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Not surprising, Canada is an absolute joke when it comes to product innovation and human skills development, which might help create jobs in Ontario and Quebec.
Just gotta keep relying on drilling oil to get jobs.

Ah yes let's all bow down to Alberta the enlightened. Jeez give me a break yes yes we all owe Alberta so so much & please screw-off with the equalization crap, unless I've forgotten how to add it still is Ontario that contributes most to federal coffers and thus indirectly funds equalization as well as all other transfers.

If I may, just 2 small comments from the sidelines, since I have no problem with your general point. They actually link at some level to the 2 previous ones.

First, counterfactuals are just that, counterfactuals. We really have no clue of how much additional efforts we would have made to keep up with the Joneses if it had not been for this particular jar of goodies, right? Hence, only some of the added wealth that has actually originated from the tar sands can be said to be "due to" or "thanks to" them.

Second, I understand that we all want to be interesting, as human beings, but as economists, are we being consistent when we consider it legitimate for economic agents in general to use all resources at one's disposal to satisfy one's preferences, except apparently when it comes to governments, where we seem to be particularly fond of moral judgments of all kinds? And who is being hypocritical if any - is it really Premiers doing a job for which they're being paid, or is it your average schmo wanting to hold someone else responsible for what's coming out of his own exhaust pipe? Just wonderin'

Alberta is responsible for roughly 30% of Canada's ghg emissions. Why should the rest of Canada be responsible for cleaning up their mess?

Robert, how do you manage to read a piece whose entire point is why "the rest of Canada be responsible for cleaning up [Albertans'] mess" and then wonder how come "the rest of Canada be responsible for cleaning up their mess"?

Because we're all profiting off said "mess" that's why!

Oops, my bad. I think I saw "deal with" instead of "pay for" in this sentence: "...it's up to Albertans to pay for the problems they generate."

This post makes no sense now that I've read it again. One province isn't being stuck with the costs because all provinces are expected to reduce their ghg emissions by the same percentage. This means they're all going to incur costs. So Alberta's previous contributions to Canada's coffers become irrelevant to the equation except to those who foolishly believe the poorer Atlantic provinces can even afford to subsidize Alberta's clean up efforts while also paying for their own.

The tar sands are in Alberta, so the reasoning goes, and it's up to Albertans to pay for the problems they generate.

When does a yet to be formulated /finalized tax policy directed at a wide cross section of Canada's economy become a provincial issue? And hence the discussion enters into the realm of comparing transfer/equalization payments from "provinces" (rather than from the industries and individuals who just happen to reside there and pay taxes to the fed gov't); to a comparison of net migration between provinces? It's when the issue becomes politicized.

Now, compare this discussion with the income trust policy change. A policy change that came about due to increasing loss of tax revenue (increasing deficit) that affected a number of existing and planned for income trusts. My general impression was that most economists/finance/tax agreed with the changes. And rather than this becoming a province vs province issue (although the energy income trusts in Alberta tried to make it one) the special interest group most affected appeared to be wealthier seniors.

Here again we have a growing deficit in our CO2 emissions, yet a fed gov't that is unwilling to deal with the issue in a similar manner to the IT policy change. So, why aren't commenters /analysts looking at this by industry as opposed to by province? My suggestion: Because in Alberta (particularly in the Klein yrs) the interests of the oil sands producers ARE completely aligned with the interests of the gov't (Stelmach inherited a significant problem).

So, my suggestion is to rather look at this at the industry level. Will any cap and trade or carbon tax affect an oil sands company so significantly that it will lead to significant job losses and significant overall loss of investment? If so, at what level of taxation? And hence, depending upon the level of taxation, will it in fact be paid for by Albertans (and parts of the ROC), or will it mostly come out of the pockets of its investors - who widely hold the shares of the publicly traded companies, the majority outside of Alberta? Should it be a priori (thanks Stephen, I hope I am using the word correctly) that the costs would not be borne principally through reduced profits of the corporations(and hence slower cap appreciation of stock) but rather disproportionately by the population at large?

Now, I've followed the oil and gas sector fairly closely for a number of years, and it's fair to say that the significance of CO2 emissions and their need to constrain /control them has been recognized in the oil patch for quite some time (going back to the mid 90s). So, how have the companies performed in terms of finding technical solutions, and hence mitigating any carbon tax/cap and trade's impact?

