An Energy Boost for the Canadian Economy: the Time is now to Encourage Production, not Dissuade It

The COVID-19 pandemic has laid bare the short-sightedness of neglecting economic growth. Rather than harnessing the power of Canadian industries, the progressive elite has for years stoked fears and left […]
Published on September 30, 2020

The COVID-19 pandemic has laid bare the short-sightedness of neglecting economic growth. Rather than harnessing the power of Canadian industries, the progressive elite has for years stoked fears and left the economy less prepared for crises.

Canada’s energy sector is a case in point: with an expansion of just 2.2 percent from 2010 to 2019—thanks to a maze of red tape—it left millions of dollars on the sidewalk that could have helped weather this year’s lockdowns.

With the benefit of hindsight, Canada should now leverage the energy sector for post-pandemic recovery. Energy not only underpins every economic activity; it is a geopolitical asset that can elevate Canada on the world stage and bolster its diplomatic role.

Filling Budget Holes

Canada is the world’s fourth-largest oil producer. Crude oil and natural gas make up the biggest exporting industry: $86.1 billion in 2017.

The industry, however, faced constant uncertainty for over a decade due to “short-term political thinking and regulatory constraints,” according to a PricewaterhouseCoopers (PwC) Canada report

Then the steepest economic downturn since the Great Depression hit Canada. With the dissolution of businesses, job opportunities have withered and unemployment rates are at historic highs.  

In the first quarter of 2020, the Canadian economy contracted by 2.1 percent. Parliamentary Budget Officer Yves Giroux estimates the economic contraction will reach 12 percent of GDP by the end of the year. Canada has not seen such a decline since 1961.

This situation is naturally increasing the federal budget deficit. According to Giroux, it will surpass $250 billion this year. The unprecedented stimulus programs and disappearance of tax revenues has created a sinking hole in the public budget.

If Canadian governments do not provide the right incentives to the largest industries to bounce the economy back, that budget gap will take years, if not decades, to close. 

Furthermore, the energy sector has the potential to create well-paid jobs that are compatible with social-distancing measures, unlike hospitality, tourism, and transportation.

Under-utilizing an Economic Engine

The Canadian oil industry has coped with overnight economic woes before, such as the price crashes of 1986 and 2008. With the right ingredient, it can also recover from the latest collapse and lockdowns.  

Ian Madsen, a senior policy analyst with the Frontier Centre, argues the industry will not only come through the challenges triggered by the pandemic but also adapt and evolve. The emergence of disruptive shale production and the increasing demand for liquified natural gas (LNG) in international markets will lead the path forward.

The problem is other countries are planning to do the same. If Canada does not want to miss the train, it should create a favourable regulatory environment to boost energy production for national and foreign consumption. Current policies and taxation discourage oil and gas companies from engaging in exploration and investment.

PwC Canada reported that financial, fiscal, and environmental requirements have stalled some 30 planned LNG export projects in recent years: “nearly all projects were cancelled or put on hold, largely because of a range of issues from high costs to regulatory uncertainty and opposition from environmental groups.”

A C.D. Howe Institute report estimates pipeline approvals can take up to 11 years in Canada. Further, carbon taxes and environmental policies have raised living costs. These, in turn, lead to weaker energy-consumption growth.

To prompt development in energy production, governments at all levels should encourage the use of national oil in refineries and natural gas for power and heating. This would have a multiplying effect. A recent Fraser Institute study estimated that a 10 percent increase in the availability of affordable energy results in a 1.2 percent increase in real GDP.

In contrast, regulations designed to artificially reduce energy consumption or increase its costs are a sure way to limit economic growth. Some of these policies include Ontario’s Green Energy Act, British Columbia’s anti-oil programs, and the federal government’s renewable-energy targets.

The Technology Is There

Despite government efforts to impose it at any cost, renewable energy does not have the capacity to satisfy commercial needs, let alone power transportation and storage units. Productivity of workers in the oil and gas industries is far better; as a result, they enjoy better salaries.

The oil and gas industries are, ironically, Canada’s largest investors in clean energy. However, radical opposition to them has curtailed the development of hydraulic fracturing (fracking), which across the border turned the United States into a self-sufficient oil producer.

Canadians must embrace fracking, devise safety guidelines, and let the country tap into the millions’ worth of natural resources underground.

Canada has a well-earned reputation for setting standards in industrial operations to protect the environment. However, it should as a general principle abandon programs that dissuade energy consumption and embrace policies that encourage energy abundance.

The country can become a superpower and still maintain its commitment to clean-energy production. It can also reduce its reliance on imports and the impact of political uncertainty on energy companies and investors. By doing so, Canada will promote robust economic recovery based on the country’s natural strengths.


Paz Gómez is a research associate with the Frontier Centre for Public Policy.

Photo by voimages

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