Thank you to the chair and the members of the committee for the opportunity to present here this morning.
The Pembina Institute is Canada’s sustainable energy think tank. We advance energy solutions through research, education, consulting, and advocacy.
My work focuses on economic issues related to oil sands development. For that reason most of my comments today will focus on the contribution of the oil sands to Canada's economy.
While Statistics Canada does not track the oil sands specifically, GDP data shows the unconventional oil and gas sector, which consists primarily of oil sands, contributed 2% to the national GDP in 2013. So the oil sands are important, but far less important than informal polling suggests Canadians believe.
Since 2007 the oil sands have grown at an annualized rate of 8.4% per year. This is rapid growth, but from a small enough base that it remains a long stretch to argue that the oil sands are driving the rest of Canada’s economy.
Looking at jobs, in 2012 the oil sands provided direct employment to 0.2% of Canada's full-time workforce. Looking at the entire oil and gas sector, direct employment increased to 1.4% of Canada's full-time workforce. For comparison, the retail sales sector provided 3.9% of Canada's full-time jobs in 2012 and the manufacturing sector provided 5.4%.
Last, turning to federal government revenues, in 2012 the oil and gas sector paid $1.3 billion in federal corporate income taxes, representing 0.5% of total federal government revenues.
These are significant numbers, but perhaps less significant than industry advertising or government prioritization would lead one to believe.
These numbers provide an overview of what the oil and gas sector is contributing to Canada’s economy today. Arguably, the more relevant question, though, is where the oil and gas sector is heading in the future, which will in large part be determined by what happens to the oil sands.
In 2011, the Canadian Energy Research Institute, CERI, published a study looking at the impact of future oil sands development on Canada’s economy. In CERI's most optimistic scenario, oil sands export capacity increases to just shy of six million barrels per day by 2035. In this scenario the oil sands are expected to contribute $4.9 trillion in GDP contributions from 2010 to 2035. Direct and indirect employment is expected to reach just over one million jobs in 2035, and total federal and provincial and municipal tax receipts are expected to average nearly $30 billion per year.
These appear to be attractive numbers, but we need to ask some fundamental questions about them. Is that scenario achievable? Is it environmentally responsible? What risks would the pursuit of these benefits pose to Canadians and to the long-term competitiveness of Canada's economy?
Looking ahead, the Canadian Association of Petroleum Producers is forecasting 5.2 million barrels per day of oil sands production by 2030. The National Energy Board’s 2013 outlook pegs oil sands production at five million barrels per day in 2035. Relative to current production levels of just over two million barrels per day, this represents a minimum 150% increase in oil sands production by 2035.
Notably missing from these forecasts are strong data to support the implicit assumption that future demand for the oil sands will be high enough to support supply increases at that scale. The reality is that laws and regulations in the energy sector are changing. Jurisdictions around the world are increasingly taking action to address climate change and the assumption that demand for a high-cost, high-carbon fuel like oil sands bitumen will remain high enough to realize industry’s expansion plans is weak at best.
Along with virtually every country in the world, Canada has agreed to take action to limit the rise in global average temperatures to 2°C or less. The International Energy Agency, IEA, models a scenario every year that is designed to give the world a fair chance at staying below the 2°C threshold. Under this scenario, global demand for oil peaks in 2020 and falls thereafter. In 2010, the IEA published production estimates for the oil sands specifically under this scenario and found that while oil sands production continued to grow, it reached just 3.3 million barrels per day in 2035, far below the 5.2 million barrels per day that CAPP estimates by 2030. The IEA's finding is not the result of a specific government policy to limit oil sands growth, but a natural consequence of lower demand for oil, which in turn leads to lower oil prices and thus less production in the high-cost, high-carbon oil sands sector.
What does this mean? The projections of expected oil sands production are based on future market conditions that correspond to a global failure to address climate change. In a world where we take action to address climate change, oil sands production grows far more slowly than industry currently predicts.