Published on April 23rd, 2020 | by Barry A.F.0
A Tale Of Two Oil States: Norway & Alberta, Canada
April 23rd, 2020 by Barry A.F.
Both Norway and Alberta, Canada are economies that gain huge profits from selling oil. They have huge natural reserves of it and make ginormous profits from feeding our “need” for oil powered transportation. However, their method of deploying those profits is in sharp contrast, and interestingly it even guides their philosophies and how they view climate change.
Norway’s Sovereign Fund is the largest in the world. They save 100% of their fossil royalties and dividends into the fund and use it strategically, as their aim is for it to continue growing, and they even use it for social good as they refuse to invest in a large number of unethical entities even if it means losing some profits (and since there is much ethical profit to be made elsewhere they are not exactly hurting from this). Their goal is to always have this money in order to benefit their citizens in perpetuity.
Alberta also built a sovereign wealth fund. However, it is poorly funded, poorly managed, and its money has even been used for partisan pet projects. And its current value is so low that there is not enough for its citizens to draw on in times of need. When Alberta has needed cash to balance its budget after oil prices crashed in 2014, it had none. And it refuses to institute a sales tax, mostly out of pride. And citizen backlash — how can they have so much money coming in but be broke?
A huge contrast to Norway.
So going forward as the world needs less oil, both economies are going to have to contend with less fossil fuel revenue. Alberta’s answer has been to attempt to build oil pipelines for more revenue, to re-elect its conservative reality-denying government (that it turfed for mismanagement), to attempt to elect a federal conservative government, to deny climate change, to cut taxes for oil companies (notice how this certainly does not add to their sovereign fund), and they are attempting to separate from the rest of Canada, because they think everyone else is sabotaging them, as if that will somehow raise worldwide oil prices and make climate change disappear. A recent CleanTechnica article shows how dire their situation currently is.
So why are they acting in this irrational manner?
The answer lies in desperation. They have spent generations pinning their hopes for the future on oil revenues, choosing to believe oil will last forever and never diversifying or expecting that it could either run out or stop being purchased by customers. There was a famous bumper sticker, “Please God, let there be another oil boom. I promise not to piss it all away this time.” Once it came, they forgot the second part very quickly.
Climate denial in this case is borne out of necessity, as an irrational tactic to keep them from losing their golden goose. Except that it won’t work. At best (or should I say worst), they can tip us into runaway climate change before their product becomes completely unsalable. The stone age did not end because of a lack of stones, it ended because superior alternatives took over. Alberta has built a cult where you can’t question each other or the order of things, otherwise the group will turn on you. This maintains their echo chamber and makes everyone outside it (including their federal government) their “natural” enemies.
Denial has a cost, not just in believing lies but in changing your future outlook. If you think fossil fuels will reign supreme despite all evidence to the contrary, you will waste resources expanding them and putting your hopes on them and even doubling down as demand crashes and your losing your shirt. Ditto for climate denial — you can’t destroy something that doesn’t exist, hence you can keep destroying it with impunity.
If instead you accept reality, you can change course before it’s too late. It is likely too late to create a viable sovereign fund, especially since they are unwilling to recognize that giving oil companies more tax cuts that they pocket actually screws their own interests, but they can start by acknowledging reality. All the denial, motivated reasoning, streetlight-effect rationalizations, confirmation bias, or scapegoating non-conservatives will not do a damn thing to save them except that they can live in their reality-denying delusions a little longer until reality kicks them to the curb for good.
So what breaks this juggernaut? EVs eventually will by cratering oil demand, and carbon taxes are helping cut demand (which is why they oppose them despite the fact the tax is reimbursed to every voter annually), but will they get lucky and wake up before they drown? In the end, it’s likely they will purposely choose to not realize they are causing their own misery, as few people and especially groups take responsibility for their own mistakes, instead just blaming scapegoats to assuage their cognitive dissonance.
As oil falls out of use, they will lose their minds and take ever more desperate and grandiose actions, but it’s highly unlikely they will wake up and realize they chose this path and they could choose a better one today by smart transitioning if they wanted to.
But if they do wake up they can look to diversify, we need more solar/wind/EVs/batteries. So far, outside China few are stepping up at the scale needed. As I have mentioned in previous articles every country should be planning ahead and looking to build infrastructure that can manufacture renewable energy products. But it’s a chicken or the egg dilemma — few will support diversifying when the answer is more oil, and they refuse to see a post-oil future. Recently, $2.5 billion dollars is being spent to build a solar factory in China that can feed half of the world’s current solar panel demand. Instead of doubling down on more oil, Alberta could create more jobs than they will lose by putting their profits into building renewable energy factories to churn out solar panels, wind turbines, electric vehicles, and energy storage batteries. World demand for these is continuing to rise and they can either drown in their soon to be worthless oil or they can take this lead time to get production facilities up and running to feed the coming renewable energy revolution.
And it is not only Alberta which has this renewable transition opportunity. This solution will work everywhere climate denial is tied to fossil fuel employment, from coal states in the US, Australia’s fossil fuel juggernaut, Germany’s auto industry (Tesla is helping here), and every other country on earth.
This article was written before the recent oil price drop to below zero. However, this is only transient (even though it doesn’t feel like it). Demand is down about a third thanks to coronavirus-induced demand destruction, but once things recover we will be back to where we started. Nothing from the 2008 Financial Crisis to the 1973 Energy Crisis to the to 1979 repeat caused permanent demand destruction — in fact, low oil prices create a moral hazard and a Jevons Paradox of ultimately increased consumption.
The answer is renewables.
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