Tuesday, July 30, 2019

The Obsession with Fossil Fuels is a Canadian Disease

While the ecological impacts of Canada's fossil fuel industry are well documented the possible adverse economic impacts associated with natural resource booms have received little attention. Despite popular perceptions there are reasons to believe that Canada's long history as a resource exporter to countries like Britain and more recently the United States have been harmful rather than helpful.

Reducing carbon and other forms of air pollution involves significantly reducing our reliance on fossil fuels as a source of energy. This is one of the central pillars of managing the climate crisis. This is particularly relevant for the tar sands, one of the most carbon intensive forms of energy on Earth.

A comment piece by Jonathan Sas titled The Tar-Sands Trap suggests natural-resource booms are actually bad for the Canadian economy.  Former NDP leader Thomas Mulcair's dismissed the economic benefits of bitumen pipelines and he expressed concern that Alberta’s tar sands are causing Dutch disease.*

Most tend to think that fossil fuel exports are good for Canada. Ramping up oil exports was a major driving force in the Harper government and it appears to remain an important Conservative policy plank in Andrew Scheer's bid to become Prime Minister in 2019. Under Prime Minister Stephen Harper environmental realities, aboriginal issues and foreign affairs were all subservient to the tar sands.

The control that the fossil fuel industry has over government is a legitimate concern and there are dangers associated with a single minded reliance on fossil fuels. As SAS says:

"Our policymakers’ focus on re-source exports risks trapping us in a precarious economic situation—one in which Canada not only becomes more vulnerable to volatile fluctuations in the price of oil, but in which we sacrifice innovation and the development of other areas of the economy at the altar of short-term profits from the bitumen rush."

Political economist Mel Watkins has referred to "Canadian disease" to describe the country's resource booms. In 1963 Watkins published an article called, "A Staple Theory of Economic Growth" in which he used the term "staples trap" to refer to the inability of a resource-based economy to mature into a diverse, industrialized one. Over-specialization in the export of unprocessed commodities, he argued, meant depending on foreign direct investment.

The environmental impacts of previous resource booms include adverse impacts on wildlife, agriculture and forests. The near extirpation of cod and beaver, the grain monoculture, and clear cutting, are powerful reminders that resource booms have highly undesirable side effects.

Harold Innis is well known for his work examining how the exploitation of resources creates blockages through-out the economy. Canada's resource focused economy has a wide range of impacts that include issues related to land settlement including lands appropriated from indigenous peoples. It also impacts transportation and communication networks. Carleton University political economist Brendan Haley, used Innis’ work to study how the fur trade helped to define Canada’s borders, and how wheat development led to the rise of the railroad system.

Haley concludes that this resource based economy has impeded the development of Canada's domestic manufacturing sector. Haley notes that revenue from staple exports is vulnerable to unpredictable forces including technological innovations and changing demand.

While resources exports are not necessarily bad, the problem arises when we become over-reliant on these exports. The real problem is when resource concerns become over-represented in our political and business lives. Canada’s energy sector, accounts for less than 5 percent of our Gross Domestic Product, however, many argue that they wield undue influence.

Kari Levitt, the author of Canadian political economy, 1970’s Silent Surrender, says the close ties between Canadian finance and resource sectors have led to capital intensive transportation networks resulting in "an indigenous capitalist class with a short-term view to profitability."

York University political scientist Daniel Drache adds that this shortsighted resource based profit chasing is worsened by the "fragmentation and balkanization" of Canada into competing economies. Drache expresses concern that this has augured a crisis of federalism as provinces compete with each other at the expense of national strategies.

Haley says the issue is whether reliance on staples impedes policymakers' ability to create more resilient, transformative economies. The Canadian-disease thesis was corroborated in a 2012 Organization for Economic Co-operation and Development report.

Despite youth unemployment, skills deficits, lagging innovation and slowing productivity, there is no evidence to suggest that Canadian Conservatives are serious about looking beyond finding new markets for its fossil fuels.

Many economists support the idea of investing in industries that add value to resources rather than exporting them in their raw form. However, when it comes to fossil fuels Haley is quick to point out that this is a dangerous investments in light of the climate crisis. As we transition to a low-carbon economy it will become increasingly difficult for both economic and ecological reasons to extract tar-sands oil.

"You can add value to the horse and buggy," Haley says, "but if no one wants to use the horse and buggy anymore, it doesn’t matter."

Sass concludes by asking if it is prudent to tie our future growth and prosperity to a twentieth-century staple like oil. He suggests that it may be wiser to build a green economy, but before we do that we will need to find a cure for our national illness.

*Dutch Disease refers to the decline of manufacturing due to a currency over-valued by a natural-resource boom.

No comments: