Course:ECON372/OK2019WT2/Topic2
Natural Resources and the Economy
Group #1
https://globalnews.ca/news/6253147/canadian-natural-resources-2020-budget
Summary
The article "CNRL 2020 budget rises by $250M on oil curtailment ease; putting more rigs to work" the Canadian Press reports on the increased budget of Canadian Natural Resources Limited (CNRL) thanks to an increase in production limits implemented on traditional drilling rigs by the Albertan government. The article reports that the company budget will increase by $250 million over last years budget. This increase in the budget comes with the promise of creating sixty new drilling sites alongside with 1000 full-time jobs in the company. The company states that "it made the decision (to increase the budget) after the Alberta government eliminated curtailments for some conventional drilling in the province, and because of reduced corporate income tax rates.". The article also discusses the original reason the NDP decided to implement the production limits on oil. The idea behind the curtailments was to limit the production of oil in order to match pipeline and transport capacity, this is done to prevent oil being dumped at extremely low prices in the case that firms are able to cover their marginal costs and stay in business despite losing money.
Analysis:
This article shows how government policy can artificially create a cap on the stock of a non-renewable resource such as oil which can have effects on Alberta's economy. When the stock size for oil extracted by drilling was increased by raising the cap on production (i.e. an increase in dS), it affected the total supply of oil available for extraction which is prompting the company to tap the additional capacity. While initially this will likely be profitable for CNRL, the increase in total supply due to the increased extraction could lead to production exceeding the transport capacity of the industry. If this glut is large enough the combined production levels of the oil sands and drilling rigs could exceed the transport capacity of the industry. This could lead to oil sands producers dumping excess stock of oil at a loss if the prices fall low enough and the producers are forced to do so to survive. If oil prices fall, the extraction value of the land could potentially be decreased lowering it below other use values for the land that was to be drilled. It is also important to note that there is another motivator for the firm to increase production which is the tax breaks (i.e. reduced corporate tax rate) implemented by the Albertan government. This is another factor that must be controlled for when we analyze the potential effects of this artificial increase in the stock of oil available for extraction.
| Category | Mark | Comments |
|---|---|---|
| Article Source (10) | 10 | |
| Article Relevance (10) | 10 | |
| Summary (20) | 17 | |
| Course Related Analysis (30-40) | 30 | If companies produce more than the export capacity, then they will undercut each other on price to try and get their oil into the pipeline. This leads to the price drop. This isn't clear in your analysis. |
| Extended Analysis (10-20) | ||
| Presentation (10) | 10 | |
| Total | 77 |
Group #2
Link: https://www.lowestrates.ca/news/bank-canada-says-climate-change-threat-economy-25614
In Lisa Coxton's article regarding to the Canadian economy she mainly emphasizes on the interactive relationship between the environment (the climate change) and the Canadian economy. As a result of the change in climate, there will be increases in the frequency of natural disasters, as such the governments need to spend extra money on the preventive and after cause measures to said disasters, finally effectively stubbing one country's economic advances. Furthermore, Coxton also talked about how to get the average joe's attention and that is to use federal websites to discuss the topic and it is proven that people usually listens more carefully to what federal media such like the BBC has to say.
| Category | Mark | Comments |
|---|---|---|
| Article Source (10) | 10 | |
| Article Relevance (10) | 8 | |
| Summary (20) | 14 | |
| Course Related Analysis (30-40) | 0 | No analysis. |
| Extended Analysis (10-20) | ||
| Presentation (10) | 10 | |
| Total | 42 |
Group #3
Link: https://www150.statcan.gc.ca/n1/daily-quotidien/190626/dq190626a-eng.htm
Summary:
In the article posted by statcan, “Natural Resource Indicators, First Quarter 2019”, highlights the important statistics regarding the gross domestic product, unemployment and exports concerning Canadian natural resources. All of the statistics in the article were derived from the first quarter of 2019. Furthermore, the article highlights how Canada’s real GDP in the natural resource sector has fallen by 1.9% and how productivity in the energy sector of refined petroleum has declined by 5%. Statcan also mentions a fall in exports by 3.8%. Canada has failed to prioritize the production and exportation of its natural resources to the point where it is unable to reach international markets, our GDP in natural resource sectors will further continue to be compromised. If Canada continues to neglect its natural resource sectors whose to say what the negative effects will be on unemployment rates and exports.
Analysis:
In terms of our Canadian economy, recently we have seen a decline in the government capitalizing and investing in our resource-based economy. Across Canada forestry companies such as Tolko Industries have been shutting down not only due to the rise in the Canadian dollar relative to the United States but also United States duties on Canadian lumber which then raised the industries’ costs. Consequently this effect makes it near impossible for Canada to export lumber. Lumber is a perfect example of extractive/ development value resource discussed in chapter twowhuch ya defined as “when a resource is transformed or altered in some way by humans”. Lumber and energy such as gas or oil is a perfect example of an extractive/development value.
