The writer and former editor at Alberta Venture says yes.
For the better part of five years now, Canada’s oil and gas industry has blamed Justin Trudeau for all of its problems. Now, thanks to the combination of a price war between Saudi Arabia and Russia and the devastating economic impacts of the COVID-19 pandemic, the industry is being forced to depend on Trudeau’s government for its very survival. Never let it be said that the universe doesn’t have a sublime sense of humour.
The idea of the federal government bailing out the oil and gas industry isn’t a laughing matter for a lot of people in Alberta, though. This is understandable, since many have spent their entire lives watching the industry consume all of the available political and economic oxygen in the province. Let it fail, they say, and let the rest of us move on with the work of building a more sustainable economy. Here’s the problem with that argument: The costs associated with letting oil and gas fail would make building that economy far more difficult.
If Canada’s oil and gas industry were allowed to fail, it wouldn’t just be the suits in the corner offices who would feel the pain. A whole constellation of small businesses in Alberta, from restaurants to manufacturers, depend on oil and gas for their own livelihoods, and all of them would be badly hurt. The environment would be a big loser here as well, given that the list of orphan wells that haven’t been reclaimed would swell—and potentially be joined by many of the tailings ponds in northern Alberta. And the public would somehow have to cover these massive costs with a dramatically smaller tax base.
Even worse, once the global economy recovers from the impact of COVID-19, countries without carbon taxes and environmental regulations would be well-positioned to fill the gap. Demand for oil and gas will peak within our lifetimes, but that day still lies in the future—and, unfortunately, the recent collapse in prices may have pushed it even further out. By letting our oil and gas industry fail, we would be choosing to take the billions of dollars in tax revenues and economic activity it generates every year and give it to people like Vladimir Putin and Mohammed bin Salman.
Instead, we should use this opportunity to push Canada’s oil and gas industry in ways that benefit the public. Any assistance that’s provided should be done in ways that increase the taxpayer’s share of the wealth the industry generates. This should include binding commitments to reduce greenhouse gas emissions, constraints on excessive executive compensation, and more diversity on boards of directors and in head offices. And our governments should push the industry to invest far more in renewable energy and low-carbon technology than they have to date.
We can either choose to burn the industry to the ground, or build it up in ways that make us all stronger. I know which choice I prefer.
The University of Alberta professor of political science says no.
Many in the climate action movement and policy networks were alarmed by news in March about a $15-billion “bailout” for Canada’s oil and gas sector. Following the usual pattern of big-business lobbying, the deal was negotiated secretly between the federal and Alberta governments and corporations. The meagre information about the “bailout” indicated that it would extend the subsidies already paid to the sector over five decades, with some new measures thrown in. The package appeared to be one of “all pain, no gain” for taxpayers (present and future) and entrenchment of fossil fuel dependence, notwithstanding the climate crisis and Canada’s commitments to reduce GHG emissions to net zero by 2050.
The responses from civil society organizations and academics were swift: calls of support for income replacement for oil and gas workers and for investment in sectors that will provide sustainable livelihoods in a low-carbon economy. These groups support public investment in food-, water- and energy security, income stability for all citizens and high-quality public services.
A bailout is a stopgap. People across the political spectrum agree that the short-term priority is income replacement for workers. But the problems facing workers are structural. We have little reason to expect that the 54,000 Canadians laid off in this sector between 2014 and 2019 (and the thousands more now being laid off) are going to be rehired at their old jobs. A transition program to ensure income security while generating new jobs in renewable energy and other sectors through public investment should have been implemented a decade ago, when global trends in energy demand and supply were apparent. There’s no excuse for delaying such action now.
When we talk about purchasing shares in distressed assets and providing interest-free loans to oil and gas corporations, we’re no longer talking about a bailout for workers. According to reports, industry is asking for $20-billion for such infusions of liquidity. Investments of public revenue on this scale—and for these purposes—call for public debate and scrutiny. Some analysts advocate federal ownership of the oil and gas sector, with the revenues used to invest in renewables and energy conservation and a planned phase-out of fossil fuel extraction. Does this make more sense than providing high-risk loans to the least-viable firms in the sector, or for projects that may never recoup the capital outlay? How many good jobs could be created by investing $20-billion in any other sector?
