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Dependence on the oilsands could end up hurting Canada's economy, report warns

By: The Canadian Press

Thursday, Feb. 21, 2013 at 7:48 AM | Comments: 0

An oil worker holds raw oilsands near Fort McMurray, Alta., on July 9, 2008. THE CANADIAN PRESS/Jeff McIntosh

OTTAWA - A new report warns of the perils to the Canadian economy of relying too much on the oilsands.

The Canadian Centre for Policy Alternatives study says Canada is heading towards a "staples trap," whereby the more quickly bitumen is exported, the less diversified and productive the economy becomes.

The study's authors also warn of a looming "carbon trap" in which the Canadian economy is so closely linked to carbon-producing industries that it becomes difficult to adopt measures to deal with climate change.

"What goes up always comes down where commodities are concerned," co-author Jim Stanford, an economist with the Canadian Auto Workers, said in an interview.

"Our concern is that Canadian policy makers who were so quick to jump on the bandwagon of us becoming an energy superpower forgot those lessons of the potential downside of a staples-based strategy for our whole economy."

A big danger facing the oil industry is shrinking markets for fossil fuels as a result of global efforts to address climate change, says the report.

The report was co-written with Tony Clarke, head of the left-leaning Polaris Institute; Diana Gibson, former research director of the Parkland Institute in Alberta; and Brendan Haley, a PhD candidate at Carleton University in Ottawa.

Countries that rely too heavily on raw materials can fall into a dangerous cycle, they argue.

"Staples-based economies must make enormous fixed-cost investments in production and transportation infrastructure, generally undertaken by large, often foreign-owned companies," the report says.

"To pay off these overhead costs and reward investors, staples industries face an enormous motivation to produce and export their staple faster."

Doing so can drive down the price.

Investing so much into one industry can also cause others to wither, say the authors, who point to manufacturing as one industry that has suffered from a high Canadian dollar linked to soaring oil prices.

"The brunt of resource-driven sectoral restructuring in Canada's economy has clearly been borne by the manufacturing sector," the report says.

The report recommends tighter regulations and control of the oilsands to slow development, and transitioning to a low-carbon economy in which governments play a greater role than they now do.

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