June 12, 2020 | REALITY CHECK: Guess Who’s Got the Most to Lose from Rash Decisions on Economic Recovery?

We’re at a moment of economic stress, with competing visions for how Canadian society should return to normalcy through the pandemic crisis. Stewart Muir looks at the situation.

Road to pandemic recovery

It’s plain to see that pursuing successful recovery means choosing responsible utilization of the natural resources owned by each province. Now more than ever we are seeing governments realizing (sometimes reluctantly) that only with industry as a partner can they effectively balance the economic use of publicly owned oil and gas reserves, mineral deposits and forests, with other priorities including local ecosystem maintenance, Indigenous rights, and global climate concerns.

Yet some pressure groups like to portray it as being the other way around, as if the principal role of government is to hold in check the insatiable demands of development. They seek to position modern resource companies as the source of the problem.

A small shift in perspective, to that of the resource owners themselves, soon makes clear why governments will not find these proposals as enticing as they might seem at first blush.

Resource companies are able to operate only because governments willingly license them to do so. I’ve spent years looking for a sector of the economy that produces benefits as pervasive as those that flow from natural resource activities. If it’s out there, I have not seen any trace of it. (Writer David Williams comes to a similar conclusion in this article.)

When it comes to taking a healthy slice of the proceeds for public use, governments are only just getting started when they claim royalties on the valuable substances provided when resource companies dig, harvest or drill. Benefits cascade through the economy because of capital investment, share market impacts, sales taxes, local property taxes, permit fees, income taxes, trade balances, the supply chain of goods and services including manufacturing and secondary employment effects, and the powerful effect that environmental regulations have on research and development investment.

Chase away the source of these benefits – really? Who would be so foolish? Idealistic newbies to government positions quickly learn this as the blood drains from their faces during that first briefing from the finance department, where they learn about the profound reliance their spending dreams will have on natural resource revenues – the Canadian reality in our past and present, and undoubtedly well into the future.

Although we’ll often hear mixed messages as various viewpoints jostle for attention via the mechanism of politics, the institution known as the Government of Canada has always been quite clear about the primary importance of resources. There is little room for interpretation in this statement from Natural Resources Canada: “As a country, Canada is fortunate to have one of the largest and most diverse endowments of natural resources in the world, representing the backbone of the economy and high standards of living.” (Source here.)

If it wasn’t for modern resource corporations (usually publicly traded ones that are subject to multi-layered ethical and transparency rules, not to mention shareholder accountability), governments would have to figure out for themselves how to develop resources. It probably would not go well.

“Green recovery” pitch means doing without resource revenues

Particular pressure is being placed on federal cabinet to make decisions that will deliberately hamper economic recovery by throwing Canada’s primary economic drivers under the bus. We’re already seeing the effect of this with wavering support in Ottawa for Western energy companies, many of them giant employers, that have thoroughly earned their reputation as the engines of the national economy.

As obvious as it is to the informed, the pitches we are hearing about various flavours of “green recovery” are squarely aimed at the idealistic urban mindset, where curiosity about the realities of topics like energy may go no further than the nearest wall outlet.

Yes, the tightly regulated resource industries whose efforts are (figuratively speaking) farmed by every government in the country certainly do have areas that require improvement. Before doing something in haste that we will live to regret, it’s important to recognize that the facts point to a tougher and, ultimately, less green recovery track if we do somehow manage to extirpate the incredible potential of Canadian natural resources to drive economic development and displace higher GHG sources of energy globally.

What it’s too often really about is gaining subsidies for solutions that aren’t yet commercially feasible, at the expense of fiscal stability for the public. A few years ago, the Ontario government adopted alternative energy solutions that weren’t ready for scaling. Thankfully the province has nuclear and gas to fall back on today, but the province’s taxpayers remain on the hook for $21 billion in unnecessary expenses resulting from that green experiment. This is wrong because the necessary energy transition ahead of us has to be smooth and rational if it is to survive voter scrutiny and market realities. It’s best we not forget this as, in the words of historian George Santayana, “Those who cannot remember the past are condemned to repeat it.”

Often overlooked in all this is that Canada, far from being some sort of climate slacker as sometimes portrayed, is a solid global leader in clean energy. The electricity grid is one of the world’s largest and cleanest, with 82 per cent of it drawn from hydro, nuclear, wind, solar and biofuels. It’s okay for us to breathe for a moment and appreciate that we deserve credit for this.