Governments everywhere are being called on to stop committing billions in subsidies to fossil fuel companies. Their investments must be consistent with a plan to achieve GHG reduction targets and with Canadians’ social priorities. This crisis is an opportunity to change course—“to break with the past and imagine our world anew,” as Arundhati Roy says so beautifully. It should not be used as a pretext for undemocratic actions that do not serve the public interest.
Max Fawcett responds to Laurie Adkin
I understand why some people, including my interlocutor here, are reluctant to support any bailout of the oil and gas industry. For too long, that industry has dominated the public discourse in Alberta, distorted our economic options and driven our political agenda. The current crisis probably seems like an opportunity to make a clean break from that past. There’s just one problem: We’d be breaking a thing that still has plenty of value.
Between 2016 and 2018, even when oil and gas prices were far lower than they’d been in a decade, Canada’s oil and gas producers generated $8-billion in annual tax revenue. They also supported half a million jobs and added more than $100-billion to Canada’s GDP. And while they won’t be growing their production in the future the way they did in the past, they can help meet the global need for oil—one that was rising before COVID-19 and will almost certainly return to those levels in the future—for the next few decades. So yes, we could let the industry fail and watch as its assets get snapped up on the cheap by the Koch Brothers or Warren Buffett. But then we’d have even less of a stake in the industry’s success, and less influence on its willingness and ability to decarbonize.
I’d much rather see the federal government use its financial clout to shape and direct that success. Already, the prime minister has announced that $1.7-billion will go towards reclaiming the growing number of orphan wells in Alberta, as well as serving as a downpayment on regulatory changes by the Kenney government that will ensure their numbers aren’t allowed to swell again in the future. An additional $800-million will be invested in efforts to reduce the industry’s methane emissions, which are a major contributor to climate change. But the federal government can and should go further than that.
It should start by directing attention and activity towards new forms of energy development in Alberta. That could mean more geothermal energy, which would generate low-carbon heat and electricity and put some of the drilling expertise to work that’s been idled by the current crisis. It could include de-risking the province’s hydrogen assets (much as it did for the oil sands generations ago), which could turn hydrogen into a multi-billion industry of its own with the right support and a bit of luck. And it absolutely should involve exploring the enormous potential of bitumen as a high-value manufacturing material (one that could replace steel, for example), which a recent Government of Alberta report laid out in full detail.
Does Alberta’s oil and gas industry deserve this sort of support? It depends who you ask. But we should be wary of letting the pursuit of moral justice get in the way of what’s best for the largest number of people. In the wake of the bailout of the US financial sector in 2008, some pundits argued it never should have been bailed out at all. But does destroying the lives of millions of Americans to teach a few thousand bankers a lesson really make sense? I’d suggest there’s even less upside in letting Canada’s oil and gas industry collapse just to punish a few hundred executives in downtown Calgary.
After all, unlike with those US banks and bankers and the financial crisis their greed helped create, this particular mess isn’t one of the Canadian oil and gas industry’s own making. Yes, the federal government is spending $1.7-billion to clean up the orphan wells that very much are the industry’s own making. But it’s also using that money to extract regulatory changes from the government of Alberta that will ensure such a mess doesn’t get made again.
That, ultimately, is the value—and power—of this bailout. In 1965 the comic strip The Wizard of Id presented an alternative to the more widely known understanding of the “golden rule”: that the people with the gold make the rules. Right now, the federal government has the gold and therefore an ability to make new rules that could really help Alberta. A bailout doesn’t have to be a “stopgap,” as my counterpart says. It can also be a bridge to a better place—one where Alberta’s oil and gas industry trades its almost single-minded pursuit of growth for a more balanced approach, and where the public maximizes its share of the proceeds.