Have a look at R&D in Canada - the top 100 companies.
http://www.researchinfosource.com/2009-top100-sup.pdf

You have to go down to position 24 to find an oil sands player (EnCana) that spent 0.3% on R&D in 2008. Same with Imperial Oil at 26th with 0.3%. Syncrude at 45th. PetroCanada at 51st at 0.1%. Oilsands flagship company Suncor and heavyweight CNRL aren't even on the list!

Isn't this symptomatic of something?

Now, for a moment I thought this was a reporting error - Suncor - often spun as one of the most socially responsible companies in Canada - not even in the top 100 companies in Canada? Que pasa? So, I checked their annual reports. Here, have a look, under the financials tab, fifth line down on the income statement, RD for the yrs 2004-2008 (I'll list them separately) $0.0, $0.0, $0.0, $0.0. Still, could be that some money is being spent elsewhere.

http://www.financialpost.com/markets/company/financials/index.html?symbol=SU&id=12234354

Coincidently, an article in Sat's G&M on innovation in the oil sands:
http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/battle-for-the-oil-sands/article1406051/

It pointed out that funding and innovation is sorely lacking.

Isn't this the real issue? Companies aren't investing in R&D, but rather on PR and lobbying? And if it is the issue, how does gov't policy change that approach? I hope it's not through relying on the Fed and Prov gov'ts to pay for all projects directly (CCS etc). Industry has a role, a significant one I would suggest.


Two comments.

First, if you're doing counterfactuals, how about building into your counterfactual what the effect on the economy east of Alberta would have been in the absence of exchange rate changes created by the existence of the oils sands.

Second, I think your presentation fairly clearly shows that in restraining Alberta's emissions, the rest of the country will in fact share greatly in the costs - both in terms of employment effects and in terms of transfers. That on top of presumably bearing the cost of our own reductions. What more does Alberta want?

Well, that's sort of my point - that the costs *will* be shared across the rest of the country.

I don't really have anything to add, but it might be helpful to point out that the major sources of C02 from the tar sands are 1) making steam to heat the sand to get the oil out (either in-situ or after digging up the sand) 2) digging-up and moving the dirt so it can be steam cleaned. Currently, they use HUGE quantities of natural gas for this (essentially turning gold into lead).

Supposing that shutting down the tar sands is not in the cards, reducing GHG emissions from the tar sands comes down to finding a way to generate steam without burning natural gas. To my knowledge the only proposal currently on the table for reducing natural gas use that can be implemented starting today is to switch to nuclear. The second place option is CCS. The technology doesn't exist but the consensus seems to be that it's an engineering problem, not a fundamental lack of knowhow. So that's what they're going with (just google Alberta Carbon Trunk Line).

Second, I think your presentation fairly clearly shows that in restraining Alberta's emissions, the rest of the country will in fact share greatly in the costs - both in terms of employment effects and in terms of transfers.

I don't see how you arrive at this conclusion. As Patrick correctly points out, the biggest source of ghg emissions from the tarsands is due to the massive amounts of energy they use to extract them. So how for example, does replacing a coal fired generating station in Alberta with a nuclear generating station reduce employment effects and transfers?

Depends on how you reduce emissions.

If you do it by taxing or capping them to the point they reduce activity, then employment and revenues I think would clearly suffer. I think this is clearly what most people are thinking.

If you go the nuclear route, which I wasn't thinking because frankly I haven't heard it mentioned much, then I think it depends greatly on the added cost, how its distributed and so on. If industry has to do it and their profitability suffers greatly, I can imagine the pace of activity might slow, and employment and government revenues suffer. If government pays, then employment might not suffer, but I would imagine it would have revenue and transfer implications, even if we made Alberta pay for it all.

As to Stephen's point on the same line, yes, that was your point. I think I was thinking beyond that to the issue of being hypocritical. I don't see how the fact that we've all shared in Alberta's wealth from the oil sands makes it hypocritical to say that even so, we must forego some of that wealth in the effort to save the environment. Presumably, to the extent that reducing emissions reduces the flow of wealth, we'll all feel the pain in proportion to the extent that we felt the benefit. Political posturing aside, its clear that Alberta can never be made to bear the full cost of emissions reductions with their borders. Where's the hypocrisy?


