Thursday, March 01, 2012

In Defence of Dalton

Weighing the respective merits of the Athabasca Tar Sands and Canadian manufacturing is a hot button issue.  Ontario premier McGuinty found that out when he state, quite rightly, that one of the impacts of the Athabasca bitumen is to strengthen the Canadian dollar which, in turn, undermines competitiveness in the Canadian manufacturing sector.

McGuinty only told the truth.  Any doubt that Canada's corporate media has turned hard rightwing, however, was dispelled by the way they piled on to denounce McGuinty for, well, speaking the truth.  We can't entirely have it both ways. 

But this controversy invites a larger evaluation of the Tar Sands versus Canada's manufacturing sector, one that looks both to the past and the future.   Manufacturing in Canada, primarily in Ontario and Quebec, has been a partner along with agriculture and resource production, in Canada's economic engine.   All three are essential to the future.

Canadian manufacturing took off with the development of internal combustion to power automobiles.   The automotive sector has played a great role in the development of Canada but other forms of manufacturing have also come into play, some of them quite high-tech.  Just think Bombardier for example.

Like our manufacturing sector, the resource sector is cyclical, governed to varying degrees by fluctuating world market demand.  This is certainly true for the Tar Sands, the most expensive fossil fuel of all to extract, process and transport.   High world oil prices make Alberta bitumen production viable but the margins are nowhere near as great as for conventional crude oil.

The actual value of Tar Sands production  is really hard to assess.  Part of this comes from the private and public sector secrecy that surrounds it.   Part of this comes from accumulating deferred costs such as environmental clean up and site remediation.  Part of this comes from the true value of resources such as fresh water provided to Tar Sands producers and from the impacts of carbon pricing on Tar Sands emissions.

Two other factors to weigh.   One is that the most easily-accessible and transformable Tar Sands deposits are dwindling.   Future production will be lower grade stocks that will require more intensive extraction and production and generate even greater emissions at greater cost.   As the fossil fuelers continually remind us, less than 5% of the Tar Sands are commercially viable.  So, if we are to take them at their word, this is a resource with a shaky future.

Then there is the climate change question.   Based on known oil reserves, there's far more oil available than we can consume if we're to avoid triggering runaway global warming.   Somewhere up to 80% of these global reserves will have to be left in the ground.   Where does that leave the world's most expensive synthetic oil with the greatest carbon emissions?

Just over a month ago a panel of leading British investors, scientists and politicians warned the governor of the Bank of England that energy reserves were true sub-prime assets that posed a risk of a potentially disastrous "carbon bubble" that could collapse.   This notion of a carbon bubble isn't new and there are more voices emerging with this same warning.

Hence, if we are already in a carbon bubble and the Athabasca Tar Sands viability depends entirely on the continuation of that bubble, what sort of risks does this present to the Canadian economy?  Is the Tar Sands venture not only undermining Canadian manufacturing exports but also an economic threat to Alberta and the country?  Are the Tar Sands viable only on increasingly shaky assumptions?

And let's face it, Alberta has done a lousy job of managing the Tar Sands for the benefit of Albertans and Canada.   The last truly visionary Alberta premier, Peter Lougheed, has been scathing in his criticism of the Mardi Gras mentality of the Alberta legislature going back to the Ralph Klein days.

Alberta is a binge drunk when it comes to the Tar Sands.  When the world market prices are good, it's balls to the wall.   The surge in wealth overheats the Alberta economy, setting it up for a devastating fall when market prices collapse.  Not for nothing are Albertans fond of their bumper stickers that read, "Dear Lord, let us have another oil boom and, this time, we promise not to piss it away."

The reckless overheating of the Alberta economy, the very subject of Peter Lougheed's longstanding rebukes, impacts the Canadian dollar.   Everybody, including the manufacturing sector, gets the hangover.   But wait, what was McGuinty talking about?  Why one of the things he advocated was that Alberta and the feds put a lot of that bitumen revenue in a sovereign wealth fund rather than simply letting it go up in smoke in boom and bust cycles.   What a curious idea.   See:  Norway, sovereign wealth fund.

Politically, the Athabasca Tar Sands are sort of like handing a fresh bottle and the keys to your car to a raging alcoholic who promises he won't touch a drop.   The same drunk who lashes out at anybody who complains about the puddle of puke he left on the carpet.

Tar Sands or manufacturing, what'll it be?  But that's a straw man.  Nobody is saying one or the other, certainly not McGuinty.  He just wants the Tar Sands reined in to stabilize the Canadian dollar and that's a bloody fine idea.

But, if I had to choose, I'd side with manufacturing.   There will be a great demand for high-tech manufacturing throughout this century whether that's high-tech cars, mass transit or alternative energy systems.   And that is a safe bet.   The Tar Sands?   Once you lift the veil of secrecy, factor in the wobbly assumptions and calculate all the deferred costs - that looks like a very long shot at best.

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