'Oilsands fever' seen as Canada's Dutch Disease

On the eve of NDP Leader Tom Mulcair's visit to Alberta's oilsands, two new reports offer competing evidence about his claim that Canada's economy suffers from a high dollar driven by the resource sector.
Two reports out Wednesday offer differing views on the impact of the oilsands on Canada's economy. The reports come as NDP Leader Tom Mulcair, who has raised concerns about the economic effects, gets ready to tour Suncor's oilsands facility near Fort McMurray, Alta. (Jeff McIntosh/Canadian Press)

On the eve of NDP Leader Tom Mulcair's visit to Alberta's oilsands, a new report backs his claim that Canada's economy suffers from a form of Dutch Disease.

A study released Wednesday by the Pembina Institute says Canada has come down with a unique strain of the phenomenon, dubbed "oilsands fever," that is producing near-term economic benefits that are often overstated.

The report says these benefits are spread unevenly across the country and could be hiding economic turmoil down the road.

But another report by a different group says Canada's oil and gas industry is spreading the wealth by using the money earned from booming exports to buy goods and services from the rest of the country.

The two reports were released simultaneously as Mulcair embarked on his first tour of the oilsands.

The NDP chief has been lambasted by western premiers and the federal Conservatives for suggesting oil exports raise the value of the Canadian dollar, which in turn hurts the economy in other parts of the country.

The phenomenon is dubbed the "Dutch Disease," in reference to the manufacturing decline that occurred in the Netherlands after a boom in natural gas exports in the 1970s.

Changes dubbed 'oilsands fever'

The Pembina study says the Dutch Disease label may be too simplistic.

"It seems clear that Canada is undergoing changes, both positive and negative, that are unique to both the nature of its domestic economy and Canada's role in a shifting global economy," the report says.

"The result appears to be a uniquely Canadian strain of the Dutch Disease that could be called 'oilsands fever' — a strain that is beginning to create clear winners and losers in Canada's economy and could pose a significant risk to Canada's competitiveness in the emerging, clean energy economy."

The report urges the federal government to create a rainy-day savings fund for oil and gas revenues, get rid of tax breaks for oil and gas companies, convene an expert panel on the oilsands and the economy, study regional competitiveness in an era of a high loonie and work on a national energy strategy.

A separate report also released Wednesday by the Macdonald-Laurier Institute came to a different conclusion.

Benefits outweigh negative effects? 

The Macdonald-Laurier study found all provinces will enjoy benefits from oil- and gas-rich western provinces that far outweigh any ill-effects from a higher Canadian dollar.

"While the so-called 'Dutch Disease' mechanism may operate, in practice it is partially (perhaps more than fully) offset by the gains to the overall Canadian economy documented by these studies," the report says.

Both reports are meta-studies — reviews of existing analysis or a study of studies. Pembina used information from dozens of sources and Macdonald-Laurier specifically covered three. There was some overlap between the two.

Both organizations draw on the Canadian Energy Research Institute's 2011 research paper called "Economic Impacts of Staged Oil Sands Projects in Alberta," but interpret it differenlty.

While Pembina notes CERI's finding that 94 per cent of oilsands benefits go to Alberta, the Macdonald-Laurier study emphasizes the substantial benefit "in absolute terms" for other provinces.

The two reports came out the day before Mulcair is scheduled to tour Suncor's oilsands project near Fort McMurray.

Alberta Premier Alison Redford has said she won't meet the NDP leader until he visits the Fort McMurray region to educate himself about the oilsands and Saskatchewan Premier Brad Wall has also weighed in with harsh words.

Before departing on his western tour, Mulcair insisted he's not against development, he's only advocating sustainable development. And he stressed that applies not just to the oilsands but to natural resource projects all across the country.

Dan Woynillowicz, the Pembina Institute's director of strategy and communications, said Muclair's musings about Dutch Disease have brought attention to the issue — and raised a lot of rhetoric.

"It's been productive insofar as its raised this issue to a level of both political and public prominence that is necessary," Woynillowicz said at an Ottawa press conference Wednesday.

"[But] it has triggered, I think, a divisive debate that's premised more upon rhetoric on both sides as opposed to really digging into some of the details of what's happening and what can be done."

with files from CBC's Max Paris