Jim: : "If you go the nuclear route, which I wasn't thinking because frankly I haven't heard it mentioned much"

Alberta to decide by January on allowing nuclear power (G&M)

Hadn't seen that - I've had a busy month, though clearly not so busy as to keep me from trolling through the blogs.

I notice however that even in the Globe story you link to there's no mention of using it for the oil sands.

Jim: I think it's strategically located in an area where it could be used for tar sands (steam injection).

Yes, and it sounds like an interesting option, I'm just saying, in the ongoing debate about what to do with the oil sands it hasn't exactly been at the front of the discussion for the past couple of years. Up until recently the emphasis seems to have been on fixes like containment or using natural gas or just shutting it down. I don't think I'm unusual in not automatically thinking that going nuclear is the default to the status quo.

If you do it by taxing or capping them to the point they reduce activity, then employment and revenues I think would clearly suffer.

This doesn't readily apply to natural resources when demand exceeds supply though. Since the global demand for oil will continue to grow, regardless of what steps are taken to combat climate change, for at least a few more decades, the activity and revenues in the tarsands will remain static or more likely continue to expand.

Sorry, I haven't taken a economics course since 1993, but isn't this a Coase Theorm problem. I think the rest of Canada could perhaps pay Albertans to stop working the tar sands? We could pay them, just like we probably paid Newfoundland fishermen to stop doing what they are doing and hence meeting our self imposed international obligations?

Or could we not kick Alberta out of our federation and hence Alberta would be responsible totally for the costs. We could always buy our energy needs on the open market or build up our nuclear and hydro electric capabilities.

I think this is a win-win, we in the east get to feel sanctimonious in that we fulfill our deep seated need for approval of the europeans, and Alberta wins because it doesn't have to feel its getting shafted by the eastern canadian elites.

"it hasn't exactly been at the front of the discussion for the past couple of years"

Maybe not in ON, but here in AB nuclear and CCS have been quite widely discussed, even in the MSM.

Robert, I think my operative point was "to the point they reduce activity".

You can debate whether we can stop them or not, but assuming we do, that sort of says that activity will fall, and I'd imagine revenues as well, although I suppose there might be some way those could rise even with reduced output if prices rise enough. But if governments generally are successful in reducing use, will demand really outstrip demand enough for that?

BTW, I'm not advocating for anything in particular.

2008 was so last year. Things have normalized significantly since then.

PS: a lot of Albertans would have a problem with the "we are all Albertans" statement.

For instance, I doubt it would go over very well if fossil fuel were declared national resources, rather then provincial resources.

I bet a number of friends at Ceili's , Pennylane, Calgary one Friday in 1999 that Alberta would have nukes within 10 yrs.

[ralph]

Jim brings up the strong counterfactual point that a significant portion of the malaise east of Manitoba can be attributed to the higher dollar.

Would factories be closing and workers moving westward with a 75 cent dollar? I'm not so sure.

That said, I do agree with Stephen that the country as a whole has shared in the oil sands prosperity. Though until they modify the BNA Act to allow the federal government to directly tax natural resources I say it's Alberta's responsibility.

The mid-decade in natural gas probably contributed more wealth than the out-of-control, heavily-subsidized boom in the oilsands development.

Did Alberta mismanage the resource windfall? I think so. So do others. Did Alberta's impatience to get-rich-quick, crowd-out other wealth-producing activities in Canada through the exchange rate? Yes.

Did the boom increase crimes rates in western Canada? Yes. Do the crime rates overflow in other parts of the country? No. Would you like some western-Canadian style crime in Ottawa or Quebec City and similar?

Did Alberta's apparent success at getting rich quick influence Newfoundlanders to continue their strategy of myopic resource rent-maximizing (sic) with the strong likelihood that Newfoundland will remain a welfare basket case? Yes.

The no regret climate change policies would cause jurisdictions like the USA and Canada to radically increase their energy efficiency and reduce the rates of galloping obesity growth. If successful that could see the price of oil cut to a fraction of current and forecast prices. If no regret climate change policies are successful, oil and gas producers like Alberta could suffer economic doldrums for decades. At that point, should the rest of the country bail out Alberta, and reward it for in-a-hurry development?

