The ruling federal Conservative’s reliance on fossil fuels and neglect of renewable energy is taking a toll on the Canadian economy. The grim economic outlook prompted JPMorgan Chase & Co to warn, “There will be blood.” To make matters worse the province of Alberta is expected to fall into recession this year. The low price of oil will not only hurt the home of the tar sands in
Alberta, it will ripple across the entire nation.
To understand the energy implications of substantially lower oil prices in Canada you need only turn the clock back 6 or 7 years. In 2008/2009 low oil prices resulted in the cancellation of $90-billion worth of energy projects (mostly fossil fuel based projects including tar sands expansion). The tar sands currently account for 2 percent of Canada’s GDP and Canadian Prime Minister Stephen Harper was hoping to see it grow.
Some tar sands production sites like the Suncor and Syncrude Canada Ltd have costs per barrel of around $40, however a number of other tar sands projects are no longer profitable as costs run anywhere from $65 per barrel to well over $100. A recent study by BMO Nesbitt Burns pegged the average cost of developing an oil-sands mine and operating it profitably at about $90 per barrel
Low oil prices are driving down Canada’s petro-economy and the value of the Canadian dollar has already plummeted to a multi-year low as a result. According to Statistics Canada, the Canadian economy contracted by 0.2 percent in November. oil and gas extraction was down 0.7 percent due to a decline in tar sands oil and there was a 3.7 percent decline in fossil fuel support activities (eg drilling rigs for the mining and energy
Economists have already shaved one third off of Canadian growth forecasts for 2015 as oil companies have started cutting spending and laying off workers. As a sign of desperation, the Bank of Canada cut interest rates as a direct response to falling oil prices.
Low oil prices have already caused major declines in the share prices of oil producers. The impact will get far worse as investors pull out of fossil fuels and consumer confidence wanes. This will have a cascade effect that will drag down the job rate and the real estate market.
While other nations were retooling their economies and preparing to transition away from fossil fuels, the Conservative’s economic plan ignored renewable energy and doubled down on fossil fuels. Rather than invest in the economy of tomorrow, Harper increased his support for the old energy economy.
With the support of the Canadian government, industry associations like the Canadian Association of Petroleum Producers resist greenhouse gas regulations and environmental laws. The Harper government continues to give oil companies generous subsidies and tax cuts.
In 2011, the International Monetary Fund indicated that Canada’s oil subsidies were $34 billion per year. If Canada had used that money to lay the foundation for the next energy economy including renewables, the country would be much better positioned for the future than it is today.
Despite the disinterest of federal politicians, clean energy already employs more Canadians than the fossil fuel industry. The low price of oil presents what an Economist article described as a “once-in-a-generation” opportunity to fix bad energy policy. However this may require a change of government as the ruling Conservatives are showing no signs of backing away from oil.
The current economic predicament speaks to the folly of the Prime Minister’s decision to double down on fossil fuels. If Canada can weather oil’s volatility it will be due to a strong performance from the rest of the Canadian economy including renewable energy sectors.
The ACCA report titled Canada’s Green Economy says there is reason to be optimistic about the future of Canadian cleantech. “Ernst & Young’s quarterly Global Renewable Energy Country Attractiveness Indices Report estimated that global renewable energy transactions in Canada increased by 41% from Q4 2011 to Q1 2012. Ernst & Young further forecasts robust growth across the Canadian renewable energy industry between now and 2015.” However the report also says, “Ultimately, any steps by Canada towards a green economy need to be seen in the context of its development of the oil sands in Athabasca.”
It would appear that Harper bet on fossil fuels and lost. Now Canadians will have to pay the price for years to come.
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