Questions for Tom Mulcair

… on oil, refining and the environment


(Jeff McIntosh/CP)

Tom Mulcair’s recent article for the Institute for Research on Public Policy (IRPP) raises perhaps more questions than it answers about the NDP’s positions on the economics of energy and the environment. Here are a few key passages:

An NDP government would establish a comprehensive upstream cap-and trade system to meet our international commitments to fight climate change and rigorously enforce environmental laws here in Canada.

We’ve heard this before, but we still don’t know very much about what this system would look like. Does “comprehensive” mean “applicable to all GHG emissions”? What are the estimated costs to consumers? What measures will be taken to compensate low-income households for these costs?

The Conservatives’ single-minded focus on the export of raw resources — combined with their failure to internalize environmental costs — has contributed to an artificial rise in the value of the Canadian dollar that is hollowing out our other export industries — from forestry to fisheries, from manufacturing to agriculture.

When the prices of some export goods rise relative to others, the income-improving response is to sell more of the things whose (relative) price has gone up, and less of the things whose (relative) price has gone down. Why is this “artificial”? And why is an appreciating Canadian dollar – a development that increases the buying power of Canadian incomes – a bad thing?

There’s also the unsupported assertion that an effective GHG emission policy would benefit the manufacturing sector. This is far from clear: a proper carbon pricing policy would favour firms that are profitable enough to absorb the cost of GHG emissions, and penalise those who can only survive if emissions are not priced. I’m not so sure the manufacturing sector is in that first category, and I’d like to know why Mr. Mulcair thinks it is.

While the export of resources will always be an important part of our economic mix, the export of raw resources is not the obvious path to prosperity it is sometimes held up to be.

If the prices of raw resources are high and if you have them, then the obvious path to prosperity is to sell them. Or should we wait until prices are low? Or should we sell things that don’t command high prices on world markets?

The cancellation of the Voyageur upgrader project is just the most recent illustration of this short-sightedness. Conservatives sat by as an $11-billion project to process raw bitumen was cancelled with seemingly no concern for the loss of tens of thousands of value-added jobs.

What, exactly, should have been the government’s response? Provide corporate welfare? Offer to relax environmental regulations? More importantly, what is the market failure here that requires a policy response?

And what is it with the repeated reference to value-added jobs”? All jobs add value; that’s what value-added means:

Vaue-added = capital input + labour input

The idea that resource extraction doesn’t “add value” is just silly: no one thinks that a cubic metre of bitumen buried under several hundred metres of rock has the same value as a cubic metre of bitumen that has been brought above ground. Nor does the “tens of thousands” of jobs factoid pass the smell test. There are just under 60,000 people working in the entire oil and gas extraction industry (NAICS code 211). One extra upgrader is not going to increase that number by “tens of thousands.”

Within a framework of sustainable development — including a cap-and-trade system and thorough environmental assessments — New Democrats would prioritize our own energy security and with it the creation of high-paying, value-added jobs, refining and upgrading our own natural resources right here in Canada — just as other resource-rich developed nations like Norway already have.

According to the U.S. Energy Information Administration, Norway produces 1,602,000 barrels of crude oil a day, and its refinery capacity is 319,000 bbl/day – about 20 per cent of crude oil production. The comparable figures for Canada are 3,136,000 bbl/day of crude oil production and 1,918,000 bbl/day of refinery capacity – about 61 per cent of crude oil production. Even if you take upgraders out of that ratio, Canada’s refining capacity is already much larger than Norway’s.

But that’s not to say that Norway doesn’t sell refined oil products to the rest of the world; Statoil has built a 110,000 bbl/day refinery specifically to serve the export market. On the other hand, they built it in Denmark. Is building refineries abroad the model Canada should be adopting?