Encana wants the federal government to bail out the natural gas sector because the risk of new infrastructure is apparently too great for the private sector to bear.

" If successful that could see the price of oil cut to a fraction of current and forecast prices."

I doubt it. But I'm a peak oil&gas wingnut.

"Encana wants the federal government to bail out the natural gas sector"

Burning natural gas in cars is CRAZY. Natural gas is the single best source of heat known to mankind. It should be conserved and protected very aggressively. We especially need it for industry and as a petrochemical feedstock (esp. for fertilizer). It's by far the cleanest best source of heat. One relatively easy way to reduce GHG emissions (and toxic pollution) is to stop burning nat. gas to create heat to create electricity to create heat. It's thermodynamic insanity.

In my view, the way to reduce our transport GHG emissions is to get out of our cars. It's going to be hard, and inconvenient, and generally suck, especially for those of us in the suburban asteroid belts. And we have stop trying to convince people it isn't going to be a hard transition. Despite the hardship, it has to be done. Nothing worth doing is ever easy. So how about we stop kidding ourselves that we are going to find a way to sustain the unsustainable by means other than gasoline, and accept what reality is telling us? Ugh.

A cou8ple of comments regarding what AB is doing about emmissions.

We are the ONLY province with a carbon tax ($15 per ton).
We are spending $2 Billion of our own money on CCS projects. Shell's project will put 4 Million tons into the ground per year when complete. That is .6% of Canada's total C02 emmissions. 2 other large projects will be going ahead and approx. the same amount.
Oil sands only emits 4% of Canada's total GHGs. Ontario coal power plants emit around 6%. No one is suggesting we close those.
Nuclear is going to go ahead in the Peace River area. I would stake my house on that. Bruce Power has had community open houses etc. and a lot are against it, but at the end of the day the Provincial Govt. will legislate if required because we must have it. This is located in an area with Shale Oil that needs a lot of steam to get it out (not a lot of attention to this resource) and Bruce already has a commitment from one company for 1/3 of all the electricity it would generate from a nuclear plant.
CCS technology is up and working in Weyburn, SK and has been for 10 years. Approx. 1 Million tons of CO2 injected into old oil field to push out remaining oil under pressure, rather then using water. This is the same technology that will be used in AB with the Shell CO2 etc..
It takes time to build the infrastructure (pipelines, CO2 capture equipment) etc., but it is moving ahead.

Pet peeve of mine is all the stone throwing by ON at AB when we have proven over time to have better enviromental programs for all areas. It was only a few years ago that ON finally brought in deposit on pop and liquor bottles. Couldn't beleive on one visit all the garbage bottles along streets and highways. AB has had this for more then 40 years. We just started deposit on all milk containers and the recycle rate is over 85% now.

Would be nice to focus on all enviromental issues (garbage/Waste water treatment etc.) the just on CO2.


1/ What happened to 'polluter pays?'

2/ Care to crunch some numbers on the benefit Alberta receives in the form of cheap labour from the have-not provinces and compare that to the size of the transfers to said have-not provinces? But then, this is moot because of #1.

Trevindor:

1/ Polluters pass it on to consumers. It doesn't matter who sends the cheques to the government.

2/ Why do you think it's cheap? And would it be better off unemployed?

Oil sands only emits 4% of Canada's total GHGs. Ontario coal power plants emit around 6%. No one is suggesting we close those.

Ontario is scheduled phase out coal fired generation completely by 2014. Have a look at this Sept 4, 2009 press release for the history, and progress to date:

http://news.ontario.ca/mei/en/2009/09/ontarios-coal-phase-out-plan.html

We are the ONLY province with a carbon tax ($15 per ton).

The Alberta "carbon tax" is based upon intensity targets (CO2/barrel). From a CBC story:

Alberta already puts a price of $15 a tonne on carbon emissions beyond a set target.

In July, the province ordered companies that emit more than 100,000 tonnes of greenhouse gas annually, such as oilsands producers and coal-burning plants, to cut their emission intensity by 12 per cent.