A progressive-minded solution

Many of us who are progressive-minded about environmental protection, trade diversification, energy transition and climate priorities also recognize the need to fully embrace the need for a healthy resource sector. Everyone wins when Canadians can get back to the job of supplying the world with commodities like LNG, oil, lumber, pulp, copper and aluminum that are developed using extraction, refining and manufacturing methods that carry lower GHG footprints than competitor nations’ products, thanks partly to the abundant low-carbon and carbon-free energy available for those processes.

Natural resource companies are used to being vilified as despoilers of Mother Nature. This can be a demoralizing aspect of professional life for those who are in the front lines such as geologists, engineers, business executives, entrepreneurs, civil servants and a vast list of specialized technical occupations. In the seven years since I launched Resource Works to understand the role of material commodities in our Canadian way of life, I have been impressed over and over by the commitment of such individuals to environmental responsibility, hand in hand with meeting investor expectations and providing for societal needs.

If you’ve read this far you quite likely know about these things already, or are open to considering the perspective. In which case you might also be thinking: Fine, but how do we get this across to those who don’t already know what we know? So I’m going to shift from these ruminations into some practical arguments that might help others to cut through the fog and share with the resiliently skeptical.

5 memorable things every Canadian needs to know

1. 1. Resources lead Canadian exports. Oil and gas alone is by far the largest single source of export revenue. Even in the troubled first quarter of this troubled year, 34 per cent of Canadian goods exports came from energy, minerals and metal products. The chart below for 2018 depicts the relative value of goods exports. (Chart from Statistics Canada table 12-10-0134-01, 2018)
   2. Workers in Canada’s mining and oil and gas industries create more value in the economy than any other fields. Not a little bit more, I’m talking about a vast difference. Just sixty minutes of labour by one of these workers brings Canada $304 that it would not have seen otherwise. That is up to fifteen times higher than other industries. (Note that I am not naming and calling out those industries for being “too low”, that’s not what this is about.) The reason for the spread is that those resource workers are producing valued commodities that (and this is key) foreigners pay us money to acquire. The “green recovery” advocates who are saying we must rid ourselves of these jobs think it would not make a difference if we replace those jobs with ones that do not generate export income. To make this argument, and still have the boldness to claim that the economy will be stronger as a result, is simply ludicrous. No real economist could back an idea that would only work if accompanied by ramping up debt and inviting a massive decline in living standards.
   3. Among other reasons why trade matters is that the currency we bank through exports allows us to import the stuff we need but don’t (or can’t) make ourselves, whether that is iPhones, orange juice or certain vaccines and medicines. 
   4. Canada benefits hugely when things like pipelines, wells, mines, roads and transmission lines are built. First of all, these activities are magnets for foreign investors who otherwise would not have a reason to put their money to work in Canada. Secondly, construction is a massive economic driver that generates high paying jobs and distributes resource benefits all across the country to fulfill the need for manufactured goods made in places like Surrey, the GTA and Golden Horseshoe, and Montreal. Thirdly, because of the stiff regulations that governments at every level apply to these activities, construction drives new technology, better land stewardship and more equal wealth sharing with Indigenous peoples. When you consider the fact that oil and gas production – not including refining and pipelines – is Canada’s largest attractant of foreign investment, it’s quite sad to learn that investment in the sector is down by $9 billion this year, something that will create difficulties for a lot of families.
   5. Canada has the opportunity to have it all when it comes to achieving true environmental and economic balance. As long as issues like carbon fairness can be addressed (for example, when Canadian-made products are penalized to the advantage of producers from places that lack our climate policies), the coming pandemic recovery offers potential for a step change toward greater long term stability as a global climate leader.

Natural resources in Canada are the property of the people, via provincial governments. Over the next few weeks, important conversations will occur about how to strengthen the ability of all levels of governments to manage the natural assets that fall under their authority. This will be a period of opportunity for those seeking to achieve better understanding of issues that most residents seldom stop to think about. Those who owe their livelihoods to participation in the resource economy should be thinking carefully in this period about how to make themselves heard.

Stewart Muir is executive director of the Resource Works Society.

Stewart Muir June 12th, 2020

Posted In: Resource Works

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