

About 52ideas

Here are my 52 Ideas. What are yours?