Countering Andrew Leach on “The fiasco that is Alberta’s energy ‘war room'”

Contributed by Robert Lyman ©  2020. Lyman’s bio can be read  here.

Andrew Leach has an op-ed on CBC entitled “The fiasco that is Alberta’s energy ‘war room'”.

Leach makes three arguments that those who are skeptical about current climate policy and supportive of Alberta’s oil and gas industry should counter.

First, he argues that the numbers used to estimate the contribution of oil and gas to Canada’s GDP are exaggerated. Then he questions the value of the industry’s direct, indirect and imputed contribution to employment in Canada. Finally, he argues that the Alberta War Room will do nothing to convince opponents of Canada’s oil and gas industry to change their minds, nor to attract investment to Alberta.

With respect to the contribution to GDP, the War Room may have erred by quoting Natural Resources Canada’s figures, a criticism more properly directed to NRCan. That hardly suggests that the industry’s contribution to GDP is inconsequential, especially to the economy of Alberta. Those same NRCan data sources show that the energy sector’s direct nominal GDP in Alberta was $75.2 billion in 2018. This was after three years of declines due both to reduced international oil prices and the injurious effect of federal and provincial government climate policies. Those policies impeded market access, added substantially to industry taxes and increased regulation. When governments choose, in the middle of a market downturn, to harm an industry’s investment prospects, it is not surprising that the sector’s contribution to provincial and national income declines.

The public discussion about employment in the energy industries has becomes highly politicized. People like Mr. Leach like to trivialize the estimates of employment spinoffs because the largest effects often occur over two to three-year construction periods and the number of people required to operate a large capital-intensive project is far smaller. (The same people then ignore this consideration when it comes to the construction of wind and solar plants.) The best way to consider the employment effects of any project is in terms of person-years to employment, but this standard is rarely used because of the politics surrounding the issue. A more fundamental point is that, from an economic policy perspective, the goal is not to create as many jobs as possible, but rather to produce as much energy as possible at the lowest possible cost, and that means doing so with the fewest energy workers. The oil and gas industry features relatively lower employment but exceptionally high value-added, because of the high output of valuable products. The higher productivity, other things equal, justifies higher wages per worker.

If Mr Leach really wished to assess the value of the oil and gas industry to Canada and Alberta, he would not just quibble about GDP and employment numbers but examine the sector’s impacts on other economic outputs. Oil and gas remains one of Canada’s largest sources of export earnings, which is why the value of the Canadian dollar is often influenced by changes in international oil prices. The contribution of the oil and gas industry to government revenues, even though reduced from the pre-2015 period, averaged $16.8 Billion per year over the 2013-2017 period, according to NRCan. Compare that with the taxes paid by the renewables industry, if you can find any evidence of it.

Will the War Room convince the opponents of Alberta’s oil industry to change their minds? Not if their minds are closed to the facts concerning both the nature of the climate problem and the role that Canada’s oil industry plays in global emissions (hint: the oil sands in total constitute one one-thousandth of global GHG emissions). Will the War Room attract investment to Alberta? Who can say, when the environmental lobbyists and certain international financial institutions ally with the Trudeau government to make the investments less attractive? Should Albertans and other Canadians fight to overcome these obstacles to prosperity?

Hell, yes!

Robert Lyman is an economist with 35 years’ experience as an analyst, policy advisor and manager in the Canadian federal government, primarily in the areas of energy, transportation and environmental policy. He also has eleven years’ experience as a private consultant conducting policy research and analysis on energy and transportation issues as a principal for ENTRANS Policy Research Group. For the last five years, he has been a frequent contributor to the publications of the Friends of Science, a Calgary-based independent organization concerned about climate change-related issues. He resides in Ottawa, Canada.