Questions for Tom Mulcair

  1. So are you saying the rate of exploitation of a finite resource is of no concern? That it’s good government policy to accept and even facilitate the liquidation of a finite resource quickly rather than spread it out over a longer period? In a country that has a history of watching communities built up based on dependence on fur trading, white pine timber, cod fishing and softwood pulp industries all collapse, shouldn’t we be doing something more than sponsoring the fire sale?

    • No, he is saying that selling a finite resource when it’s sale price is high is a good thing, relative to leaving it in the ground.

      • So this finite resource will never be worth more than it is now?

      • Sorry, are you saying its value is likely to decrease in coming years by leaving it in the ground? By that metric alone resource companies will simply opt to extract every single drop world wide, be it under the Amazon or under the arctic ice…simply because the market dictates we must. Which i guess ifs fine if you reject the premise of global warming, that breaking the 2 degree barrier is likely very bad news for our grand children, if not us.

          • The unmanned GlynnMhor spacecraft will continue orbiting the Earth and broadcasting its prerecorded message until its fuel supply is exhausted and it burns up in the atmosphere.

          • Given that the atmosphere is going to cool (and thus shrink) in the near future, satellites will face much less orbital decay due to atmospheric drag effects.

          • That’s sounds nice. How much and when?

            And still waiting for your answer:

            Still waiting for you to answer the following:

            If the first week in April is warmer than the last, despite the Earth’s
            axis continuing to tilt the northern hemisphere further and further
            the sun, does this lead you to believe that August will be no warmer
            than April and that the the Earth’s axis has no affect on seasonal
            temperatures – in fact there are no seasons at all?

        • It’s not at all clear that a warmer world will not be an even better one. The models that purport to show dreadful results are not even as good as the ones that are currently failing to predict global temperatures.

          • Lets be clear about this: you don’t think the models that predict dreadful consequences are good enough. But on far less evidence you’re prepared to believe warmer will be better… that’s faith buddy, not science.

  2. I think it is perfectly legit to make Mulcair provide evidence for his policy agenda. But i’m bothered by the line Mr G takes here, and before this. Sure, i think we can agree that exporting many resource products is highly profitable, but the real question is – at least in some cases – for whom is it most profitable? And is this the only measuring stick we should be using?
    Doesn’t some of this come down to community versus share holders and company profit margins? The case for exporting raw logs is a classic case. Better for the logging companies, and the contractors that cut and transport the wood. Better too for the share holders, who in most cases aren’t local. A disaster for local communities who lose their mills and their livelihoods.
    As they say, where to sit depends on where you stand. For myself i think we have ceded too much power to the market and shareholders rights over the rights of local communities and the rights of those who actually do the job or need one. If that means the resource industry makes out a little less like bandits than they might under a more lassez faire regime – so be it.

    • I explain how and why the benefits are much more broadly spread out than that here.

    • Don’t you see? Having used the most quick and efficient method liquidate BC’s old growth forests freed all the labour to move to Alberta and get all that bitumen from the ground to the atmosophere as quickly and efficiently as possible so that the labour will be available for future Soylent Green production.
      The math is simple: More!
      Don’t let economists tell you they don’t consider externalities. They do…uh…sometimes…if they feel like it.

      • Some externalities are better than others i guess. and your right, there ‘s always another hole in the ground to be dug when you’re finished with this particular one.

    • If you ban the export of logs (for which there is a market) that does not create a market for processed wood, so the mills still close but now there aren’t even any jobs in the forest either.

      • That’s a convenient chain of logic.. If you happen to own a logging company. The decision to export RLs came before the majority of mill closures. Unfortunately no evidence was ever put forward to support your case at the time. While the case for improving company margins by closing mills is now pretty much self evident.

        • Either there’s a viable market for milled lumber or there is not.

          If there is, then the market for logs has no effect on it.

          And if there isn’t, banning the export of logs is also not going to have an effect on it.