That means the plants will have to produce 12 per cent less emissions for each unit of output. The reduction is measured against the average intensity reported by companies in 2003 to 2005.

For Suncor, 2003-2005, the average GHG emissions were 0.065 tonnes CO2e/barrel of production.
http://www.suncor.com/en/responsible/1629.aspx

If it was a pure carbon tax, the cost to Suncor would work out to be $15/tonne x 0.0605 ~ $1 / barrel.

Since it is an intensity target, the avg cost is much lower. The target intensity is 0.065 x 88% = 0.057 tonnes CO2e/barrel.

In 2008, Suncor's produced at an overall rate of 0.067. So, it would have had to pay the difference, 0.067 - 0.057 = 0.010 tonnes CO2e/barrel x $15/tonne = $0.15 /barrel. This is a rounding error. For comparison, the price of crude in US$ last Friday went up $0.48.

CBC link:
http://www.cbc.ca/canada/calgary/story/2008/01/08/renner-carbon.html

Look at the violent indignities folks suffer out here in western Canada:

B.C. police seek serial groin-kicker after series of attacks

"I just want to know what her problem is"

Canwest News Service
Published: Wednesday, October 28, 2009

LANGLEY, B.C. -- Police in Langley are investigating after a woman kicked a man in the groin so hard he lost a testicle -- the latest in a series of similar assaults.

Full article: http://www.nationalpost.com/story.html?id=2155193


Maybe kicking the crap out of the western Canadian economy would be a good thing? (I strongly suspect that this woman started kicking guy's groins during the peak of the last boom. To be verified.)

What a horrible subject thread header. I just found out they have flat corporate taxes. Just by being "normal" tax-wise, they could do a lot to address their/our/Mars's emissions. If we were all Albertans voting Provincially, we would be voting a carbon tax or cap-n-trade instead of scheming how to deprive retards of coffee and soap (after a friggin pandemic, Stelmach, WTF? Their main opposition leader openly questions the science of AGW: A Palin clone in energy policy (much brighter).

A poll last year showed Canadians don't have a problem paying for phasing out Tar Sands. AB is planning on tripling them. When CCS in saline is proven, phase them back in. If no sanity on phasing out coal/LNG/tar before an AGW famine, they will be cut to pieces afterwards. Seriously, I make jokes about retards and people think I'm insensitive while they/us need a public backlash to keep soap in mental instituions in AB. Maybe they need to import Premiers from McGill or UBC or something.

Phillip: The electorate in AB is coming unglued. In aggregate, they basically believe that life is a morality play. Low taxes, hard work, go to church, do as you are told, and you will prosper. That's why AB is so insufferably self-righteous during a boom - as if it was their moral rectitude and foresight that put the oil & gas & bitumen in the ground over the last 200 million years - and it's why they break out the hair shirts and become morose during a bust.

And it's all compounded by refusing to toss out the provincial gov't every 8 years or so. The corruption and incompetence sets in and becomes endemic. It's truly embarrassing that Chile - *Chile*, that socialist paragon of sound fiscal management - better managed the windfall from booming commodity prices than did AB.

Anyway, all this to say that Albertans have had their world view, dearly held for close to two decades, chattered. In AB the penalty for being the political party in power when this sort of convulsion hits is death. I think the Tories are walking the green mile.

In MB Doer (NDP) was running neck and neck with McFayden (PC) just on some people thinking time to kick out long-term incumbant... until McFayden promised to bring back the Jets. The public knew the economics of NHL (circa last election) enough to know a Provincial Government would need help. Doer gained ten points next day. But left wing Parties in AB get 20% of the vote probably.

If you don't know what to do, saving enough at least to cover demographics and diversification is thoughtful. IDK if Norway saves too much but they are an order higher than AB in the size of the Sovereign Wealth Fund; AB cuts into theirs during mild recessions.

Stephen -

1/ I guess I should have made myself more clear - in my view, for the most part the consumers *are* the polluters. But what about the additional pollution required to produce crude from the tar sands? No, you can't allow them to externalize it by taxing at just the consumer level. It has to be paid for at the source of the crude, then they can then pass the cost on to consumers.

