Why the oilsands era is over

This op-ed by Parkland Institute research manager Ian Hussey appeared in The Tyee on February 15, 2018.

Last Sept. 30 marked the 50th anniversary of the opening of the first large oilsands mine and processing plant in Fort McMurray.

A lot has changed since then. Once seen as the key to long-lasting prosperity in Alberta, the oilsands are no longer such a sure bet and the industry and province are at a crossroads.

At 17 per cent of Alberta’s economy, the oil and gas sector remains the largest industry in the province, but its size relative to the overall economy has shrunk by more than 25 per cent since 1986. The oilsands only account for two per cent of Canada’s economy.

The fiscal, investment and labour benefits of Alberta’s oil and gas industry have also declined, and it’s unlikely they’ll bounce back to previous levels. Non-renewable resource revenue, chiefly royalties and land leases, were 30 to 40 per cent of the provincial government’s revenue during the oilsands boom between 2000 to 2011, but only 5.7 per cent in 2015-16. They are forecast to be 8.3 per cent in 2017-18.

Government resource revenue has declined due in large part to the mid-2014 oil price crash, which led to industry restructuring. The “big five” companies that produce 80 per cent of Alberta’s oilsands product — Suncor, Canadian Natural Resources, Imperial, Cenovus and Husky — all say that for the next decade, they’ll only invest a fraction of past levels to improve the productive capacity of existing facilities. Small new facilities may be built, but not new megaprojects.

Restructuring has made the oil and gas industry leaner. In the last three years, the sector cut more than 50,000 jobs, and industry forecasts suggest, at best, one-third of those jobs will be recovered by 2021. More than 30,000 oil and gas jobs simply don’t exist anymore. The Canadian oil and gas industry now employs about 180,000 workers, which is only one per cent of Canada’s total jobs, and almost 100,000 fewer jobs than Canada’s environmental and clean technology industries.

While the benefits of the oil and gas industry have declined, the cost of carbon pollution from the combustion of fossil fuels has increased. The price of carbon across Canada will reach $50 per tonne in 2022, which economists consider a very conservative estimate of the social and economic costs imposed on the world by carbon pollution.

A report published last week by the Parkland Institute looked at the effect of a $50-per-tonne carbon price based on the proven oil and gas reserves of those big five oilsands producers.

Even using this low carbon price, the cost associated with these reserves being combusted ($320 billion) outweighs not only the total assets and stock value of the big five (about $250 and $190 billion, respectively), but also Alberta’s entire economy (about $310 billion).

The actual costs of burning these fossil fuels will be much greater through their contribution to global climate change. Indeed, the consequences of extracting and burning the proven reserves of the biggest oilsands producers would be catastrophic, and would be felt by people and environment through the increased frequency of extreme weather events, such as floods and wildfires, as well as negative health effects and coastal damage.

Canadian cities and provinces are already spending billions each year to deal with these effects of climate change and to adapt to predicted future effects. The scientific evidence says we can’t burn upwards of 80 per cent of the world’s known fossil fuel reserves without blowing past the Paris Agreement’s goal of limiting global warming to two degrees.

With the signing of the Paris climate agreement in Dec. 2015, our provincial and federal governments adopted policies and programs to help us meet our commitment, including increased renewable energy generation, better public transit, carbon taxes, improved fuel standards, energy efficiency initiatives and phasing out coal-fired electricity.

At the same time, the governments of Alberta and Canada have developed policies, specifically the oilsands emissions cap and two new pipeline approvals, intended to facilitate an almost 50 per cent growth of the oilsands industry.

The conversation Canadians now need to have centres on the fact that we cannot meet our Paris Agreement commitment without phasing out the oilsands industry by 2050.

The benefits of the oilsands are declining, and the effects and costs of climate change are increasing. The economic opportunities from phasing out the industry — cleaning up oil wells and toxic tailings and ratcheting up our renewable energy and clean technology industries — are enormous.

What are we waiting for?