Beware the Bitumen Cliff!
by TONY CLARKE, article originally appeared in Canadian Dimensions
It’s a “no brainer,” declares Stephen Harper. The Keystone pipeline must be built now to bring crude oil from the Alberta tar sands to refineries and markets in the US. By the same token, the Northern Gateway and/or the Kinder Morgan pipelines must be constructed to bring tar sands crude to Asian markets. So too, the reversal of Line 9 coupled with the building of the Energy East pipeline must be completed to bring an end to the dependence of Québec and the Atlantic provinces on Middle East oil, while opening up new markets in Northeast US states. Indeed, the pipeline battle lines are already being drawn up for the 2015 general election.
On the one hand, the Harper regime, fortified by the petroleum industry and related corporate and political elites, will likely make energy and the economy the defining issue of the election, perhaps even advocating the construction of these pipelines as a matter of national security in the light of recent events. On the other hand, the resistance movement against the tar sands largely led by First Nations and environmental groups, will continue waging pitch battles against each of the pipeline schemes in various regions, highlighting aboriginal land rights, climate and environmental impacts, as well as diverse local issues.
However, tar sands campaigners will need to broaden and deepen their resistance if they hope to overturn the Harper agenda in 2015. The resistance movement cannot be effective if it does not broaden its scope to take on the energy/economy nexus with the view of building a broader base of solidarity that includes workers, youth, consumers, and other sectors of the progressive community.
One tool that could be useful along these lines is a report called The Bitumen Cliff: Lessons and Challenges of Bitumen Mega-Developments for Canada’s Economy in an Age of Climate Change.
Five basic lessons and challenges from this report stand out as especially useful for broadening and deepening the base of resistance.
1. Staples Trap
First, Harper’s reputation as the “best manager of the economy” plus his promise to make Canada the world’s “next energy superpower,” rests on shaky grounds historically. Based on the studies of Harold Innis and subsequent economic historians regarding the staples theory of resource extraction and export, the tar sands [or bitumen] industry today both reflects and reinforces Canada’s traditional role as a resource colony (supplying fish, furs, timber, wheat, minerals, hydro-power and now oil) for industrial empires (i.e. France, Britain, the US and now increasingly China) in the global economy. A staples-based economy, argued Innis, comes with enormous risks, including boom and bust cycles.
This is what Innis and others called the “staples trap.” In staples-based economies, enormous fixed-cost investments are required in production and transportation infrastructure, usually undertaken by large foreign-owned companies. In order to pay-off these overhead costs and reward investors, staples industries are compelled to produce and export their staple at a much faster rate. In the medium to long term, this strategy is both expensive and self-defeating. Not only does rapid export drive down the unit cost of a staple but changes in technology and consumer tastes can also suddenly reduce demand for the staple — as we now see with bitumen given new fracking technologies and rapidly declining world oil prices.
Moreover, this staples trap has further other consequences for the economy. Since the resource (i.e. bitumen) is exported in raw form to industrialized powers, the exporting country has to buy back processed (i.e. refined oil), value added (oil-based) products and services at much higher costs. In turn, this staples trap becomes a self-reinforcing drag on the economy in that the faster the country exports its latest staple (e.g. bitumen) the more dependent the country becomes on the rapid extraction and depletion of a non-renewable resource.
2. Distorted Economy
Second, the Harper regime’s strategy of reverting to a staples–based economy has generated a structural imbalance and disparities within the economy.
In effect, the resource sector takes precedence over other sectors (i.e. manufacturing, services) resulting in serious social and economic distortions. Take, for example, employment. Since petroleum is uniquely capital intensive, it is one of the weakest sectors in terms of job creation. During the last decade ending in 2011, the petroleum industry created less than one percent of all new jobs (16,500 direct jobs) in the Canadian economy. Yet, during the same period, some 520,000 manufacturing jobs alone were lost to the point where employment in manufacturing had dropped to barely 10 percent of total employment in Canada, by far the lowest since WWII.
The petroleum industry also provides its workers with a lower share of the industry’s total revenues compared to other industries. Indeed, there has been a dramatic shift in national income from labour to capital in Canada’s economy, largely prompted by the petroleum extraction sector with its uniquely low share labour compensation. In Alberta, the relatively high nominal wages of petroleum workers is offset by soaring prices for housing and other essentials.
Nor have increased exports of bitumen improved Canada’s overall trade balance. The decline in nonpetroleum exports (e.g. manufactured products, tourism and tradable services) has been 8.5 times more than the increase in petroleum exports. Furthermore, international currency traders have pegged the value of the Canadian loonie to the rise and fall of oil prices. During the decade in question, money traders came to view the Canadian dollar as a petro-currency. Due to surging bitumen production, the loonie became overvalued and the high dollar a key reason why major tradable industries such as manufacturing, tourism and transportation services in Canada declined and our trade deficit ballooned.
3. Carbon Trap
In an age of climate change, the bitumen industry of today is not only locked into a staples trap but a carbon trap as well. It is well known that bitumen production is far more carbon-intensive than conventional oil production. Studies show that the burning of natural gas for the extraction and upgrading of bitumen generates almost three times the amount of greenhouse gas emissions per barrel of oil as conventional oil production. As a result, the growth in greenhouse gas emissions from the bitumen industry now cancels out emissions reduction in other sectors of the Canadian economy. Indeed, it is estimated that this industry will account for 100 percent of the net growth in Canada’s total greenhouse gas emissions between 2005 and 2020.
