Crude Awakening: How the Keystone Veto Dashes Canada’s ‘Superpower’ Dreams

Barack Obama’s veto of Keystone XL has placed the export pipeline for Canadian tar-sands crude on its deathbed. Earlier in February, the Environmental Protection Agency revealed that Keystone could spur 1.37 billion tons of excess carbon emissions — providing the State Department with all the scientific evidence required to spike the project, permanently. If the news has cheered climate activists across the globe, it also underscored the folly of Canada’s catastrophic quest, in recent years, to transform itself into a dirty-energy “superpower.”

In the minds of many American right-wingers, Canada may be a socialist hell-scape of universal health care and quasi-European welfare policies. But it is also home to 168 billion barrels of proven oil reserves, the third-largest in the world. Since ultraconservative Prime Minister Stephen Harper — famously described by one Canadian columnist as “our version of George W. Bush, minus the warmth and intellect” — took power in 2006, he’s quietly set his country on a course that seems to be straight from the Koch brothers’ road map. Harper, 55, has gutted environmental regulation and fast-tracked colossal projects to bring new oil to market. Under his leadership, Canada has also slashed corporate taxes and is eliminating 30,000 public-sector jobs.

Riding record-high oil prices — $107 a barrel as recently as last June — Harper’s big bet on Canadian crude appeared savvy. The oil boom had driven a seven percent surge in national income, helping Canada ride out the Great Recession with less anguish than most developed nations. And with fossil fuels swelling to nearly 40 percent of net exports, Harper’s Conservative government was on track to deliver a Tea Party twofer in advance of federal elections this fall: a budget surplus and a deep tax cut for the country’s richest earners.

But today, with the price of oil cut in half, the Canadian economy is staggering. Tar-sands producers have clawed back billions in planned investments and begun axing jobs by the thousands. The Canadian dollar, recently at parity with the U.S. dollar, has dipped to about 80 cents. Instead of a federal budget surplus, economists are now projecting a C$2.3 billion deficit. “The drop in oil prices,” said Stephen Poloz, the nation’s central banker, in January, “is unambiguously negative for the Canadian economy.”

If low oil prices hold, the pain will get worse. Most of Canada’s reserves are locked up in tar sands. The industrial operations required to get the oil from the ground to your gas tank are not only filthy and energy-intensive — generating up to double the greenhouse emissions of conventional oil — they also take years of construction to bring online. Because of investment decisions made during the boom years, tar-sands production is projected to expand by seven percent this year, exacerbating the glut. The collapse of crude is threatening to take Harper’s nearly dec-ade-long rule down with it. Canada’s Liberal party, headed by 43-year-old Justin Trudeau (son of legendary Canadian PM Pierre), is running neck and neck in the polls, and bashing Harper where he used to be strongest — his management of the economy. “It’s not fiscally responsible,” said Trudeau in January, “to pin all your hopes on oil prices remaining high, and when they fall, being forced to make it up as they go along.”