I was pleasantly surprised to find an editorial in the Toronto Star about the tar sands industry ("The false gods that are Alberta's oilsands"). It is worth a look, even for so-called climate skeptics. The editorial discusses "The Bitumen Cliff: Lessons and Challenges of Bitumen Mega-Developments for Canada's Economy in an Age of Climate Change," a report just published by the Canadian Centre for Policy Alternatives. This is a case study in why natural resource export economies are destined to fail and a wake-up call for all besieged by propaganda that happy days are around the corner if we open every square inch to fossil fuels extraction.
Here is some of what Thomas Walkom, National Affairs columnist for the Toronto Star, has to say about The Bitumen Cliff.
The Bitumen Cliff applies this analysis to the tarsands. Again, vast quantities of money are required, not just to extract the heavy oil but to transport it by rail, pipeline or ship.
Again, other economic activities are given short shrift. In this case, the high dollar created by Canada’s soaring oil exports has eaten into the ability of manufacturers to compete abroad.
And again, the political system wraps itself around the staple, with Ottawa’s Conservative government gutting environmental laws for fear that they might interfere with pipelines and resource extraction.
Can this last? Unless tarsands oil is a very unusual staple it cannot. Prices rise; prices fall. Tastes change; things happen. We are beginning to see some of that now.
The Bitumen Cliff is 102 pages of analysis, splendidly written and a refreshingly critical look beyond the promises of the oil industry and their servants in the Canadian government. Here is a summary of why the tar sands have all the hallmarks of a bubble economy that will leave Canada broke in the long run.
This strategy is expensive, and potentially self-defeating: rapid export can drive down unit prices (a perverse trend already evident in the case of Canadian bitumen, with the costly “Canadian discount”), and revenues can also be threatened by technological or consumer changes which reduce demand for the staple in question (a longer-term threat which is also clearly relevant to the case of bitumen). As staples are exported in raw form to more industrialized trading partners, Canada is left to buy back processed, value-added products and service at a much higher cost. The combined outcome is a self-reinforcing staples trap, whereby the faster Canada exports its latest staple, the less diversified and capable the economy becomes — and hence all the more dependent on finding more staples to export. These economic, environmental, and geopolitical risks of staples-based development strategies must be weighed against the shorter-run economic gains that accompany major resource expansions.Environmental organizations are working to provide cost-benefit analyses of tar sands development in relation to climate change. Creating a toxic waste dump the size of Florida to pump ridiculous amounts of carbon dioxide, methane, volatile organic compounds, and heavy metals into the air, water, and soil makes no sense. Raising these issues usually brings the condescending comments from the "serious people" about how this brave new fossil fuels world will create jobs, uncountable wealth, and prosperity across Canada and America. The reality is that when this carbon bubble bursts, Canada will only have that massive toxic waste dump to show for its gutting of environmental regulations and silencing the nation's climate scientists.
The Bitumen Cliff documents how every little hiccup in the pace of tar sands extraction sends shock waves through Alberta government revenues. The teeth of the "carbon trap" are already visible. These budgetary woes have come at a time when Alberta should be awash with royalty and tax revenues from tar sands. Growth has practically been cancerous.
The major oil companies operating in northern Alberta ramped up their production plans for export accordingly. Production from bitumen deposits tripled between 1997 and 2011, reaching 1.6 million barrels per day. According to the industry’s current plans, daily production will more than triple again to 5 million barrels per day by 2030.So here we are halfway through the tar sands boom and already the Alberta government is reeling from budget deficits.
The Bitumen Cliff show that the tar sands boom has all the features of the "staples trap." If your economy is built around selling one commodity as a staple to the rest of world, then your economy collapses when that staple is replaced. The lack of diversification will kill you. (There is a nice diagram outlining the staples trap on page 23.)
Here is another symptom of the staples trap.
With the turn of the century, however, increasing evidence accumulated of a backward shift in Canada’s economic evolution. The proportion of Canadian exports consisting of unprocessed or barely processed resource products rose from barely 40 percent in 1999 to nearly two-thirds by 2011.The Canadian economy has become increasingly captive to resource extraction, with much of the growth coming from tar sands development.
The discussion of the carbon trap (pages 29 - 32) is familiar territory for climate hawks. The faster the world transitions to fuels with low carbon footprints, the faster Canada's economy crashes and burns. The pain will be particularly severe in Alberta where the provincial government has given incentives to the oil companies to inflate the commodity bubble faster. It has become a "Petro-State" with an incestuous, revolving door relationship between government officials and industry executives. It is the same fox-henhouse relationship that we see between Wall Street and federal regulators in the United States. We also saw it in the relationship between the Bush-Cheney government and the oil and gas industry. Rigging the supposedly free market by people who cannot stop preaching the "free market" gospel.
The section on the bitumen boom (pages 41 - 68) describes in detail how distorted the Canadian economy has become by the black gold rush. Perhaps the most interesting detail is how the tar pit is increasingly under foreign ownership.
The Bitumen Cliff offers three possible paths for the Canadian economy. The first path would be to slow down the gold rush mentality and deliberately create a more diversified economy. Collect more revenue from the oil industry, tightly regulate emissions, require land reclamation to pre-mining condition, and invest revenues in developing a well-educated, technically-skilled workforce. The second path is to invest revenues into making Canada ground zero for clean energy technology, accelerating the carbon bubble in other fossil fuels economies. The final path is to go over the cliff when the bitumen bubble bursts and hope for the best.
Read the Toronto Star editorial and The Bitumen Cliff report. Both are well worth the effort.