Issue 28: Negative Oil Highlights the Need for Green Industrial Strategy

Market dysfunction has brought us to the point where Canada urgently needs a green industrial strategy and state-led investment.

Policy for Pandemics is produced and edited by Andrew Potter and co-edited by Charlotte Reboul and Paisley Sim.  Today’s briefing is by Joel Laforest (JF), a graduate student focused on cities and inequality. Joel is riding out the pandemic in Calgary.

Oil prices went negative for the first time in history, priced at an unprecedented US$38.45/barrel last Monday afternoon. Oil is Canada’s top export, and the value of our dollar has fallen along with the price of oil. While demand for oil craters, demand for PPE and ventilators has spiked. The federal government is working with Canadian manufacturers to produce 30,000 ventilators and has issued a call to any Canadian business able to produce PPE to assist with this urgent need.

It is a sad irony that Canada’s manufacturing base has been eroded by Dutch disease— an overreliance on oil exports which drives up the value of the currency, putting export-oriented manufacturers at a disadvantage. Bailed out with billions in loans in 2009, automaker GM shuttered its Oshawa plant in December of last year, despite calls for the federal government to step in and make use of its manufacturing capacity to build the electric fleets, turbines, and panels needed for a decarbonized future.

Alberta has been riding the resource-commodity rollercoaster. In 2006, Alberta’s economy expanded by 6.8 percent, double the national rate. The economic boom was so great that in the run-up to the 2008 financial crash, Alberta’s overheated economy suffered from severe labour shortages. In mid-2008, even as the effects of the crash were reverberating around the globe, Alberta reworked its Alberta Immigrant Nominee Program in an attempt to fill a shortage of nearly 40,000 workers.

Following the global economic slump of 2008, the price of oil recovered and supercharged Alberta’s economy: Alberta led all provinces in 2014, with GDP growth of 4.8 percent. Calgary had the lowest vacancy rate and highest rental costs in the country in October of 2014.

An increase in global production and the rise of shale oil in the U.S. led to a dramatic decline in the price of oil in late 2014. This sudden shock contributed substantially to the end of Alberta’s 44-year conservative dynasty in the Spring of 2015. Alberta’s major oilsands producers used the opportunity to shed 20,000 jobs while remaining incredibly profitable, consolidating the industry and producing more barrels than ever before, but with a leaner production model based on fewer capital expenditures and lower employment levels. The Alberta NDP, championing an industry-designed carbon price, struggled to rationalize the recovery’s missing jobs to the public, and decided to champion the issue of pipeline approval as a symbol of economic recovery.

Pipelines and Alberta’s export capacity illustrate a key dysfunction in Canada’s economy. The last attempt at a national energy policy resulted in Pierre Elliot Trudeau’s short-lived National Energy Program, dismantled by Mulroney’s PCs. Since then, the main guiding principle has been NAFTA’s energy proportionality clause, requiring Canada to maintain a fixed share of locked-in energy exports to the United States. Any planning in the sector was performed by individual market actors proposing pipeline projects and responding to the right price-signals that would make such large infrastructure projects viable. 

Given the volatility of oil prices and the lag time between proposing a pipeline and getting it through the regulatory process to approval, an asynchronous export-capacity buildout was easy to foresee. What is more troublesome, however, is how this capacity buildout assumes Canada’s energy plan will continue to be “sell-off oil as quickly as possible” for years to come. This plan is not viable with climate targets unless the rest of Canada’s economy shrinks its emissions enormously— all so that oil exports can continue to grow. 

The double crisis of an oil price shock and COVID-19 means Alberta is now faced with a staggering unemployment rate of 25 percent and an economic contraction of almost six percent. The resource-commodity rollercoaster has discovered a terrifyingly steep cliff. Will Albertans and Canadians continue to be taken for a ride?

We need a green industrial strategy. The project of defunding healthcare over the last decades is ill-suited to our needs for reasons that are plain to see. The hollowing-out of our economy simply to export oil is less obvious, but deserves the same level of scrutiny. Our failure to decarbonize and build what is needed for climate-change mitigation means we will be ill-equipped when we encounter compounding ecological crises even greater than our present experience.

A green industrial strategy would take on the post-COVID-19 reconstruction by rebuilding our industrial base, equipping our economy to build and produce what Canadians will need in the coming decades. Ambitious public investment directed through a green industrial strategy could expand our capacity to build what our future needs, all while supporting the roles that have now been proven as essential: service work, care work, and the oft-ignored work of producing food.

We can no longer rely on simple quantitative measures of economic growth, and we cannot risk rebuilding our economy simply to be surrounded yet again by billions of negatively-valued barrels of oil. Canada’s economy needs deep qualitative changes so that it can withstand the future. (JF)

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