In effect, the bitumen industry has become the fastest growing greenhouse gas machine in Canada. Not only is the carbon intensity of bitumen production greater than conventional oil on a per barrel basis, but the bitumen industry is multiplying its rate of production at a much faster pace for delivery to potential markets through pipeline expansion. In the past ten years, the production of bitumen has multiplied three-fold, from around one million to over three million barrels a day. If markets continue opening up with expanded pipeline delivery capacity, then bitumen production could easily top five million barrels daily by 2025. Thus, the bitumen industry has its own built-in generator for increasing greenhouse gas emissions.
Worse still, the carbon trap locks Canada’s economy into a carbon-dependent development path precisely when many other countries are making the shift towards a low carbon economic future. If the world really wants to avoid impending climate chaos, then countries will have to make choices about fundamental changes to be made in their domestic economies concerning the reduction of fossil fuel production and consumption. In short, the cutting edge of the bitumen cliff is the erosion of markets for carbon polluting fossil fuels due to mounting global pressures to stem the tide of climate change through making the shift to clean renewable energy sources like wind, solar and geothermal.
Canada’s return to a staples-based economy through the bitumen production and export has also had political impacts in terms of the role of the state. In order to recoup the enormous investments made in the infrastructure required to extract, upgrade and transport the bitumen produced to markets via pipelines as quickly as possible, the petroleum industry has become more organized and strategically focused in the exercise of its political influence, both provincially and federally. In effect, we now have what Andrew Nikiforuk calls a kind of “petrostate” in Canada, with the petroleum industry exercising disproportionate influence, if not increasing control over, public policy making generally.
Prime examples of the petroleum industry’s legislative clout were the Harper regime’s two sweeping omnibus bills in 2011–12, C-38 and C-45. Bill C-38 was designed to enable petroleum and mining companies to override “obnoxious environmental laws” and regulations that impede resource development while Bill C-48, was to do the same in regards to unwanted aboriginal rights laws and policies. During the drafting stages of both omnibus bills, research shows that the major petroleum companies and pipeline industry associations used their extraordinary powers and influence in meetings with cabinet ministers and senior government officials to shape the outcome, while the views of environmental and Indigenous organizations were either excluded or marginalized at best. Both omnibus bills dealt a severe blow to democracy in this country. Increasingly, the role of the state has been remade in the image of the priorities and interests of the petroleum industry. Governments in both Alberta and Ottawa have been highly protective of the bitumen industry, using a mix of legislative, regulatory and taxation measures to support the expansion of bitumen production and export. In doing so, Canada’s economy has become more locked into a staplesbased development path and more authoritarian and rigid when it comes to protecting the bitumen industry and building more pipelines for exports. Instead of pursuing more environmentally (and economically) sustainable alternatives, the Harper regime’s public relations machinery is focused on demonizing and intimidating its opponents.
5. Economic Rigidity
Fifth, by returning Canada to its traditional role as a staples-based economy rather than developing a more diversified economy, the Harper regime’s economic management becomes more rigid in response to global volatility. Take, for example, declining oil prices. By pinning Canada’s economic future on the boom and bust realities of the bitumen industry, the sudden decline in world oil prices raises serious questions about the long term viability of this industry.
The investment required for expanding production and infrastructure may well prove to be uneconomical. Simply defending the industry and promoting more pipeline construction won’t make our economy less vulnerable.
If, however, Canada’s economy had become more diversified and balanced in its sectoral development, it would have greater capacity for innovation and resilience. Back in the 1960s, Canada had begun to move away from being a staples-based economy by putting more priority on developing both its manufacturing and service sectors. During this period, three higher-valued manufacturing industries were spawned and nurtured, namely, the automotive, aerospace and telecommunications industries. As a result, Canada’s economy gradually became more diversified and balanced, possessing the industrial and innovative capacity to produce new products and practices, create new higher wage and value-added jobs, and be more resilient in the face of global economic volatility.
In today’s world, the staples trap can also be a carbon trap. In a carbon constrained world, the rigidities of economic management in a staples-based economy driven by the bitumen industry is likely to become even more rigid. So, while other economies adapt to a carbon constrained future, Canada’s economic and political elites continue to dig in their heels, developing a rigid defensive posture in protecting the bitumen industry by promoting more unregulated extraction for oil production and more pipeline infrastructure for market delivery.
In short, these are five basic lessons and challenges that campaigners and strategists can glean from The Bitumen Cliff report for broadening and deepening the resistance to the tar sands juggernaut. As we approach the 2015 general election, where the defining issues could well be the economy, energy and the environment, it is critically important that campaigners and strategists be equipped to deal with these challenges. Taken together, these lessons show how the Harper regime has mismanaged the economy by adopting a staple-based approach and strategy. By the same token, they also can be used to expose major deficiencies of the major opposition parties in providing viable alternatives. For these purposes, The Bitumen Cliff report concludes with a two track strategy for how Canada’s economy can be reoriented to meet the economic and climate challenges of the 21st century. Track one involves putting the brakes on the “gold rush” mentality of the bitumen industry through tighter regulation and control with a view to attaining a better balance between both sectors and regions of the economy. Track two involves making the transition in Canada’s economy to an innovative, low carbon and more equitable economic future. “Appendix 2” of the report provides a menu of public policy strategies and measures that could be deployed to move forward on both tracks.
Tony Clarke is a long time political activist and CD contributor. He was founder and director, and is now president, of the Polaris Institute in Ottawa. He has authored or co-authored more than 10 books, the latest being Tar Sands Showdown: Canada and the New Politics of Oil in an Age of Climate Change. He is also a recipient of Sweden’s Right Livelihood Award (better known as the ‘alternative Nobel Prize’) for his work on global trade justice and water justice.