The evidence keeps coming in: Ottawa's all-oil economic strategy is seriously flawed.
According to a report released last week, we could be headed for another financial crisis as a result of over-valued energy stocks that are giving rise to a growing "carbon bubble."
The problem is that investors have been buying stocks in energy companies with oil and gas reserves at prices that assume demand for oil and gas will remain strong for the foreseeable future. But if we are to head off climate change and limit global warming to 2 degrees Celsius, some two thirds of the world's known stores of oil, gas and coal must not be burned, and these reserves would be practically worthless.
The report, and most of its media coverage, have focused on the risk to investors. And investors would be wise to heed this warning. But the risk extends well beyond financial markets, especially in Canada where energy, and the oilsands in particular, have become such a large part of our economy.
Now, I don't want to overstate things. Some folks would have us believe that oil and gas are the engine of our economy, but this is not true. Oil and gas are important, and energy stocks account for over 25 per cent of the value of the Toronto Stock Exchange. But oil and gas contribute less than 4 per cent of our GDP and only 1.8 per cent of the county's employment. In comparison, manufacturing contributes about 11 per cent of our national GDP and 25 times more jobs than oil and gas extraction. Furthermore, as I've pointed out before, oil doesn't contribute that much to our Federal government's bottom line, despite what you may have been led to believe.
That said, a collapse of the oil industry would be very damaging to Canada's economy. It's not just wealthy investors that hold energy stocks, but practically every pension plan. In addition, thanks to energy's prominence in our stock exchange, a collapse in energy markets would send shock waves through the rest of the economy. Remember that the sub-prime mortgage crisis started in the housing sector, but had repercussions across the world.
Most importantly, there are over 250,000 people directly employed in Canada's energy sector. And our energy sector is particularly vulnerable to this carbon bubble because the oilsands are some of the most expensive and most carbon-intensive oil plays in the world. If the world takes action on climate change, the oilsands would be among the first and worst hit, and many of these people would lose their jobs.
Clearly this would be devastating. Last time oil prices collapsed unemployment in Alberta rose from four to 10 per cent in the span of two years and the province led the nation in housing foreclosures, bankruptcies and suicides. Obviously, we don't want this to happen again.
This means that we should be breaking with our economic reliance on oil, rather than increasing it.
Jobs often serve as the justification for continued oilsands development, but given the risks associated with the carbon bubble, we need to reduce the number of people whose livelihoods are tied to this volatile commodity that is at odds with our commitments to combat climate change.
We need to reduce our pension plans' exposure to oil as well, and we should ensure that governments do not become dependent on energy revenues because - as we've seen before - one day, perhaps abruptly and without warning, those revenues could dry up and the party will be over.
The carbon bubble is one of the many risks to Ottawa's "energy superpower" aspirations. And while it may be tempting to try and mitigate these risks, it's wiser to recognize they are beyond our control, and work to reduce our exposure to them.
Instead of pinning our hopes to energy as the engine of our economy, we need to develop a plan to get off of oil sooner rather than later - for the sake of workers, investors, and our economy on the whole, not to mention the environment.