The Canadian oil and gas industry has attracted a lot of attention from policymakers, environmentalists and the wider public because of its positive and negative impacts on the economy (The Royal Society of Canada, 2010). Traditionally, this industry has been the biggest revenue generator for the government (Britton & Canadian Association of Geographers, 1996). It has also created thousands of jobs for many Canadians.
Although experts suggest that the country has not fully exploited the potential that exists in the oil and gas industry (OECD, 2013), observers have expressed their concern regarding the continued reliance on the energy sector to drive Canada’s economic growth agenda. Their concern stems from the non-renewable nature of gas and oil as Canada’s primary energy resources (Doern, 2005). Furthermore, they say the industry has a negative impact on the environment (The Royal Society of Canada, 2010).
The proposed paper strives to evaluate the impact of the oil and gas industry in Canada through an economic-policy perspective. An evaluation of the economic benefits of oil exploration will underscore the positive side of the industry, while the environmental risks and challenges posed by oil and gas exploration will outline the negative side of the oil and gas industry. The proposed study will also consult secondary literatures to understand the economic impact of the oil and gas industry in the North-American country. The study would also explore the role of the oil and gas industry in creating employment opportunities in Canada, relative to the financial troubles that the oil and gas industry has caused Canada through the recent poor performance of oil and gas industry.
Introduction
Canada is among the largest producers of oil and gas in the world (The Royal Society of Canada, 2010). A comparison of the biggest global oil-producing nations shows that the North American state is the fifth largest producer of oil and gas in the world (OECD, 2013). The expansive oil fields of Athabasca show that Canada has the third largest reserves of oil in the world (second to Venezuela and Saudi Arabia) (OECD, 2013). Most of the oil exploration and exploitation activities in Canada are concentrated in Alberta (Canadian Energy Research Institute, 2011).
Although Canada’s oil and gas industry has contributed immensely to the country’s economic growth, many debates surrounding the ethics and practices of oil and gas companies shroud the prosperity and growth of the industry (The Royal Society of Canada, 2010). These concerns stem from the non-renewable nature of oil and gas as the country’s primary energy resources and the negative impact of the energy resources on the environment (The Royal Society of Canada, 2010). Destruction of eco-systems, pollution, and human population displacements are only some issues that have weighed heavily on the growth of Canada’s oil and gas industry.
Increased awareness of Canada’s natural resources has shifted the country’s attention from economic prosperity to the impact of the country’s natural resources on the environment (The Royal Society of Canada, 2010). Particularly, the emergence of a new interest in conservation has fanned debates regarding the country’s sustainability agenda, particularly concerning the oil and gas sector, which is the biggest non-renewable sector in the industry. In this regard, there has been confusion and uncertainty regarding the effect of conservation on the oil and gas industry because it drives Canada’s economy.
Government policy on resource development and exploitation have mainly steered this debate because federal and provincial authorities are supposed to regulate oil and gas activities in the industry. This paper will investigate the impact of the oil and gas industry in Canada. Emphasis will be on explaining the implications of the oil and gas industry on the country’s economy and identifying solutions for managing the sustainability challenge, through an economic-policy perspective. However, before delving into the details surrounding this investigation, it is important to understand the benefits of the oil and gas industry in Canada.
Benefits of the Oil and Gas Industry in Canada
Revenue Generation
Revenue generation is an important part of service delivery in many civilized societies. Through the revenues collected from different economic sectors, a government can provide goods and services to different to its citizens. Without a sufficient source of revenue, key social, economic, and political sectors, such as education and health would decline (Isfeld, 2015). The Canadian oil and gas industry is among the biggest revenue generators for the country. According to CAPP (2015), the industry is the single largest private source of revenue for the country. Annually, the oil and gas sector contributes about $17 billion in revenue to the government in forms of taxes, royalties and land payments. CAPP (2015) says, “The oil sands industry will pay an estimated $1.5 trillion in provincial ($302 billion) and federal ($574 billion) taxes and provincial royalties ($590 billion) over the next 25 years” (p. 3).
The contribution of the oil industry to the Canadian economy transcends revenue generation because according to the Canadian Energy Research Institute (2011), the industry will invest more than $117 billion dollars purchasing supplies and equipment from provinces outside Alberta in the next 25 years. In this regard, many Canadian businesses are bound to benefit from doing business with Canadian oil and gas companies.
This is why the CAPP (2015) says more than 2,000 companies across the country benefit from doing business with oil and gas companies. For example, aboriginal companies that have traded with oil and gas companies in the last decade have earned more than $8 billion in revenues (Canadian Energy Research Institute, 2011). These insights show that the oil and gas sector has greatly contributed to the country’s economic and social prosperity.
Creation of Employment Opportunities
For a long time, the oil and gas sector has created many employment opportunities for Canadians. The OECD (2013) and Doern (2005) say that the industry employs more than 500,000 people. Future projections show that the oil and gas sector should create more jobs in the next decade. For example, the Canadian Energy Research Institute (2011) says that the momentum for new job creations in this industry is bound to grow from creating 75,000 jobs in 2010 to creating 905,000 jobs in 2035. This figure encompasses full-time and part-time employment opportunities.
