Oil Sands: Reshaping Economies for the Better

Considering the oil sands region resides in Canada, we deem it part of our mission at OSFC to take a critical look at the latest information coming from the homeland to stay ahead of the curve. One such opportunity to shed light on the Canadian side of the debate came about last week with the release of an economic and policy report from well-known Canadian think tank, the Pembina Institute. The report, “In the Shadow of the Boom: How Oil Sands Development Is Reshaping Canada’s Economy,” paints a dark picture of how the Canadian oil sands industry is suffering from – get this – too much success. In their well-sourced report, Pembina argues that Canada’s natural resource industry has grown to a point where the Canadian government is weakening laws, granting unfair tax incentives and hindering the progress of other industrial sectors.

Sounds ominous, but we questioned a few of their findings and discovered that the Canadian oil sands industry isn’t as mean as the Institute makes it out to be. In reality, it’s generating revenue that is benefiting not only non-oil-rich provinces, but also the American economy. Take a look at our conclusions below and see if you take a sigh of relief too:

 

Claim #1: Rapid development of the oil sands could “pose a significant risk to Canada’s competitiveness in the emerging clean energy economy.” (p.8)

FACT: It’s as true in the United States as it is in Canada: we need all forms of energy to meet current demand. Moreover, studies suggest that demand will be essentially unchanged no matter if governments enact policies that encourage renewable energy use or not.

In its annual World Energy Outlook report, the International Energy Agency (IEA) forecasts energy demand under current policies and separately under new, potentially adopted policies. Under these scenarios, global energy demand will increase by very similar measures – 1.4% and 1.2% respectively.

According to IEA’s 2008 figures, renewable energy barely represents 0.1% of the total energy consumed in the world, suggesting that while renewable are one of several contributors to the global energy supply, they will remain only a fraction of the energy landscape in the foreseeable future.  It is simply not fiscally prudent to forego being the leader in the predominant form of energy to become a leader in a niche market.

 

Claim #2: Oil sands producers benefit from “preferential tax treatment” that has led to “foregone federal revenue” (p.52)

FACT: Oil and gas companies in both the United States and Canada are taxed in a similar fashion to other comparable industrial sectors and are not subsidized by the taxpayer. In Canada’s case, the oil and gas sector faces slightly higher taxation than non-resource industries, according to a 2011 report by professors at the University of Calgary’s School of Public Policy.

And it is misleading to suggest that any federal revenue is forgone due to current tax policies on the industry. The Canadian Energy Research Institute estimates that the oil sands will create more that $307 billion in tax revenue over the next 25 years, with over 60% going to the federal government. And according to the Albert a government,   “[e]very dollar invested in the oil sands creates about $8 worth of economic activity with one-third of that economic value generated outside Alberta – in Canada, the U.S. and around the world.”

 

Claim #3: The Canadian government is attempting to “weaken environmental laws” (p. 13)

FACT: More regulation and oversight does not necessarily equate with stronger environmental policy. Recommended changes to the Canadian Environmental Assessment Act (CEAA) are focused on making environmental evaluations more efficient and eliminating redundant, outdated oversight, and were not presented to create loopholes for the oil sands industry.

The final report from the House of Commons Standing Committee on Environment and Sustainable Development states:

“As EA has evolved in Canada, the CEAA has remained relatively static, resulting in an outdated Act and an inefficient process that does not always improve outcomes. This can, in fact, stand in the way of sustainable development.

The committee found that an overwhelming majority of environmental screenings (94%) were for “small projects that have only minimal or minor potential for adverse environmental effects. In 2009, the Commissioner of the Environment and Sustainable Development confirmed this finding, based on the sample of projects audited for his report.”

Dave Collyer, president of the Canadian Association of Petroleum Producers (CAPP), wrote an op-ed for the National Post, explaining how the oil and gas industry would in no way be skirting environmental regulation under a revamped CEAA:

The goal is not to cut corners on environmental outcomes or to turn a deaf ear to the views of legitimate stakeholders. Responsible resource development means continued thorough environmental review of projects with larger potential impacts and enhanced consultation with aboriginal groups…Not rocket science, not subterfuge, just clarity and common sense.”

 

Claim #4: “Alberta’s advantage is making it more difficult for other regions in Canada to cope with the larger shift happening in the national economy.” (p. 51)

FACT: Provinces outside of Alberta could enjoy benefits from a successful Canadian oil sands industry that “far outweigh” the ill effects that Pembina predicts will result from a higher Canadian dollar, according to a recent report from the Macdonald-Laurier Institute. The authors reviewed evidence from numerous studies on the economic impact of the oil and gas sector on different parts of the country. In all of the scenarios, development in Alberta and other energy-rich parts of the country stimulated demand for goods. In effect petroleum-rich provinces become the new “export markets” for the rest of the country.

In one study in particular from CERI, with the addition of the Keystone and Enbridge pipelines, economic output from the Canadian oil sands would increase from $64.9 billion to $95.3 billion in Ontario alone. An additional $30 billion flowing into an economic marketplace is far from coping; it’s prospering.

 

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