Tar Sands Oil: Environmentally and Economically a Bad Deal for Canada. Meanwhile the Government strips away our capacity to know what is happening to our environment.

Posted by on May 21, 2012
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May 21st 2012.  It’s sometimes nice to see your arguments vindicated, sometimes not so nice.  In a post on 4th March, I pointed to the high environmental costs of Canada’s tar sands mining operations, and raised the question of why Canada ‘needed’ to mine this resource now.  I also suggested that the addiction of our federal and Alberta governments to tar sands oil was having negative impacts on our freedom of speech, and particularly on the freedom of our federal scientists to write and speak freely on environmental topics such as climate change.

While I was on vacation earlier this month, James Hansen, one of the world’s leading climate scientists, confirmed the high environmental costs.  He stated in the New York Times that if Canada proceeds as planned to develop the tar sands it will be “game over” for the climate.  The Athabaska tar sands contain twice the amount of carbon that has been emitted through global use of oil throughout human history, and exploiting them fully would cause a substantial increase in atmospheric greenhouse gases.  Canada’s desire to triple current rates of production – and hence our need for pipelines to the Gulf of Mexico and to the Pacific coast – cannot be justified environmentally.  One can call Hansen an extremist, as many climate deniers are doing.  But he has a sound scientific reputation, and his earlier predictions have largely turned out to be correct.  When the changes to our world are extreme, reporting them, or projecting their future effects may make you look like an extremist, but that does not make you wrong, or someone to ignore.

The question of why Canada needs to mine the tar sands continues to get a lot of attention.   On April 30th, Bruce Campbell, Executive Director of the Canadian Centre for Policy Alternatives provided a  cogent comparison of how Canada and Norway manage their mineral wealth, and suggests that Canada is not even getting a good economic deal from the tar sands industry.  So… we do not need the oil for our own use, it could become more profitable if we just left it in the ground for a few more years, we certainly do not need to increase the rate of extraction and the impacts on climate that that will entail, and we are not even getting a good economic deal from selling off our patrimony!

Human legal frameworks consider the natural resources of a nation to be “owned” by that nations, and it is common for national and regional governments to charge royalties, rents, or other fees to corporations seeking to extract natural resources, process them and enter them into the economy.  In the interest of generating economic activity and creating jobs, many governments make sweetheart deals with resource extractors, but the general principle of charging for access or use is widespread.  Campbell compares how Canada and Norway have managed the release to the economy of their tar sands and offshore oil respectively.

In Canada, the Provincial governments have the right to levy royalties on mineral resources, while the Federal government receives income tax on the profits of the extractor industries.  Since 1986, Campbell reports, the tar sands industry has reaped $260 billion in pre-tax profits while the public (i.e. Alberta) has received $25 billion.  He cites a recent Parkland Institute report by David Campanella that updates the Institute’s 2010 study revealing a royalty regime that has ensured, by progressively lowering, or forgiving royalty rates, that little of the “value” of the tar sands is being returned to the public.  As a result, Albertans are literally giving away their tar sands wealth to the multinational oil companies that are exploiting the resource, polluting the landscape, and exporting the product.  One figure from Campanella’s report says it all – while pre-tax profits have risen dramatically, the amount paid out in royalties has remained trivial.

Canada’s low-tax policies, which see income tax on oil companies’ profits at just 10%, combine with various federal subsidies to the fossil fuel industry totally $1.4 billion per year.

In my view, our governments (both Federal and Alberta) are frittering away our natural resource wealth, selling it off for a pittance.

The situation is quite different in Norway.  Norway’s oil and gas exports in 2010 were comparable in amount to those of Alberta, but it has managed its exploitation of natural resources far more effectively.  A centerpiece of Norway’s approach is its petroleum fund (the Government Pension Fund – Global) receives all government revenues from petroleum – all taxes, royalties, etc –and invests them in foreign equities.  Only the long-term profit on investments from the fund (about 4% per year) is available for spending by government (this now amounts to 25% of all government revenue).  The Fund has now reached a size where the annual return on its investments is greater than its annual oil revenues.  Norway has effectively converted its oil wealth to financial wealth.  Campbell’s article is worth a careful read.

I’ve said it before.  Our governments are supposed to serve us, the people.  In Norway that seems to be the way things work.  Norway’s intrinsic natural wealth in resources has been retained even while the resources themselves have been exploited and sold.  Canada is behaving like a servant to the oil companies while Norway has acted as the master of its own wealth.  (And, yes, even if our governments were behaving more effectively, economically, I would still be critical of this industry that we do not need to expand with its impacts on our environment.)

And finally, back to our Federal government’s efforts to remove our freedoms, and destroy our capacity to know how our environment is being changed.  I just drew attention to the demise (without public announcement) of the Experimental Lakes Area – a jewel in Canada’s ability to understand and manage the extensive freshwater ecosystems that are a major part of this country.  Today I learned that cuts at Department of Fisheries and Oceans also include the cancellation of its entire contaminants research program, a program that has documented and increased understanding of the pollution of our aquatic ecosystems and their important fishery resources by the many chemicals we put into our atmosphere and our waterways.  Combine these with the numerous other cuts being made, ostensibly to balance our budget, and the real pattern emerges.  Our Federal government is moving progressively to eliminate any federal responsibility for, and any federal capacity for gathering information about the Canadian environment.  This includes information on whether and how our environment is changing, on potential health impacts of any changes that may be occurring, and on the general ecological health of those ecosystems that provide the natural resources on which so much of our economy depends.

Unfortunately, much of what gets lost when programs get cut cannot be replaced at some future date.  Ontario learned this following the savage cuts to environmental agencies during the Mike Harris years, and Canada will learn this following the Harper years.  And all at a time when the evidence tells us we need the best information we can have about our environment, in order to manage our way through the coming decades of change.

Yes, my earlier comments are vindicated by recent events.  I wish they had not been.

 

 

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