2/ It's clearly the cheapest labour that the oil companies could find, and it's every bit a resource as the tar sands. You characterize transfer payments as windfalls to the have-nots, when we pay dearly for them in the form of productive workers and taxpayers.
If the tar sands were not economically feasible, all those migrant labourers would not be sitting unemployed in St. John's. A little more work would have been created in the have-nots, and the rest would have migrated elsewhere (BC, ON, the US, etc).


This has some merit, but it fundamentally ignores the incredibly noxious impact on manufacturing of the over-exploitation of the oil resources in western Canada, which drove up our dollar, hampered our competitiveness, kept real interest rates unacceptably high and fundamentally undermined Ontario auto-sector and manufacturing jobs in Quebec and Ontario. The downside of the over-exploitation of the oil resource, even conceived in traditional economic terms, was far larger, as a result, than the oil sector’s contribution to national income, and is another reason why oil sands production has to be halted. Another reason is that it fuelled, up until the downturn, a noxious bout of Dutch disease, slowing investment in the economy. (Incidentally, the entire oil and gas extraction sector is no larger than the contributions to GDP of the arts and culture sector or of the social economy.) The finger pointing at Albertan oil production is also legitimate in the sense that, under Harper’s option, Alberta will be able to increase its GHG emissions for a decade at the expense of reductions already occurring in other provinces.

What IS unacceptable is that Ontario and Quebec do not realize that they are complicit in the pollution of the oil patch (especially Ontario), and as a result must share the cost of environmental clean-up. $8 billion, while not insignificant, is not, however, a very large amount; I think it would be more than fair to eliminate equalization from Alberta for, say, three years, in recompense for putting in place the necessary measures to clean up existing tar sands pollution, and halt all new non-environmental investment in the oil sands.

I think it would be more than fair to eliminate equalization from Alberta for, say, three years,

How do you do that? Cut their personal and corporate fed taxes, and GST in Alberta? Equalization comes out of Fed General Revenue, no?

I'm not an economist, but I can prorate and allocate just as well as the next layperson. And as a result, I don't buy this method of analysis for calculating equalizatuion payments from "provinces". This is the beancounter "GAPP" method.

I could just as easily argue that the additional windfall tax revenue from the Oil and Gas sector lead to a two point GST cut, a buildup of our national defences - and is funding the war effort in Afghanistan. The argument being that these are discretionary spending /tax cutting efforts only undertaken when the Fed books are in surplus or close to being balanced - largely as a result of owing "our recent prosperity to the oil sands. Roughly half of the increase in real per capita income growth since 2000 can be attributed to the increase in our terms of trade, and the increase in oil prices played a key role there."

which drove up our dollar, hampered our competitiveness

The appreciation was a good thing; it made imports cheaper and increased buying power. The 'competitiveness' problem is a common mistake; the real issue is the change in the relative price of commodities and manufactured goods, not the exchange rate (see this post). Nor did we have Dutch Disease; employment growth in other sectors more than made up for losses in manufacturing. Before the recession hit, our employment-population ratio was at a record high.

kept real interest rates unacceptably high

This is exactly wrong. An appreciating currency is disinflationary. During the appreciation, the Bank of Canada was able to keep interest rates lower than what they would have been otherwise.

Alberta directly benefits from the tar sands, other provinces benefit indirectly. Alberta should support the direct costs of the pollution and pay for the reduction of greenhouse gas emissions they generate.

Other provinces would support indirect costs: smaller equalisation cheques because Alberta would be less rich, less migration of their unemployed people to Alberta and higher oil prices.

Does the Canadian Economy Suffer from Dutch Disease?
Michel A. R. Beine, Charles S. Bos, Serge Coulombe
February 2, 2009

Abstract:
We argue that the failure to disentangle the evolution of the Canadian currency and energy and commodity prices from the US currency leads to potential wrong conclusions regarding the case of a Dutch disease in Canada. We propose a new approach aimed at extracting currency components and energy and commodity prices components from observed exchange rates and prices. Then, we analyze first the separate influence of commodity prices on the Canadian and the US currency component. Second, we estimate the separate impact of the two currency components on the shares of manufacturing employment in Canada. We show that 63 percent of the manufacturing employment loss due to exchange rate development between 2002 and 2007 are related to a Dutch disease phenomenon. The remaining 37 percent can be ascribed to the weakness of the US currency.