My interlocutor concluded her opening remarks by suggesting that a bailout “should not be used as a pretext for undemocratic actions that do not serve the public interest.” I’ll conclude mine here by pointing out that there’s nothing undemocratic at all about what the federal government has done so far—and that it’s very much in the public interest. Let’s be clear: This isn’t about bailing out the people at the top of these oil and gas companies, because they’re the last people that need the help. It’s about bailing out each and every one of us, both as Albertans and Canadians. It’s about maximizing future tax revenues and using them in ways that help Alberta move forward. And it’s about taking what we have and using it to build something we want.
This might seem like an opportunity to make a clean break. But we’d be breaking a thing that still has plenty of value.
Laurie Adkin responds to Max Fawcett
While Max Fawcett doesn’t specify what “not letting the industry fail” means, in terms of government investment, loans, subsidies, externalization of environmental and social costs, or exemptions from regulations and taxes, he does suggest that a bailout should come with conditions such as “constraints on greenhouse gas emissions” and corporate investment in renewable energy. He also suggests—like the Alberta NDP and the first Trudeau governments did—that revenue from oil and gas production is essential to fund governments’ investments in the post-carbon economy. Indeed, this argument was used to justify the purchase of the Trans Mountain Pipeline.
The assumptions underpinning this “We can have our cake and eat it too” strategy are, however, highly problematic. Meanwhile a better alternative is available to Albertans and Canadians.
Let’s start with the climate crisis. Do we or do we not accept that global GHG emissions must be reduced to net zero by 2050 if we are to have any chance of preventing catastrophic climate destabilization and connected ecosystem collapses? Do we or do we not accept that Canada—as one of the world’s wealthiest and well-resourced countries—must be part of this global effort? If we agree on these starting points, then there is simply no question of continuing to invest public revenue in the extraction of unconventional fossil fuels.
The industry would like us to believe it will eventually reduce its emissions to zero by implementing new technologies. But even if such technologies were available and economically feasible on the scale and in the timeframe that are needed, reducing oil sands emissions fails as a response to global warming. Remember that most of Alberta’s heavy oil is exported, hence refined and combusted elsewhere. So long as global consumption of fossil fuels does not contract greatly within a decade, we will overshoot our remaining global carbon budget.
Let’s remember too that the resource-extractive economy of Alberta is, and has always been, founded upon the dispossession of Indigenous peoples. The condition of its expansion is their de-worlding and subordination to the colonial state. Meaningful reconciliation is simply not possible amidst ongoing destruction and domination.
The argument—also made by the UCP government—that global demand for oil and gas will not peak for several decades and that Alberta should capture as big a share as possible of that market is seriously flawed. This strategy stakes the stability of Alberta’s revenues and the livelihoods of tens of thousands of people on a high-risk gamble that the status quo will not undergo radical disruption. This, despite the evidence that the disruption is already underway. Worse, the gamble is unnecessary, because a more prudent course of action is available.
Even if there is a substantial increase in the price for Alberta’s oil (and given the global picture of supply and demand this is hard to imagine) the inevitable crisis will merely be pushed into the near future, for our children and grandchildren to deal with. The billions of dollars we are promised from fossil fuel exports, if realized, won’t be invested in the post-carbon economy, because they will be needed to reduce the sector’s debts and environmental liabilities—which will only have grown.
Governments do need to extract as much revenue as possible from oil and gas production during the phase-out period, primarily to pay for the industry’s environmental damage. How to do this is a question ecological economists are grappling with now. A new regulatory regime needs to be designed that is consistent with GHG reduction targets and implementable in relation to trade and investment agreements.
Albertans don’t have to bet the house on future global demand for bitumen. They can take the reins of their future. This means planning, in co-operation with Indigenous communities, the federal government and other provinces, a managed phase-out of oil sands production, starting now. It means planning for economic de-growth, which is a condition for preserving a habitable planet. A realistic strategy entails:
Such proposals are in no way reducible to “burning the industry to the ground” (a straw man argument), but in fact aim to build up a resilient economy that truly serves the best interests of Albertans.