Oil Sands Development Is Not A “Historic Mistake”

Ben Eisen, Climate Change, Commentary, Environment

Jeremy Rifkin, an environmental sustainability advisor to the European Union, recently made news for criticizing Canada’s approach to energy policy. Rifkin claimed Canada is making a “historic mistake” by emphasizing oil sands development instead of renewable energy, and that this decision “is putting [Canada] back in the 20th century, when Europe and Asia are absolutely moving into the 21st century.” He further warned that Canada might become a “second tier country” as a result.

Rifkin’s arguments do not withstand scrutiny. The realities are that fossil fuels will remain the dominant component of the global energy mix for decades, and oil sands development can therefore continue to be a major contributor to Canadian prosperity for the foreseeable future.

Rifkin’s case centres on the prevailing environmentalist assumption that a rapid shift to renewable fuels including wind and solar power will soon take place, leaving behind countries that have focused on traditional energy sources. His analysis rests on unjustifiable overconfidence about the ability of central planners to predict the evolution of energy markets, and the speed with which renewable energy sources may become economically competitive on a large scale with fossil fuels. Further, evidence suggests Rifkin’s projections of an imminent “third industrial revolution” based on renewable power are wildly optimistic.

The United States Energy Information Administration (EIA) has made energy mix projections until the year 2035. Currently, 83 per cent of energy consumed internationally is generated by fossil fuels. According to the EIA’s “reference case projection” (which relies on mid-range estimates of future oil and gas prices and economic growth), this will only drop a trivial 4 percentage points by 2035.In other words, the EIA projection suggests that in 2035, fossil fuels will still constitute 79 percent of the international energy mix. Equally important, the International Energy Administration projects unconventional crude oil, such as that drawn from the oil sands, will become increasingly significant, growing in market share from 3 per cent in 2009 to approximately 10 per cent by 2035. In this much more realistic context, the oil sands development appears to be a major source of economic opportunity, not a “historic mistake” as described by Rifkin.

Those supporting Europe’s emphasis on renewable energy claim it is a reflection of environmental virtue. However, a more prosaic explanation seems plausible – many European countries simply lack oil and gas resources of their own. The evidence from around the world suggests that most countries are developing their natural resources wherever they are found. For example, production of coal has increased 13 per cent in South Africa, 37 per cent in Australia, 68 per cent in India and a whopping 177 per cent in China between 2001 and 2010, according to the EIA. If Canada is making a mistake by developing its traditional energy sources, so are most other countries with similar resources.

Rifkin further argued against spirited oil sands development on the grounds that it is a “curse” to be a single-resource economy. However, Canada is far from being a northern version of a Gulf State. Canada has a diverse, export-oriented economy, considerably more vibrant than the stagnant, debt-ridden Eurozone. According to Statistics Canada, crude oil amounts to 35 per cent of our natural resource exports, and just 15 per cent of total merchandise exports. Agriculture still accounts for over 20 per cent of resource exports, while industrial goods and automotive products make up 26 and 13 per cent of our merchandise exports, respectively. Canada is not, by any measure, a single-resource economy dependent on crude oil.

For decades, environmentalists and neo-Malthusians have warned about the imminent arrival of “peak oil,” that would bring massive spikes in energy prices and a resulting economic collapse. These predictions have failed spectacularly. New sources of energy, such as oil sands and shale gas have been identified and exploited. The peak oil doomsayers have constantly overestimated their ability to forecast the evolution of energy markets.

Rifkin’s bold predictions of an imminent renewable energy revolution are similarly overconfident. While we ought to be humble about our ability to predict the future energy market, the best available models suggest fossil fuels will likely remain prominent for decades to come. Far from being a “historic mistake,” ambitious oil sands development should be viewed as an important source of economic opportunity that will further contribute to Canada’s prosperity.