S_M: The oil sands are extracted by private firms. The profits belong to the shareholders. The AB gov't receives royalties. Everyone else receives oil - which they have an insatiable appetite for. It makes no sense for the AB taxpayer to pay the entire bill because they do not receive even the lion's share of the benefits. Yes, the jobs are here due to an accident of geology, but so is the environmental devastation associated with digging-up a huge areas of the province, and the associate health problems localized to AB. QC receives huge benefits from having lots of hydro power. Nobody is talking about dinging them for their good fortune or for the destruction associated with mercury leaching and flooding vast areas of wilderness.

The oil firm's shareholders are benefiting by externalizing costs. And it's not just GHG emissions. I think Stephens point is that if we eliminate the free riding, the firms will to some extent make less profit, but that profit cannot go to zero so long as we still need oil (and don't kid yourself, we need lots of oil for all sorts of stuff, no just liquid fuels), so consumers will pay more so that it continues to be profitable to extract the oil. If you want the tar sands to go away, the ONLY way to do it is to use much, much less oil and that is easier said than done.


In 2008, Canada produced 2.7 million barrels/day - of that 1.2 million was from oil sands, 1.5 from conventional. This is out of a world production in the neighbourhood of 85 million barrels/day.

Most of the oil sands bitumen/crude is destined to the US. Eastern Canada imports light crude from a number of sources.

The price an oil sands producer receives at say a Gulf of Mexico refinery will be the world price for oil, less the price to get it there, and processing /refining costs (higher for heavy crude/bitumen).

In as much as as higher production costs in the oil sands will affect the world price for oil (assuming they can pass on the costs to the US refineries as a "security premium") eastern Canadian consumers may see some impact. No more so, though, than the rest of the world.

Thomas Bergbusch: If the "Dutch Disease" is defined as the phenomenon of declining manufacturing employment as a result of an increase in resource prices, then my response is (à la Krugman) "why do you call it a disease?" Shifting resources from a declining sector to a growing sector is what *should* happen.

My (possibly idiosyncratic) interpretation of the Dutch Disease was a situation in which the shift of employment out of manufacturing was not accompanied by a corresponding increase in employment in other sectors. That may have happened in 1970's Holland, but not in 2000's Canada.

Do economists have the equivalent of the Portfolio Theory in finance - ie don't put all your eggs in one (tulip) basket?

http://www.investopedia.com/articles/06/MPT.asp

And speaking of black holes or a death spiral, have a look at what happens to an existing gas transmission line (with an historical cost structure) delivering gas from say Alberta to the US when gas production volumes start to decline from Canada (due to high cost structure and/or lower prices). Tolls (costs and return on equity) are allocated per unit throughput. As the gas volumes start to decline, the toll rates go up, resulting in less gas being competitive in deep US, resulting in lower volumes, which leads to higher rates. etc. etc.

One example in the G&M re TCPL just a few weeks ago

http://www.theglobeandmail.com/report-on-business/transcanada-raises-pipeline-tolls-for-gas-producers/article1385151/

The "growing sector" in question is highly volatile and, now that macleans mentions it, risky and uncertain.

Sure, natural gas was booming a few years ago. Now? There is a NA glut as far as the eye can see and likely a global glut within 5 to 10 years. A number of technical innovations drove this unexpected supply increase. Nobody saw this coming a few years ago. The Americans are the low-cost producers of shale gas.

Long-term, oil will most likely increase in price but short-term there could be significant volatility making some unconventional oil production companies unprofitable. Currently the global inventories appear to be 58-days of forward cover, 5-days above the average for this time of year according to the US Energy Information Administration (EIA). Benchmark oil prices appear more than sufficiently high to bring on new supply. The potential for a downturn is non-negligible.

Base metal prices look like they could stay relatively high. But for how long? Boom-level prices will, as they did mid-decade, unleash a tremendous amount of capital for exploration and development.

If the fixed, sunk costs associated with shifting workers in and out of sectors matters, then the rate of growth in the growing resource sector matters.

Do economists have the equivalent of the Portfolio Theory in finance - ie don't put all your eggs in one (tulip) basket?

Yes, but the best way to diversify is to trade for what you don't make, not to try to make everything yourself.

