Home Business of Energy “Just Transition” – Sustainable Jobs Cannot Be Disconnected From Fundamental Economics

“Just Transition” – Sustainable Jobs Cannot Be Disconnected From Fundamental Economics

David Yager

As politicians dominate the public narrative on jobs and job creation, this critical element of human existence is increasingly disconnected from economics.

Jobs require money. You can’t have the former without the latter.

The definition of a “job” is “a paid position of regular employment.”

“Paid” is a commercial buy/sell transaction.

Every time anyone is hired it is “job creation.” This is fundamental economics, not genius public policy.

There are two kinds of jobs.

One is the labor essential for private sector wealth creation like resource extraction, manufacturing, communications or transportation.

These jobs are “value added,” because what comes out is worth more than what goes in.

The other is hiring in the public sector, jobs funded by taxes or user fees levied on business and individuals.

Calculating the “value added” is more challenging.

Governments can indeed change policies or be a catalyst to stimulate private sector investment and jobs.

But everything governments do that increases employment is done with somebody else’s money.

Cutting taxes is a proven job creator. Raising taxes does the opposite.

As a resource producing nation, many Canadian jobs are notoriously cyclical. Employment in oil and gas rises and falls with commodity prices.

However, when prices rise and industry goes back to work, the government of day it quick to take credit for “creating” the new jobs.

Thankfully, policies that intentionally cap or eliminate resource jobs are a new phenomenon. Otherwise Canada wouldn’t exist in its current form.

Statistics Canada data shows that the primary job creation success of governments has been increasing the size of the public service.

In 2015, there were 35.7 million Canadians. In January, StatsCan calculated 48.3 per cent of citizens were working in either the public sector, private sector or were self-employed. The split was 3.5 million public, private 11.6 million, and self-employed 2.7 million.

In January of 2023 there were 39 million Canadians, an increase of 6.3 per cent. A total of 51.4 per cent were classified as employed in one of three categories. The split was 4.2 million public, 13.2 million private, and 2.7 million self-employed.

Over eight years public sector employment had increased by 21.6 per cent and the private sector only 13.3 per cent. Self-employed rose by only 0.5 per cent.

Public debt is at record levels. More job killing tax increases are inevitable.

Which brings us to the “Just Transition” employment program released by the federal government in February. It was renamed “Sustainable Jobs Plan” after numerous complaints.

But no job is truly sustainable. In business, jobs in companies without profits are always at risk.

Public sector jobs are sustainable only because governments retain the sovereign right to tax almost anything. When expenditures exceed revenue, governments then borrow against future taxes.

Anyone who thinks public sector jobs are sustainable as interest rates and debt rise – and corporate earnings and consumer taxable incomes decline – should think this through.

In the energy transition plan, Ottawa has a specific definition of sustainable. The program “…understands a ‘sustainable job’ to mean any job that is compatible with Canada’s path to a net-zero emissions and climate resilient future.”

Which means that other jobs in high carbon sectors are, by default, unsustainable. The correct description should be job replacement. The term Just Transition is another feel good slogan to help those who force people to lose their jobs for the greater benefit mollify guilt.

Fundamental to Ottawa’s views on employment disruption is that a job is a job no matter who pays the salary, or if it creates wealth and corporate taxes.

But as noted above, private and public sector employment are different.

Whenever the job narrative is politicized and disconnected from economics, outcomes congruent with the stated intent or aspirations are unlikely.

The subtitle of Ottawa’s plan is “concrete federal actions to advance economic prosperity and sustainable jobs in every region of the country.”

Except this concrete is only aggregate and water. There’s no cement to bond them together.

A basic test for actual “economic prosperity and sustainable jobs” starts with scanning the document to review the language and words employed.

Export. Balance of payments. GDP. Extractive resources. Wealth creation. Disposal income. Taxes. Taxation. Deficit. Debt. Savings. Retirement.

Not one of them appear in the32 pages. The document focuses on the federal climate plan, comforting words about the wonderful opportunities in changing jobs and careers, and how the government has your back.

A key assumption is that the so-called energy transition is real, and that the Liberal climate strategy will unfold as advertised.

