The Life of Pie...in North America

There’s no doubt we are on a wrong path. Climate change is a serious matter that requires even more serious attention. The math is pretty simple – if the rate of damage exceeds nature’s rate of renewal for an extended period of time, we are doomed for catastrophe. The fact of the matter is: yes, our actions are powerful enough to change nature. Humans can destroy every inch of our planet, and us with it. However, policies to blindly divest from oil companies and to halt oil sands production, without critical analyses of the benefits of Canada’s resource sector, are unintelligent.

I like to use the analogy of a pilot to illustrate the situation we are in. Before the days of computer-aided control, flight control falls solely in the hands of the pilot. Hence pilots go through intensive training to handle various emergency situations – and what dearer situation is there than losing speed coupled with engine failure? But fear not, a well-trained pilot knows exactly what to do to reverse the severity of the situation.

Contrary to instinctual action, “pulling up” when the plane is descending is unadvised – this is because it reduces the momentum of the plane and causes it to further lose speed. What an experienced pilot should do is to let the nose dip and allow gravity to pull the plane towards the earth. In doing so, the plane gains the necessary velocity for aerodynamic lift. Only when the critical velocity is achieved, the pilot then muscles to pull up and glide to a safe landing.

Our society is currently onboard this failing plane – scientists are the system sensors, and policy makers are in the pilot seat. But when should we act. Certainly if we continue on the falling trajectory, we crash. But do we pull-up now? Or should we pick up some more momentum? How much time have we got before it’s too late?

As for the last question, Carbon Tracker, a non-profit organization, and the Grantham Research Institute on Climate Change, part of the London School of Economics, provide some insights. According to their report “Unburnable Carbon -Are the world’s financial markets carrying a carbon bubble?”, a lot of oil must be left in the ground. Their analysis starts by estimating the amount of carbon dioxide that could be put into the atmosphere if global temperatures are not to rise by more than 2°C – the most that climate scientists deem prudent. The maximum, says the report, is about 565 gigatons (gTCO2) between 2011 and 2050. Meanwhile, the total carbon potential of the Earth’s known fossil fuel reserves comes to 2795 GtCO. 65% of this is from coal, with oil providing 22% and gas 13%. Canada has 12% of world’s reserve. Canadian policy makers need to understand these scientific constraints to gauge an appropriate level of production.

The fact that our environment is able to accommodate more greenhouse gas makes policy option much more complex. The Unburnable Carbon report reveals that there is a critical point, but we are not there yet. Therefore, before we stop all resource extraction, we need to a new perspective to analyze the benefits of resource sector which positions us better as we approach the critical point. Only by meticulously assess the benefits can we design sensible policies to optimize economic benefits while remain environmentally sustainable. Many benefits of the oil and the resource sector are underappreciated. Environmental activists often see no further positive impact beyond simply “job creation”, which is still attacked as “backward” and “unsustainable”. This perspective of the resource sector is incomplete at best, misleading at worst. A more accurate analysis needs to incorporate the perspective of social capital in the context of global economy.

Globalization has led to greater mobility of capital and trade around the world. While developed countries transition themselves towards the knowledge economy, the anti-tar sand faction is quick to point out the loss of manufacturing jobs to oversea economies by the so-called “Dutch Disease” brought forth by resource sector. Statistics Canada estimate a total of 322,000 jobs lost between 2005 and 2008, or 1 out of every 7 manufacturing jobs in Canada. This is true, however, as Bimenyimana and Vallée have shown rigorously, halting production merely eases the symptom but does not cure. Rather, policy makers should take advantage of the properties of the resource sector to gradually prepare our economy for the “pull-up”.

One of the characteristics of resource sector is its natural market protection – unlike investment into manufacturing that is mobile subject to global competitive forces, Alberta’s oil simply can’t go anywhere. This natural market barrier thus ensures investment into oil sand development directly generates secure jobs for Canadians. But there’s much more to “job security”. It is necessary to note that the resource sector has changed over the decades. Extraction and production processes have become increasingly capital and knowledge intensive. This blurs the line between primary, secondary, and tertiary sectors in the traditional sense, as more and more jobs in the resource sector now require professional knowledge and skills. The notion that ‘resource sector jobs are backward' needs to be abandoned.

Indeed, riding high commodity prices, resource-rich regions have been generating high-paying jobs. Using data derived from Statistic Canada and Human Resources and Skills Development Canada, Canadian Business Magazine ranked the top 50 jobs in Canada in 2013 with consideration of job growth since 2006, medium compensation, increase in compensation, and projected demand for those jobs. The study finds that “not surprisingly, several of the top jobs on our list are in Alberta’s oilpatch” (Canadian Business, April 2013). “Oil and Gas drilling supervisor” tops the list and “Petroleum Engineer” ranks third. The resource sector also creates other high value-added jobs indirectly. Oil and resource companies induce demand for additional complementary service jobs in engineering, finance, consulting, accounting, and legal fields.

Yet, the picture of job creation is still incomplete. As hinted previously, job creation isn’t simply a numbers game; the real benefit that is often neglected is in enriching Canada’s social capital. A skillful labour force, as OECD identified, is a key factor for long-term economic competitive advantage. Resource industry boom plays the role of enhancing Canada’s labour market. Between now and the retirement time for the last wave of “baby boomers” sits a 15-20 year generation gap. In between this transition, we are experiencing a shortage of professional jobs for young people and new graduates. As TD Economist Fong explains, “In addition to the fact that youths are facing competition from their own age cohorts, they are now facing competition from people who just lost their jobs during the recession and have 20 years of experience in the workforce.” The resource sector is able to make up for some of this excess supply. It could also serve as a training ground for the up-and-coming generation of Canadian professionals by giving them real work and internship experiences. These gains are not subject to diminish with the depletion of resources. Rather, the increased skills bear permanent effects on Canadian economy for a long time. The resource sector is a catalyst in building a skillful workforce for the future.

Lastly, one must also consider the impact of oil sands on socioeconomic mobility. As in any community, there exists a portion of workers with low skills who normally earn low wages. As such they, and their children, have limited opportunities and social mobility. But even with a skill gap, low skilled workers nevertheless benefit from the resource boom as it put upward pressure on all wages and prices. Thus, these workers benefit from earning higher wages and having more disposable income compared to people working the same job elsewhere. Moreover, unlike union-inflated wages and cartel-controlled prices, the higher income in booming regions is a result of market forces and generates minimum deadweight loss.

What do all these translate to on a level we can relate to? It means that single parents no longer need to work three jobs to keep their family intact. Parents who never went to college can give their children an opportunity to get post-secondary education. Families will have the financial means to put their children in sports clubs, summer camps, and music lessons. College students will face a lower debt from working at decent-paying summer jobs while gaining valuable work experiences. All of these social benefits are long-term, and they seldom make it into environmental activists’ consideration.

While we have yet to climb out of the post-2008 era of “Great Recession”, policy design needs to take place within the scientific limits mentioned in the beginning of the article as well as many others pertaining to health – and those are non-negotiable. With the luxury of time, albeit finite, Canada does have the position to extract the benefits of resource economy. The benefits are not only limited to job creation, but also pertinent to social capital. Having a high-caliber workforce with a sound economic foundation enables Canada to emerge as a leader as the world embraces for a shift in energy paradigm.