Transitioning From an Oil Economy: Replacing Lost Revenue Through Tourism
Updated: Mar 26, 2019
In a very brief post last April I challenged our Prime Minister to make a bold statement about transitioning from an oil economy. Of course he did not respond, so I'm going to keep talking.
The one part of the transition equation that keeps getting lost in the ongoing debate is how to replace lost revenue with something other than oil extraction. I think on both sides of the debate we are all in agreement that neither do we want our children and their children to suffer the consequences of disastrous climate change nor do we want to bankrupt our country and lose essential services like healthcare, education, pensions, and such.
This can only be done if lost oil revenues are matched with gradually increasing revenue derived from other external sources. This is not an easy task. Environmentalists will argue that it is just a matter of suddenly shutting off oil flow (i.e. pipelines) and investing (supposedly government money) in new environmentally-friendly technology, which in their view will match the lost revenue. This is very naive thinking and can be fraught with problems. On the other side, those in favour of continuing to exploit oil no matter the consequences in order to maintain a revenue stream are just plain short-sighted. The first serious problem with both ways of thinking is technological.
The complexities of the myriad technologies that could be used in transitioning is mind-boggling. Embracing one or more too early in their development could mean economic disaster (Ontario Hydro gave us a hint of that). Trying to fund them with tax dollars could also be disastrous and expensive (Bombardier is an example of that). The question in all cases is if the government considers these outlays of billions of dollars as "investments," how soon will they start to be profitable? Technology must only be embraced when it has been proven at someone else's expense (i.e. not the government of Canada) that it is both viable (meaning affordable and compatible with other needed technology) and profitable. I will get into an example later.
Of course buying a pipeline - although not a new technology - is a perfect example of pride over practicality since there never was any indication that this decision was part of a well-conceived transition plan. It leaves us at least $5 - $10 billion in the whole with no guarantee that it will ever be profitable, and we have not even really started the transition process!
Now comes the second problem with a simplistic view of the transition off oil. It requires extremely detailed analysis and yes, some educated guesswork, to predict the timing of critical future events. Probably the most critical of these is the future price of oil and the timing of peak oil production. Various authors and analyses have put the timing of peak oil approximately between the early 2020s and 2040, although earlier studies predicted it would have already happened. What that means is that the Canadian oil sands could conceivably be viable for another 20 years (there is certainly enough supply) but to assume so, as our government apparently did with the pipeline purchase, is flawed and dangerous thinking. if oil prices plummet too fast and peak demand occurs at the near end of that time period (the catalyst at this point would favour the speed at which the world embraces electric vehicles), the oil sands will be the first to close because prices will decrease rapidly and they need higher prices to remain profitable. As it does now with the delayed start of that pipeline construction, the government would then lose a large amount of revenue each day, probably far more than it is losing now.
Here is the important point. if there were already in place a new source or sources of revenue that could replace that loss, it would be an easy transition. If that source was still undeveloped, the government would be playing catchup and, depending on the rapidity of the oil price decline, may never get back to a profitable position. A balanced budget would by then be an unachievable pipe dream (pardon the intentional pun).
What can be done, then, to mitigate peak oil and match lost revenues with new sources of revenue? An important consideration here is that the revenue must be from external sources, in other words exports of some kind. Otherwise, there is no net increase in revenue; we are just cannibalizing ourselves. There are several solutions for which Canada is uniquely qualified and I am going to discuss one of those I mentioned in my post of last April. It is INTERNATIONAL TOURISM.
Here are the basic comparative numbers as of 2017. Oil and gas revenue accounts for about 11% of Canada's GDP and directly employs roughly 276,000 people. It is the sixth largest energy producer in the world. Tourism industry revenue accounts for about 2% of Canada's GDP and directly employs roughly 739,500 people. Out of 185 countries, Canada ranks 155th in tourism's direct contribution to the national GDP. As far as Canada's tourism contribution to GDP, we are out-ranked by other countries like Australia (3% GDP), New Zealand (6% GDP), and Spain (5.4% GDP), and a host of others. Put another easy way to understand, tourism returns about $1040 to every person in Australia, $2470 to every person in New Zealand, and $1526 to every person in Spain. In Canada it returns less than $900 to every person. We can do better!!
Strong leadership that commits to replacing at least some of Canada's future lost oil revenue with a planned increase in tourism revenue is needed. A goal of getting a target GDP contribution from tourism of 5-6% of GDP within ten years is not unreasonable. Assuming oil revenue decreases to about half of what it is now in ten years (just a blind guess that needs better analysis), in terms of dollars this would go a long way to making up the difference.
The benefits of using tourism as a bigger revenue source are enormous. First, we are one of the few countries on the planet that still has pristine wilderness that is attractive to tourists. Second, the industry is relatively clean. Third, we already have world-class tourism infrastructure built right in. Fourth - and this could almost go to the top of the list - using tourism provides tremendous opportunities for partnerships with First Nations as they are the ones who control and are the most knowledgeable about the vast areas of Canada that have so far been little used for tourism. Indeed, some such partnerships are already in place.
The pristine wilderness of Canada is largely inaccessible to most people except for intrepid adventure travellers and they are not the ones who should be targeted in this new tourism push. I am advocating tourism for the middle-class masses who have no desire to trek for five days to reach a mind-blowing scenic valley. These masses must have easy access to that scenic valley without the physical hardships. In Canada's remote regions this can only be done by re-thinking transportation. That re-thinking invariably arrives at a novel take on airships, a technology whose revival is starting to once again take hold of the public's imagination (https://www.newyorker.com/magazine/2016/02/29/a-new-generation-of-airships-is-born and https://phys.org/news/2018-07-airships-scenic-flights-future.html.
This technology is being seriously pursued in a number of countries:
USA (https://www.washingtonpost.com/news/wonk/wp/2018/06/09/the-blimp-industry-is-changing-right-over-our-noses/?utm_term=.05f745b9761b and https://www.lockheedmartin.com/en-us/products/hybrid-airship.html);
Germany (https://www.scmp.com/magazines/style/tech-design/article/2097307/airships-revolutionise-luxury-transport-companies); and
Canada (https://www.solarship.com/story.html).
How many of these eventually prove to be successful, profitable ventures remains to be seen, but the message is loud and clear. In these days of "saving the planet" it is a technology that is getting serious attention. Indeed, the Canadian invention is a uniquely solar-powered airship that could be the prefect match of green, clean transportation with increased tourism.
Now I am not only advocating for tourist accessibility to the Canadian Arctic but also a planned increase in all areas of tourism, both leisure and business, but most specifically international tourism. This means extensive marketing at international travel and business travel conferences, likely much more than is being done presently, so yes, it will cost. The returns on investment for tourism have proven their worth though, so this is not a big stretch for governments at all levels.