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Fossil Fuel Economics

Oil can photo by Werner Ustorf
Photo courtesy of Werner Ustorf — Flickr

This post kicks off a series on fossil fuel economics — a subject of great interest to the people of Alberta.

Economics, at its core, is the science that tries to satisfy humanity’s limitless appetites with the Earth’s limited resources. When we imagine Alberta’s future, we must project the demand that will exist for our fossil fuels, and how those resources will be used. This perspective helps us predict the way our economy will evolve. It also helps us understand our province because fossil fuel economics underpins our relationship with oil, gas, and coal.

Here at Alberta Beyond Fossil Fuels, this relationship is our primary interest. The fossil fuel industry is an important part of what makes Alberta what it is, and us who we are. When we consider our future, we have to take into account the economic factors that shape our fossil fuel industry.

To provide us with a steady footing, we’ll blog about the following topics.

CLIMATE, ENERGY AND ALBERTA’S FUTURE

Fossil fuels are damaging our home, our country and the entire world.
It’s time to talk about phase-out. It’s time to build a new province — an Alberta beyond fossil fuels.
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Economic Impacts of Fossil Fuels in Alberta

Royalties from bitumen contribute hugely to provincial coffers, and tax revenues from fossil fuels fund initiatives at all levels of government. A significant portion of our country’s GDP comes from these industries as well.

But these benefits are at the mercy of a volatile industry with lows as well as highs. Net zero emissions goals worldwide and the strong growth of green energy raise questions about the value of future fossil fuel investments and infrastructure. What’s more, environmental impacts from fossil fuel emissions pose an increasing threat to the output and production of other industries within Alberta.

Demand for Fossil Fuels

The conflict in Ukraine has led to price spikes in fossil fuels worldwide and has raised questions about the security of fossil fuel-based energy systems. There is great uncertainty surrounding future demand for fossil fuels as countries around the world commit to net zero targets. These developments point to a sharp decline in fossil fuel demand, as the International Institute for Sustainable Development reports in Why Canada Needs to Plan for a Steep Decline in Global Oil Demand.

Employment from the Fossil Fuel Industries 

You cannot throw a stone in Alberta without hitting someone who works (or once worked) in oil and gas. In fact, Alberta boasts three times more direct and indirect oil and gas employees than any other province.

For this reason alone, the question of employment is an important one. How many Albertans owe their livelihood directly to the fossil fuel industry? How many work in jobs that are indirectly sustained by this industry? And in what ways would a movement away from fossil fuels impact employment here in Alberta?

Sharing Is Daring

Help spark the debate. Share a bold, forward position on fossil fuels in Alberta — phase out.

Public Subsidies for the Fossil Fuel Industries

In what ways do our provincial and federal governments support the fossil fuel industries, and how much are we paying for it? What do those investments look like for the average Albertan? Are we getting our money’s worth?

The Social Cost of Carbon

What is the economic cost of one additional tonne of carbon dioxide emissions? This is a measurement that can be quantified and takes into account the previously unaccounted costs of our fossil fuels.

Fossil Fuel Assets and their Values

Pipelines, oil wells, drilling equipment — the fossil fuel industries have paid a lot of money for these assets. What exactly is their current value and how will their value change in the future? Here we will discuss sunk costs and stranded assets. 

Leakage

In economics, leakage is the flow of goods and services from one jurisdiction to another. Of course, there is more to it than this simple definition, but it’s a good starting point for our discussion.

Many people say that if Alberta restricts its production of oil and gas, some other country will simply replace our output. There is some truth in this notion, but leakage is not a simple phenomenon.

We are entering an era where fossil fuel demand will decline sharply. When it comes to refining, oil and gas are not completely fungible commodities. Some refineries specialize in our heavy oil and bitumen, and they can’t process other varieties without extensive (and expensive) retooling. In the energy transition, we can’t automatically assume that refineries will make those investments.

If Alberta’s output declines, replacing that output with fuels from other jurisdictions will not be a simple matter. We’ll take a closer look at this question.

Alberta’s Future and Fossil Fuel Economics

We hope that by taking a closer look at fossil fuel economics, we will reach a better understanding of the factors that shape our relationship with fossil fuels. Join us in this journey to learn more about the economics of our province, the value and costs of our fuels, the markets that receive them, and the role they play in the economy of our neighbour and largest trading partner, the United States.

Want to learn more? Check out Roger’s excellent work on what energy investors want and on risks facing the oil and gas industry. Or check out my piece on the social cost of carbon — the basis for all carbon pricing systems.

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What Do Energy Investors Want?

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Introduction to the Oil Sands

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