But in this plan, oil and gas jobs are doomed. It’s just a matter of time.

It cites the International Energy Agency’s Net Zero by 2050 oil demand case. The NZE mission is determined by public policy. The unanswered question is how. Right now the primary means to emit less carbon is to radically reduce hydrocarbon consumption.

The document states, “With the right plans in place, the road to a 2050 net-zero emissions economy will secure and create good, well-paying jobs for Canadians in every part of the country…according to the International Energy Agency’s (IEA) net-zero emissions by 2050 scenario (NZE), could create almost 40 million new jobs in clean energy by 2030.”

It continues, “…in a 2050 net-zero world, according to the IEA’s NZE scenario, the world will still use about 25 million barrels of oil in 2050 – which is about a quarter of today’s consumption.”

However, OPEC has an entirely different view. OPEC countries sell oil to the 6.7 billion people who don’t live in the OECD countries that bankroll the IEA. They forecast oil demand in 2045 to be eight per cent higher than current levels based on world population and GDP growth.

The IEA scenario for Alberta is devastating. If the world is going out of the oil business, so is one of the world’s top producers – Canada.

But what is not referenced, or perhaps even understood, is that replacing oil and gas with electricity will result in the significant contraction of Alberta’s economy. The only reason 4.4 million people live in Alberta is because of massive oil and gas exports across North America.

Of the 3.7 million barrels per day (b/d) of oil produced in 2022, the Alberta Energy Regulator reports local consumption of refined products for transportation was only 113,000 b/d, or three per cent of total output.

Alberta refineries processed 515,000 b/d last year. What is not consumed locally is exported. The Trans Mountain pipeline carries refined gasoline and diesel fuel to the west coast.

The other 3.2 million b/d – 86 per cent – is shipped west, south and east for processing into a myriad of products. Alberta’s oil goes to the northwest U.S., east as far as Montreal, the U.S. Midwest, or the giant refining and export hubs of Gulf Coast of Mexico.

If world demand falls by 75 per cent, simple math indicates that 75 per cent Alberta’s oil jobs will disappear.

But they will not be replaced by clean energy jobs. They can’t. That’s because there is no export market for electricity on the scale of oil or natural gas. All the regions that buy our hydrocarbons exports already have electricity.

Exporting electricity is only possible with big hydro facilities like those in Quebec or B.C., or giant nuclear power plants. And that power must be delivered 24/7/365.

Nobody is going to install solar panels or wind turbines in Alberta to supply interruptible electricity to the U.S.

Then there’s the big taxes that hydrocarbon extraction generates. While it is fashionable to claim fossil fuels are subsidized – and fashionable for the economically delinquent to believe it – the taxes from oil and gas are huge.

Why? Because hydrocarbons are produced for a fraction of their market value. That’s the definition of value-added wealth creation.

Oil production is taxed immediately through royalties, then taxed again at the gas pump when it sold as gasoline or diesel fuel. Because production is profitable, producers pay corporate income taxes. Well paid workers pay big income taxes. The massive oil service and supply chain is profitable most years and is taxed at every level.

Producers pay property taxes and lease rentals for the land they use.

Low carbon energy sources cannot replace what hydrocarbon production pays in municipal, provincial, federal, corporate, income, and excise taxes, PST and GST, or dividends to shareholders.

Hydrocarbons are a cash generating machine for the countries fortunate enough to own them. Exports of oil and gas are a source of wealth most nations in the world can only dream about.

Economics website https://www.ibisworld.com/ estimates that Canada’s top 10 exports in 2023 will generate $233.8 billion in revenue. Oil and gas extraction and petroleum refining alone (ranking 1st and 4th) alone will account for $124.8 billion, or 53 per cent.

This will contract or disappear by 2050 if the IEA predictions are correct. There is nothing in the low carbon energy portfolio to replace oil and gas in terms of GDP, taxes or employment.

All jobs are fundamentally economic. Sustainable jobs come from wealth creation and workable plans, not political aspirations.

Pay attention Canada.

David Yager is a Calgary oil service executive, energy policy analyst, writer and author of From Miracle to Menace – Alberta, A Carbon Story.