the politics and economics of the oilsands

Alberta's cheerful oilsands information website tells us that production is rising fast and expected to hit three million barrels a day by 2018.

Alberta’s cheerful oilsands information website tells us that production is rising fast and expected to hit three million barrels a day by 2018. That would make Alberta the third-biggest producer in OPEC, if it joined, easily outclassing also-rans like Iraq, Kuwait and Nigeria.

It’s also around a billion barrels a year or well over a $100 billion in oil revenue, depending on your guess on where oil prices will go.

Canada’s gross domestic product is just $1.8 trillion, and you can’t produce $100 billion worth of oil without causing some big ripple effects. Not to mention the shale gas boom in B.C., Saskatchewan’s surging energy sector and the rest of Alberta.

The oilsands have gone from just inconveniencing people who have to wait an hour for donuts in the Fort McMurray Tim Horton’s, to a phenomenon that affects all Canadians.

The loonie is already considered a petro-currency. A strong dollar makes vacations in Hawaii and manufactured goods from China cheap for Canadians. It also makes life very difficult for factories in what Albertans like to call Canada’s former heartland, Ontario.

The energy business also generates lots of tax revenue, and not just for energy-producing provinces like Alberta, Saskatchewan and Newfoundland. High federal tax revenues, and the way that transfer payments work, mean that governments from Quebec to the Yukon already get a share of the bounty.

A phenomenon this big has to become a big political issue too. It is easy to guess a Canadian’s political leanings by whether they say “oilsands” or “tarsands.”

The NDP and its new leader, Thomas Mulcair, are staking out an anti-oilsands position, with Mulcair saying recently that Alberta’s booming oil sector was hurting the eastern provinces. The Tories, on the other hand, are big boosters of the industry and talk about how it is a once-in-a-generation opportunity for Canada.

There are a few ways to think about this. The first is crassly political.

Mulcair knows he may alienate working-class voters in the West who like their well-paying resource sector jobs, but an anti-oil sands stance could pay off big time with other groups: Eastern Canadian factory workers hurt by the high dollar, urban environmentalists, and Eastern Canadians tired of hearing how well the West is doing.

The Tories, on the other hand, will enjoy painting Mulcair as anti-Western, anti-business and anti-jobs. To make it even more fun, they’ll paint the NDP as stooges of the United States since the NDP’s opposition to tanker traffic on the Pacific Coast will leave us unable to export to China, resulting in us being dependent on the American market and likely getting a lower price for our oil.

Then there’s the economic view. The global economic system has been sending strong messages to Canadian capital and labour through things like oil prices, prices for manufactured goods and the exchange rate. Adam Smith’s “invisible hand” has actually been quite visible, putting Newfoundlanders on planes to Fort McMurray and shutting down Ontario and Quebec factories.

Another way to look at it is through the lens of competitive advantage. A worker, or someone with money to invest, can choose Eastern Canadian manufacturing where you are in brutal competition with German, American and Chinese factories. Or producing a highly valuable commodity like oil from a raw material – oil sand – that only exists in a few countries.

The implications for workers and companies, and governments who collect taxes from them, are stark. An Alberta wage survey found that the average hourly wage in Northern Alberta oil and gas extraction was $40 per hour, versus $25 per hour for manufacturing in the rest of the province. Since our tax system is highly progressive, someone making $40 an hour will pay a lot more tax. Multiplied by hundreds of thousands of workers, this is a lot of tax money.

Oil companies pay billions in royalties and also are profitable, paying billions more in income tax. Canadian manufacturing companies are under intense competitive pressure, and you only pay corporate income tax if you are profitable (and aren’t being bailed out like some automakers).

Also, if we don’t end up being able to export energy to China, we will get a lower price for our oil. This sounds minor, but can be big bucks.

Last year, the difference in price between a barrel of “Brent” oil from the North Sea and “West Texas Intermediate” was over $20 a barrel due to a glut in Texas. If Alberta oil sells at a lower price, this cuts directly into profit and therefore royalties and income taxes.

Finally, the energy sector is about a quarter of the Canadian stock market, where our pensions and RSPs are invested. Stifled energy stocks will mean bigger pension shortfalls and lower capital gains tax revenues.

Note that governments, resource companies, hundreds of thousands of workers and millions of Canadian consumers and savers benefit financially from oilsands money in one way or another. This is a big coalition, and one that doesn’t seem to spend too much time reading the increasingly worrying research from climate change scientists.

So the Tories will be trying to position Mulcair’s anti-oilsands position as attacking the West and our retirement portfolios, and encouraging Canadians to work in lower-paying jobs in less profitable industries, which will cost governments billions in cash they could have spent on social programs. On the other hand, Mulcair will be able to position himself as pro-manufacturing and pro-environment.

We’ll see what Canadian voters think of this, but given how they have prioritized the economy over climate change science in the past, I think I can see why the Tory war room is relishing this contest.

Keith Halliday is a Yukon economist and author of the Aurore of the Yukon series of historical children’s adventure novels.