Over the past several years, a word with Latin roots has taken on a contemporary new meaning that is rich with political nuance. That word is transition, and to the ancient Romans it literally meant to go across.
As a modern buzzword in the Canadian energy discussion, it signifies the belief that there is a fairly rapid change underway whereby today’s heavy reliance on fossil fuels is quickly crossing over to a new, post-hydrocarbon state. Here, the trappings of modern life are maintained, without the negatives of burning fossil fuels for heating and transportation, or even extracting them at all.
Transition is frequently spoken of as a process of adapting energy systems in a deterministic direction leading toward certain products, i.e., electric cars and wind turbines. Although I’m a fan of both technologies, it’s troubling to see the assumptions about how easy such a transition could be. Many have written about the issue from a range of perspectives. One viewpoint that I’ve seen little discussion around is an economic transition, particularly the Canadian workforce.
It might seem callous to make this observation, but it’s an inescapable truth that all jobs are not equal. When it comes to injecting primary economic benefits into society overall, some jobs are massively more effective than others. In Canada today, I’m talking about jobs in natural resources, mining and oil & gas in particular.
I often refer to the work of Vancouver’s Urban Futures Institute, which has shown that resource jobs produce as much as five or six times the per capita impact on GDP as the average British Columbia job.
Recently, I noticed that Ontario-based economist Mike Moffatt had drilled into Statistics Canada data and emerged with a finding that surprised even me, although in retrospect it probably should not have.
It turns out that in 2018, 12 out of Canada’s highest 30 weekly wage jobs are directly involved in oil and gas extraction, pipelines and mining.
The single highest paying wage job was in natural gas pipelines, a healthy $2,200 a week, which is about double the average Canadian salary. (This comparison doesn’t include salary earning professionals such as physicians.)
A further five job categories fall into utilities, manufacturing and transportation, which are tied very closely to those industries. In total, 17 of the top 30 jobs are inseparable from the nation’s energy and mining economy, and I haven’t even included the half-dozen finance jobs in the top 30 which, this being Canada, are closely tied to the resource sector. (See Mike Moffatt’s blog post here.)
In short, Canada’s best-paying jobs are also ones that we know inject disproportionate benefit into the economy for the good of everyone. They create trade goods that can then be swapped for other things we need but don’t produce ourselves like scarce vaccines and iPhones. As economist Paul Krugman has put it, “Exports are not an objective in and of themselves: the need to export is a burden that a country must bear because its import suppliers are crass enough to demand payment.”
Another of my favourite economists, Patricia Mohr (now retired from a distinguished career in banking) likes to put it somewhat differently, when trying to describe Canada’s present-day dependency on one particular commodity we trade. She says that crude oil exports are what “pay the rent” for Canada. Let these evocative and carefully chosen words sink in, and consider the alternatives to coming up with the rent money.
Those well-paying jobs that result in us having crude oil, natural gas and minerals with which to pay the rent happen to have an additional standout characteristic: we have lost tens of thousands of them in recent years.
Between 2014 and 2018, employment in mining and oil & gas fell by 12.9 per cent. Some of this was due to the 2014 oil price collapse. However, I have yet to meet a Canadian energy executive who has disagreed that the slowness of the recovery is due to a policy environment that is almost uniquely hostile for fossil fuels.
Over the same five-year period, public administration jobs grew by 9.2 per cent. In 2014, Canada had 911,000 public administration jobs, a figure that by 2018 had grown by 50,000. This is one of those statistics that infuriates those who see government employment as a cost burden rather than a wealth driver.
If this is the face of an energy transition at work, you wouldn’t get that impression from how Canadians are living. Canada is actually using more fossil fuels than ever, and we continue to import very large quantities of carbon-intense products from countries that fail to meet our high social and environmental standards.
This is not a transition that will end well.
Electric cars are commonly spoken of as a death knell for the petroleum industry, but even if the entire Canadian passenger vehicle goes electric that won’t make a large difference to national emissions. What it will do is disrupt the automotive industry. In Germany, which is heavily dependent on auto jobs, tax revenue and economic output, investors are starting to deal with the idea of what such a transition could mean. The Wall Street Journal reported last week that Germany’s Institute for Employment Research predicts that if electric vehicles were to account for just 23% of all new cars sold by 2035, the country would lose 0.6 percentage point of GDP, and 13% of its current auto-industry workforce.
In Canada’s case, direct auto industry employment in Canada accounts for 130,000 jobs and contributes over $20 billion to GDP. Technology and market disruptions in this, our most important manufacturing industry, are very likely.
Since autos and crude oil are reliably Canada’s two largest export categories, it’s quite surprising to see rising potential for both of them to be fundamentally upended at the same time.
Surprisingly absent is a national conversation about the concatenation of disruptive factors at work.
It’s interesting to watch how Saudi Arabia is maneuvring ahead of the resurrected IPO of its mammoth, state-owned oil company, Aramco. On the one hand we see the Crown prince planning a futuristic tech city in the desert where flying taxis are visualized as the way scientists will be conveyanced to work. That’s one kind of transition. On the other, look at the pragmatic recent move by Aramco to invest $15 billion into refineries in India. Like most of the rest of Asia, the Indian subcontinent is rapidly moving away from energy poverty even if this means a heavier reliance on fossil fuels. No amount of electric cars will make much of a difference to this kind of transition.
For all the talk of a departure from fossil fuels over the next couple of decades, a lot of the actual transition energy being expended is going into ensuring that fossil fuels can be made available in the places where they are most needed.
It’s not helpful to think of diversification of the energy supply as a zero-sum game, where one party gains only when another loses. The reluctance to build pipelines in Canada has an I win-you lose feel to it, as if it is a method to force through a certain type of transition even though there are so many signs that this is not actually the kind of transition the rest of the world is experiencing or needs.
A successful transition mindset will be one that views Alberta’s oilsands as a long-term and beneficial energy asset. The same can be said of Canadian natural gas, particularly when marketed abroad as LNG. The mindset will acknowledge that active management of the environmental footprint on the production side is yielding clear and significant benefits. As long as they get a fair shake from regulators and the governments who hold power over them, the companies driving this innovation should be able to transition Canadian oil and natural gas products over a long period of time to meet market demands.
Much of the political division we see today comes from disagreement about the cost and practicalities of an energy transition. The effect of this has been corrosive and distracting, and isn’t doing much to advance the cause of transition regardless of what we think the term really means. Adding deliberate disruption to the employment market, particularly in ways that affect our best-paying, most trade-supporting jobs, means adding difficult-to-calculate political risks whether for carbon policies or national unity. The harder the push, the stronger the pushback.
The smart path for development will be the one that sustains Canadian prosperity, which for the foreseeable future requires that the traditional energy sector is able to remain competitive.
It’s time to begin thinking more clearly about energy policy, so that government deciders are receiving well-founded, politically attuned advice to guide what will continue to be a challenging, and sometimes emotional, transition forward.