The positive impact of the oil and gas industry on Canada’s labor sector has also spilled over into the economic and social growth of some communities. For example, Fort McMurray’s population numbers have dramatically increased in the past years because of oil and gas activities in the community (CAPP, 2015). Through the relationship that the community enjoys with oil and gas companies, aboriginal workers have secured more than 1,700 permanent employment positions in the oil and gas industry (Canadian Energy Research Institute, 2011).
Accompanying these figures has been a rising population (CAPP, 2015). The increase stems from the high number of people who are securing employment positions in the region. Rising employment numbers in Aboriginal communities have also earned more than $5.5 million in community programs, sponsored by oil and gas companies (CAPP, 2015). Comprehensively, the oil and gas sector contributes immensely to the overall well-being of the country’s economic potential.
Infrastructure and Balance of Payments
The contribution of the oil and gas industry to the creation of an oil infrastructure in Canada has improved the country’s trade potential with its neighbors, such as the US. The industry’s overall contribution is more than one quarter of the country’s Gross Domestic Product (Canadian Energy Research Institute, 2011). From a macroeconomic standpoint, the oil and gas industry has improved the country’s balance of payments because the industry has supported a healthy export economy. Indeed, the country’s oil exports are a vital source of national wealth for the North American nation. In fact, compared to other economic sectors, the oil and gas industry is unrivaled as the largest export sector in the country (CEPA, 2015). According to the graph below, the motor vehicle parts industry, consumer goods industry, forestry sector, agricultural sector, and industrial machinery industries trail the oil and gas sector in contributing to Canada’s export volumes in that order.
Based on the above statistics, Canada has carved a name for itself as being among the few countries in the world that is a net exporter of energy. The export industry links with the country’s advanced infrastructural pipeline because Canada exports more than $82 billion worth of oil and gas through this infrastructural network (Canadian Energy Research Institute, 2011). These insights show that the oil and gas industry is instrumental in driving Canada’s growth agenda. However, its impact on the economy has come at a huge environmental cost to the country. These issues appear in the next section of this paper.
Negative Impact of the Oil Industry in Canada
The greatest criticism of the Canadian oil industry is its impact on the environment (The Royal Society of Canada, 2010). The negative impact of the oil industry on the environment is responsible for the resource exploitation debate (Canadian Energy Research Institute, 2011). Some of the key stakeholders that have weighed in on this issue include environmentalists, oil companies, first nations and provincial and federal governments (Britton & Canadian Association of Geographers, 1996). Some of the contentious issues in this debate are the increasing volumes of greenhouse gases that degrade the environment and landscape destruction, which occurs because of oil drilling activities.
These destructive practices have led to massive tailing ponds that accumulate waste matter, which eventually flow into waterways and affect aquatic life and marine animals. Greenhouse gas production accounts for 5% of Canada’s emissions (The Royal Society of Canada, 2010). These negative environmental impacts have drawn the attention of many international environmental groups who have labeled oil and gas exploration activities in Canada as a “dirty business” (The Royal Society of Canada, 2010). This tag has increased the public’s concern about the role of economic policies in managing natural resource and extraction activities.
The Debate
Based on its influence on the economy, resource extraction has had a strong influence on the development of the country’s energy policy (The Royal Society of Canada, 2010). Observers believe that the conservatives often see oil and gas as a necessary natural resource for the country’s prosperity. They also believe that the government should exploit it fully by building infrastructure and providing the necessary equipment to do so (Lascaris, 2015).
That said, experts agree the government has focused its energy on investing in the oil and gas sector at the expense of others (lack of diversification) (OECD, 2013). They believe this strategy has made the Canadian economy vulnerable to global movements in oil and gas prices. For example, with the falling global oil and gas prices, the country is grappling with the diminishing value of the Canadian dollar, which (partly) depends on the country’s oil sector, and by extension the economy (OECD, 2013). The collapse of the oil industry in the past one year has had a significant impact on most sectors of Canada’s economy.
Resource management problems stem from the complexity of the term itself. For example, Lascaris (2015) asks, if management is central to the concept of resource management, then who should assume this responsibility? Different authors answer this question by saying it is not the responsibility of government to do so, but the responsibility of the resource owners (The Empire Club of Canada, 2015). In the Canadian context, the resource owner is usually the provincial government. Relative to this statement, Lascaris (2015) says, “Under the British North America Act each province has the ownership and full control of its lands, forests, mineral resources and water resources” (p. 3). Different regulatory authorities should support the development agenda of provincial governments.
