April 15, 2020
By Carolyn Fischer, Canada 150 Research Chair in Climate Economics, Innovation, and Policy, Smart Prosperity Institute
This post is part of Smart Prosperity Institute’s Smart Stimulus Project. To see other posts from this project, click here.
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The coronavirus (COVID-19) pandemic is proving to be the biggest, fastest, and most disruptive force we have seen in most of our lifetimes. The lifesaving requirements for physical distancing have shuttered businesses and sent over 3 million Canadians to file for unemployment insurance benefits. Economies around the world are in shock, and governments are responding with unprecedented fiscal stimulus packages.
As industry groups head to Ottawa and the provincial capitals for help, we need to make sure this unprecedented aid aims not just to help everyone get by, but also to help transition to a sustainable and prosperous future. Just as COVID-19 is deadlier for patients with underlying health conditions, the same can be said for industries. The energy sector is a particular point of concern for Canada—and policymakers should keep the industry’s volatility and uncertain future in mind when structuring aid packages.
Global travel restrictions have depressed energy demand and sent oil prices plummeting, hitting resource producers when they’re already down. The economic viability of new oil sands developments in Canada was already in question, and at low prices they are unquestionably unviable. Nor is pipeline development; TransCanada (TC) required a multi-billion dollar infusion of cash for equity as well as loan guarantees from the Albertan government, representing two-thirds of the Keystone XL project’s $8 billion cost. The pipeline was a big bet on high oil prices even three years ago when prices were much higher than they are today. It is not surprising that TC wanted to get skin out of that game, as a return to a high-price environment is becoming much less likely.
Tighter fuel economy regulations and shifts toward electric vehicles around the world were already expected to soften future demand for oil. Now, the pandemic is likely bringing forward “peak demand” by some years, not only by depressing current demand, but by potentially altering how our economy functions in the long term. Telework and virtual conferencing are becoming normalized, and travel demand is likely to recover only slowly. Meanwhile, lower-cost producers like Saudi Arabia are determined to extract their resources before demand dries up, further contributing to low prices.
Thus, it is far from clear that we can expect the fossil energy sector to return to be the driver of Canada’s fortunes. As such, it should not dominate our discourse on addressing the COVID-19 crisis. Our stimulus investments need to keep the future in mind, which means diversifying into more sectors with high growth potential, and that also offer solutions to the other looming crisis, climate change. Already, in 2017, more Canadians worked in clean energy sectors than in all extractive industries combined. We should not value dirty jobs over clean ones; all displaced workers need assistance. Going forward, smart industrial policy will invest in education and job training to complement technologies and products of the future—those with the strongest chance to survive and thrive.