          • Obviously you aren’t familiar with the forestry business in BC. I don’t say the unions made it any better by not being as flexible as they could have been. But the big companies call all the shots. First they got the link between cutting rights and community wood supply lifted[ the ndp did that] then got the wood market system linked only to the best available market price…soley for their benefit. The community small mills couldn’t compete and got no support from either govt or the logging companies. They just let those communities die a slow death. They didn’t give a crap, they didn’t have to live there.
            This has been the history of forestry in BC…look after the big guys and screw the rest. You may like it as a shareholder, try telling that to the family guy in Gold river or Youbou.

  3. >> Why is this “artificial”? And why is an appreciating Canadian dollar – a development that increases the buying power of Canadian incomes – a bad thing? <<

    According to the OECD, the value of the Canadian dollar should be 80 cents based on PPP. {According to Wikipedia: "Purchasing power parity (PPP) is … used to determine the relative value of currencies, estimating the amount of adjustment needed on the exchange rate between countries in order for the exchange to be equivalent to (or on par with) each currency's purchasing power."}

    This means our dollar is overvalued by 25%. That means value-added exports, tourism and labor costs are overpriced by 25%. That means we export less, have less tourism and factories close up shop and move south of the border. When the dollar rose 60% from 2003 to 2008, we saw about 500,000 good-paying jobs disappear (from 2004 to 2009.)

    Why is the dollar's rise artificial? According to "Dutch Disease" theory, the increased inflow of foreign currency related to the resource boom drives up the value of the currency. This is a market distortion, not the market's assessment of a country's economic fundamentals. In reality, despite all the buzz, the oil sands employ only 75,000 people.

    The overvalued dollar is not even benefiting average Canadians. According to Mike Moffatt for the G&M: "Normally this should lead to falling prices, as a higher Canadian dollar lowers the (Canadian dollar) price of foreign goods. This is not happening. A decade ago, a product that cost $1 (U.S.) in the United States cost, on average, $1.20 (Canadian) in Canada. A decade later, there has been little change."

    Certainly, some people are benefiting greatly from all this. But most Canadians, are not better off.

    • You may want to read the end of that piece:

      “The stronger Canadian dollar is an unqualified benefit to our economy, even if it is not directly leading to lower consumer prices. Thanks to the Bank of Canada’s mandate, we are not seeing the benefit through prices, but rather through reduced borrowing costs and higher real wages.”

      • I disagree with the premise of the article that the Bank of Canada took any action to counter hypothetical deflationary pressures by expanding the money supply. The dollar steadily rose 60% from Jan 2003 to Jan 2008. The bank gradually raised interest rates to 3% in Mar 2003 which coincided with a temporary spike in inflation (over 4%.) They were soon lowered, eventually hitting 2% by Feb 04. But this action was taken because there was a drop in GDP growth (1.9% in 2003 from 2.9% in 2002.) Interest rates were soon raised to 2.5%, where they remained steady until about Oct 05. Then they were raised to 4.25% where they remained from Mar 06 to Jan 08.

        After that they were drastically lowered to counter the effects of the global financial meltdown. They have remained at or below 1% since because the economy has failed to fully recover from the resultant 2009 recession. From Sept 03 to Jan 08, inflation fluctuated around 2% target. But there was no significant action from the BoC, especially no lowering of interest rates to counter deflation that has no signs of existing.

        My bet is that the reason the price difference between goods sold in Canada and America never greatly varied despite the steep fall and rise of the Canadian dollar (from 1997 to 2008; hitting a low of 63 cents and a high around parity) was demand: prices are set at what the market will bear. When the CAD fell, American companies had to lower prices (in USD) to move inventory; when the CAD rose, they could get away with charging more (in USD.)

        • Or, as I explained, it could be due to the fact the two countries have near identical inflation mandates, so prices in the two countries have to move roughly in tandem.