Canada’s Resource Development Agenda and Exploitation Policy
There is a consensus regarding the need to manage Canada’s oil and gas resources effectively. The aim of doing so is to ensure that the country gets the most benefits from its resources (The Empire Club of Canada, 2015). In judging how we should reach this goal, we find that our focus should not only be on understanding how our natural resources should take care of our welfare, but also on understanding how our sustainability efforts (today) would take care of the welfare of future generations. This understanding premises on our understanding of the “time factor” concept, which applies to the exploitation of both renewable and non-renewable resources, over time. Lascaris (2015) believes that striking a balance between present-day exploitation of natural resources and future resource needs require a careful balance between the supply and demand of these natural resources.
Many observers have emphasized the importance of having a natural resource policy for Canada, which the federal government should spearhead because it has the institutional mandate over national oil and gas activities (The Empire Club of Canada, 2015). Nonetheless, some researchers disagree with this assumption because they say depending on the federal government for direction ignores the distribution of powers across Canada’s political and governance structure (Canadian Energy Research Institute, 2011). For example, it ignores the division of responsibilities between federal and provincial authorities in managing the oil and gas industry (Canadian Energy Research Institute, 2011). The answer to this conflict emerges in effective collaboration and coordination among the relevant authorities.
Recommendations
Most of the debate that has characterized public opinion about the Canadian oil and gas industry has often focused on the economic success of the country. Observers often say that when discussions about the economy start, it is often a code for discussing exploitation in the oil and gas industry. For a long time, conservative rule in Canada has elevated the role of the oil and gas industry to a predominant position of influencing the country’s economic health (Lascaris, 2015). Stated differently, the oil and gas industry has been the engine of growth in the country’s economy. This paper has already demonstrated this fact through employment, revenue, and balance of payment figures.
The instrumental role of the oil and gas industry in Canada’s economic growth has forced many technocrats to believe that increasing investments in the oil and gas sector is the most effective ways of generating employment in the economy (Lascaris, 2015). This belief stems from understanding that the non-renewable energy sector is among the highest employment-generating sectors in Canada, relative to investments. However, recent reports show that the renewable energy sector generates more employment compared to the non-renewable energy sector. This is contrary to popular belief that suggests the economic potential of the non-renewable energy sector is greater than the renewable energy sector.
Indeed, statistics show that most companies create two jobs for every million dollars invested in the non-renewable energy sector (Lascaris, 2015). Comparatively, they create 15 jobs for every million dollars invested in the renewable energy sector (Lascaris, 2015). The potential for the renewable energy sector to grow is tremendously high, especially because the sector only accounts for 2% of the country’s GDP. Comparatively, other countries with relatively similar economic potential as Canada, such as Germany, have renewable energy sectors that account for more than 30% of their GDPs (Lascaris, 2015). Canada should follow this example by investing in its renewable energy sector.
Conclusion
From an economic policy standpoint, this paper has shown the positive and negative contributions of the oil and gas sector in Canada. Granted, the oil and gas sector has traditionally played a vital role in promoting the economic agenda of the North American country. Consequently, conservatives have relied on it for revenue generation and economic prosperity. This strategy has forced them to risk everything on one endeavor (the non-renewable energy sector). The poor performance of the oil industry has hurt the Canadian economy because it has led to lower returns for the industry and, by extension, the poor performance of the Canadian economy. Notably, these effects have manifested through the loss of value of the Canadian dollar.
This paper has proposed a careful review of the economic policy on the exploitation and exploration of natural resources because there needs to be a more holistic understanding of the effects of the oil and gas industry, not only on the economic performance of the country, but also on the environmental agenda of the country. Driving this goal is the need to focus more on the renewable energy sector as a means of improving the economic and social development of Canada. Indeed, expert reviews, cited in this paper, show that most investments in the renewable energy sector could generate higher returns than the non-renewable energy sector. Based on this review, Canada’s economic policy on resource development and exploitation should focus more on promoting the success of the renewable energy sector, as opposed to the non-renewable energy sector.
References
Britton, J., & Canadian Association of Geographers. (1996). Canada and the Global Economy: The Geography of Structural and Technological Change. Ontario, CA: McGill-Queen’s Press – MQUP.
Canadian Energy Research Institute. (2011). Economic Impacts of New Oil Sands Projects in Alberta (2010–‐2035). Web.
CAPP. (2015). Economic Contribution. Web.
CEPA. (2015). Supporting a Healthy Export Economy. Web.
Doern, B. (2005). Canadian Energy Policy and the Struggle for Sustainable Development. Toronto, CA: University of Toronto Press.
Isfeld, G. (2015). Low oil to have ‘both positive and negative effects’ on Canadian economy, Ottawa told.
Lascaris, D. (2015). No Dissension on Oil Exploration in the Leaders Debate in Canada. Web.
OECD. (2013). Inventory of Estimated Budgetary Support and Tax Expenditures for Fossil Fuels 2013. New York, NY: OECD Publishing.
The Empire Club of Canada. (2015). Canadian Resource Policy.
The Royal Society of Canada. (2010). Environmental and Health Impacts of Canada’s Oil Sands Industry. Web.