Canada’s expanding oil sands industry is benefiting energy-rich provinces like Alberta but hurting manufacturing centres such as Ontario and Quebec, argues a new report that calls for better economic balance and refreshes the debate over the so-called “petro currency.”
The report, written by environment-focused non-profit groups Pembina Institute and Équiterre, says energy exports have driven up the Canadian dollar, which, in turn, contributed to the decline in the manufacturing sector.
It cites estimates from the Bank of Canada and the International Monetary fund which have separately suggested the rising price of commodities have contributed between 40 to 75 per cent of the loonie’s rise since the turn of the century. The relationship between the two has led some to nickname the Canadian dollar a “petro currency.”
“The debate is not over whether there is a positive relationship between the price of oil and the value of the Canadian dollar, but rather, how strong the relationship is, and whether it is good or bad for Canadians, and Canada’s economy,” says the report called, Booms, Busts and Bitumen: The economic implications of Canadian oil sands development.
While there are benefits to a rising loonie, the report notes there is inequality across the country.
“Many of the potential benefits of the high dollar are being outweighed by the downsides,” it says, noting that manufacturing is hardest hit because a high dollar weakens demand for goods produced in the country.
“The manufacturing sectors of Ontario and Quebec have been, and still are, suffering greatly from the rapid increase in the value of the Canadian dollar,” said Steven Guilbeault, co-founder and senior director of Équiterre.
“Unfortunately, this doesn't seem to register with the federal government. A truly national economic and energy plan would benefit communities and industries across the country, not just in one region.”
The argument comes as the federal government pushes for expansion of the oil sands industry through proposed pipelines such as Northern Gateway and Keystone XL, promoting them as job creators and good for the economic health of Canada. Opponents say extra pipelines mean more reliance on oil that will lead to more carbon pollution, while pushing the government to consider cleaner energy investments instead.
Natural Resources Minister Joe Oliver refutes the report’s consensus that Canada is at risk of “Dutch disease,” which is another name for the positive correlation between the price of oil and the value of the Canadian dollar.
“This couldn't be further from the truth,” the minister said in an email through his press secretary, saying some Canadian economists have debunked this theory.
“The benefits of natural resource development are clear,” stated Minister Oliver, while citing Canadian Manufacturers and Exporters statistics showing manufacturers outside of Alberta sold about $1.6 billion in manufactured goods and services into Alberta’s oil sands in 2009 alone.
The Pembina/ Équiterre report acknowledges economists and policymakers are divided on the reasons behind the dollar’s rise. In 2012, former Bank of Canada governor Mark Carney dismissed the idea that the loonie is a petro currency, the report notes. Carney said higher commodity prices are only part of the story; other factors include a weakening US dollar.
Others say the loonie isn’t the only economic factor to consider when judging the Canadian economy.
“It’s simplistic to blame everything on the currency,” said CIBC senior economist Peter Buchanan in an interview. “The economy’s problems don’t start and end with the dollar.”
He cites other issues such as getting oil to market, as well as skilled-labour shortages and high-consumer debt levels as factors impacting Canada’s future competitiveness.
“When one looks at the Canadian dollar one has to look at it as one of a number of potential headwinds for growth.”
Still, the Pembina/ Équiterre report argues governments should focus less on the oil sands and transition the country towards more clean-energy investments for the benefit of the economy and the environment.
It cites research from Blue Green Canada showing a $1-million investment in clean energy creates 15 jobs, compared to just two jobs from investing in oil and gas.
“By continuing to support and encourage an increasingly dominant role for the oil sands in the Canadian economy, the federal government is committing itself to a future track that might soon be the path less travelled by the rest of the world,” the report states. “As countries increasingly consider actions to address climate change, this will drive significant changes in production and consumption of energy, especially oil.”
The report also recommends more weight be put on environmental impacts and costs of oil sands development and suggests Ottawa and the Alberta government set up a resource wealth fund where money is set aside to help reduce dependency on fossil fuels.