      • It would also seem that the rise in real wages is related to the rise in the real exchange rate, which also makes labor in Canada more costly and less competitive. So this does not appear to be something that will last (not to mention it only appears to benefit cross-border shoppers.) Businesses will now feel the pinch to reduce labor costs by whatever measures available: move production out of the country; use foreign temporary workers; reduce wages and benefits.

        To restore competitiveness to what we’d have if the dollar was at the OECD fair value of 80 cents (based on PPP,) wage costs would have to be reduced by 20%. It would be smarter to take action to restore the dollar to its proper value. (Revaluing, not devaluing…)

        • So workers would be better off if only they accepted lower real wages? Have you run this theory by anyone who works for a living?

          “Work for less – the company you work for will be more competitive! Don’t you see why you’d be better off?”

          • Jim Stanford is an economist for CAW who regularly speaks out against the Dutch Disease (which he says has killed 600,000 jobs) and calls for currency intervention to restore the CAD to is OECD fair value of 80 cents.

            Real wage increases need to be earned through productivity growth and value-added exports. If they come about because of a market distortion, a market correction will eventually erase them (which I predict will be a downward pressure on wages and benefits to reduce labor costs and restore competitiveness lost by the overvalued dollar; this is similar to the internal devaluation expected of economies like Greece and Spain when they adopted the euro to bring labor competitiveness in line with Germany.)

            A Cure for Dutch Disease:
            Active Sector Strategies for Canada’s Economy
            6. Reduce the Canada-U.S. Exchange Rate (pg 9)

        • Forcing down the value of the Canadian dollar would give everyone a 20% reduction in pay… not a cheerful prospect.

          • Oh so everyone got a 60% increase in pay since 2003? I guess you should inform Canadians they are richer than they think — especially the 500,000 now without jobs… As Mr. Moffatt pointed out, Canadian goods are still 20% higher despite the “60% increase in pay.” Some people somewhere are getting rich off a high Canadian dollar. But it’s not average Canadians.

          • Prices for a lot of goods were two to three times higher than in the US back when our ‘Liberalized’ dollar was at 60 cents.

            Now there’s a much smaller differential, and yet there are folks who want to return to those bad old days.

          • This is a debate on economics. Please don’t make up absurd facts. From 1997 to 2003 as the dollar plummeted the economy was booming (with the exception of mild growth during the 2001 US recession.)

            GDP growth: 4.2%, 4.1%, 5.5%, 5.2%, 1.8% (2001), 2.9%, 1.9%

            Compare this to the recover from the 2009 recession Harper claimed was the “strongest on the planet” (2010-2013):

            3.2%, 2.5%, 1.8%, 1.6% (forecast)

            All I remember from this time was the boom in manufacturing jobs:

            Manufacturing Employment

            There was no surge of inflation (prices did not rise.) In fact, from Jan 97 to Jan 99, inflation *fell* from 2% to 1%. If there was any significant increase in prices it would’ve shown up in inflation. It did not. As Mike Moffatt pointed out prices in Canada in 2003 were about 20% higher than American prices and this did not change as the exchange rate changed (despite a 60% increase).

          • You forgot the bit about stagnant wage growth.

          • When you talk about the strong wage growth of the 2000s you seem to forget the 2000s was the worst decade for GDP growth since the Great Depression. It was also the worst decade for productivity growth.

            According to the Statistics Canada study you cite, the wage growth was fueled by largely unskilled labor due to (they hypothesize) construction and resource booms. We now know the construction boom has come to a close (the government is working with the BoC to deflate the housing bubble by tightening mortgage rules.)

            But although you talk up rising wages, the Harper Government appears to have taken the opposing view: that they are hindrance to business. That’s why they brought in the temporary foreign worker program that gives corporations a 15% discount on wages. This is to bring down the cost of high wages in the resource sector.

            BTW, do Canadians really want to move or migrate to remote regions of the country to work in open pit mines to get higher wages? I think they would prefer good job and business opportunities a little closer to home.

            Wage Growth over the Past 30 Years: Changing Wages by Age and Education

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