Everyone likes white egg omelettes. Bird flu? Naaaa. :)

There have been a few comments suggesting that the rise in the price of oil and output from the Alberta Tar Sands have caused the Canadian dollar to appreciate, such as:

counterfactual what the effect on the economy east of Alberta would have been in the absence of exchange rate changes created by the existence of the oils sands.

and

a significant portion of the malaise east of Manitoba can be attributed to the higher dollar. Would factories be closing and workers moving westward with a 75 cent dollar? I'm not so sure.

and

over-exploitation of the oil resources in western Canada, which drove up our dollar, hampered our competitiveness

I think comments might be hampered by taking too much of a Canada-centric view on the Canadian dollar. And while I agree that improvements in Canada's terms of trade have been driven by the rise in the price of oil and increases in Oil Sands production, it's not so clear that this has driven the Canadian dollar higher. Rather, rise in CAD/USD has resulted from the US dollar falling.This becomes apparent if one includes a third currency as a reference, like the Euro.

Let's look at the change in CAD/USD, CAD/EUR and EUR/USD from 2002 to 2008 (2008 saw the greatest appreciation in both currencies and crude oil). Below is the average exchange for each pair for each year, plus the percent change.

CAD/USD - 2002: 0.637, 2008: 0.943, change: +48%
EUR/USD - 2002: 0.945, 2008: 1.471, change: +56%
CAD/EUR - 2002: 0.676, 2008: 0.642, change: -5%

(10 years of exchange rate data is charted here http://special----k.blogspot.com/2009/12/has-canadian-dollar-strengthened.html)

Between 2002 and 2008, the Canadian dollar strengthened 48% against USD, while the Euro strengthened 56%. And the Canadian dollar weakened slightly against the Euro. From the Euro perspective, the Canadian dollar hasn't strengthened, it's the US dollar that has weakened.

If the price of oil, and increased exports from the Tar Sands, were driving the Canadian dollar higher against the US dollar, then why wouldn't these same factors drive the Canadian dollar higher against the Euro? Indeed, it seems counter intuitive that the Canadian dollar hasn't strengthened significantly against the Euro given all the income generated by the oil exports.

It's not clear that Alberta's exports has caused the appreciation in CAD/USD, and the loss of competitiveness in manufacturing. Rather, it's the USD depreciating that appears to be the major driver.

If they'd mention secure a place and job before moving there, Cgy's homeless ## wouldn't've ballooned (no mention of Prairie winters or shelter underinvestment). Their gov lauds a "Let Them Eat Cake" one income earner household (that extra $100+/wk Albertans earn over non-tar provinces is a part-time job for a mommy, why so mean to working class wage earners?). Fired best epidemiologist/planner on payroll in May 2009, just tried to take soap away from Mental Treatment Centres. Chretein put the gem of a NNI in Edmonton where are hostile to things like solar cell nanoimprovements instead of Regina natural complement to Saskatoon's synchrotron.
A carbon tax is lobby-free, fast and small gov. Is now killed; now stuck with loudest chick lobby cap-n-trade someday. AB tried to pull a Kansas with their school curriculum. Equalization payments are capped at $3B per province, aren't they (if they are $8.4B I stand corrected)? Less than $60B in non-inflation adjusted (ie. real figure is higher) federal transfers to AB mid 20th century to develop sands. How come don't do the math the other way; how much AB's gain from rest of world (even USA only creates 18% of their own wealth)?

Why I'm hostile is mandatory (imprisoning all pot farmers acceptable but insulting rich GOP-ish Province isn't?!). The motive is greed and that greed exterminates us this/next century. They/we don't complain about tranfers to province, only away from. Not defending some perfectly efficient capital arrangement. I think only USA and Canada don't have nationalized oil, the norm. Both AB Parties say are for keeping wealth in AB and for clean tech research. Their own (lack of) policies and tax rates expropriate wealth away. Clean R+D budget now is $25M while clean-tar-sands propaganda budget is $50M. Federally, AB votes for a Party that isn't very Stimulative of job growth; J.Flaherty will cut employment intensive Crowns to spare *capital intensive* sands and accountant-intensive banks. Danielle says some climate science is false.

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