According to statcan, in 2019 during the first quarter, Canada’s real gross domestic product fell -1.9% which was said to be the largest decline since 2016. In the article, when talking about natural resources it includes but is not limited to energy, mining, forestry, and water. In the energy sector, it is hard not to mention a large 5% decline in the production of refined petroleum products including a 1.4% decline in crude oil. Canada’s oil market has been taking a huge hit due to Canada’s inability to get this oil to reach markets. Canada is not investing in its oil markets or in any of its resource markets for that matter. No wonder why there is not only a decline in production but also Canada is unable to get its oil into international markets. Exports fell by 3.8% in the first quarter of 2019. Specifically, exports of energy have fallen 4.2%, (both these percentages are based in real dollars). With the decline in natural resource production and exports has led to unemployment. According to statcan employment in the natural resource sector which fell by 0 .6%. The indicated issue is important because everyday Canadians are losing jobs in the natural resource sector. The large majority of Canada’s natural resources need to be extracted or developed in some sort of way in order to be consumed or purchased in markets. Oil and lumber are finite resources meaning they are non renewable. Extracted resources come into conflict with conservation. How can we extract, yet conserve? Will we ever find a safe and sustainable way to recover unemployment and productivity in resource sectors? We still have yet to find answers for such questions.
| Category | Mark | Comments |
|---|---|---|
| Article Source (10) | 10 | |
| Article Relevance (10) | 10 | |
| Summary (20) | 17 | Sounds like editorializing at the end of the summary. |
| Course Related Analysis (30-40) | 25 | Far too much normative analysis, without clear positive analysis to substantiate the 'should' aspects you talk about. |
| Extended Analysis (10-20) | ||
| Presentation (10) | 10 | |
| Total | 72 |
Group #4
https://theconversation.com/our-ability-to-manufacture-minerals-could-transform-the-gem-market-medical-industries-and-even-help-suck-carbon-from-the-air-123853
Summary:
The Article published by Anita Parbhakar-Fox and Paul Gow, two researchers at the University of Queensland, summarizes the implications of being able to now construct minerals. Example they gave were Edscottites which was a substance made out of iron and carbon found within cores of planets and Nesquehonite, a naturally occurring mineral when magnesium rock slowly breaks down. The first could be made with iron and oxygen while the second could be created by passing carbon dioxide into an alkaline solution and having it react with magnesium chloride. Some may call it modern-day alchemy, the process of creating anthropogenic minerals may work to not only satisfy the ever-growing demands for mineral usage in our every day lives, but to also capture carbon dioxide from the atmosphere. Prominent examples of possible substitutes include synthetically made diamonds for engagement rings, yttrium aluminum garnet replication for medical lasers, and quantum materials to enable deep space exploration as well as create a new generation of electronic products. Although scientists have the ability to create these metals already, the challenge is finding a method that is more cost effective and creates less by-products. In addition there have been concerns regarding the ethics of this practice.
Analysis
The implications that spawn from being able to create a scarce resource is that the resource becomes more sustainable. This is relevant to the topic because it artificially creates sustainability and reduces scarcity. There will be less demand for actual mining and extraction of minerals from the earth which may help preserve the integrity of the land and reduce the harmful effects that follow from drilling and mining. The article also highlight the carbon capture aspects that come with synthetic minerals. The article proposes mineral synthesization, specifically the active manufacture of nesquehonite as a possible solution to the carbon dioxide issue. However relevant and important the carbon recapture system is, I believe this is where the article is weakest. The article leaves links to research data for its other points but it fails to highlight the actual efficiency of mineral synthesization as a viable carbon recapture method. The highlighted emphasis of the article should be on synthesized materials as viable substitute for mined minerals. The article only touches upon this factor slightly and dedicates a link to the immorality of mined minerals but it fails to give proper emphasis on an important point that would have really supported the article otherwise.
The issue of creating the proposed synthetic minerals is the method of obtaining the non-carbon chemicals as well as the clean-up for the unused chemicals and byproducts. There may also be unforeseen consequences from the synthesization process, this could be from the pollutants that it leaves behind in its creation process or the uncalculated cost of creation and cleanup.
Speculated effects on Canada.
Even though the article is published in Australia, it is very relevant Canada today. As of 2017, mining/extraction of minerals attributed to $97 billion dollars to Canada GDP and the industry accounted for 19% of Canada's exports. The country ranks top five in the global production of the 16 major minerals of metal (https://mining.ca/resources/mining-facts/). This substitution or shift away from conventional minerals may damage a major part of the Canadian industry if the country does not properly adapt to the growing usage of synthetic materials. CBC has published articles regarding similar advancements in mineral creation, so it seems that the Canadian media is at least aware of the technological prowess and the benefits it may bring. If this situation is not handled properly, the government may be subjected to backlash from the industry similar to that of the current events with the oil industries.
| Category | Mark | Comments |
|---|---|---|
| Article Source (10) | 10 | |
| Article Relevance (10) | 10 | |
| Summary (20) | 20 | |
| Course Related Analysis (30-50) | 45 | |
| Extended Analysis (0-20) | 5 | |
| Presentation (10) | 10 | |
| Total | 100 |
Group #5
Summary:
It is crucial to maintain a healthy stable environment and economy as every aspect in society is linked and connected. “We need to protect the environment like we protect our economies” written by David Attenborough and Christine Lagarde for CNN Business Perspectives explains that without natural resources, industries would not exist and when populations destroy nature, they are slowly destroying themselves. It is estimated that over 50% of the world is developed due to human activity and as a result, average temperatures are rising due to increasing carbon levels and land destruction. This causes many areas for life to be inhabitable.
The first step to reduce these affects is lower the levels of overconsumption and waste with lowering food purchases, consuming less energy, and recycling. This reduces unrecyclable waste on the planet and reduces overconsumption/production. Secondly, it is crucial in both the environment and economic world to not run any resource into depletion as it creates financial and animal population issues (Increased prices, over farming and breeding, etc.). This has already occurred in our society with aquaculture and forestry. To reverse this, more sustainable practices must be put in place in order to reduce extinction risks, so resources are plentiful for future use. Additionally, governments enforcing regulations to avoid overuse and reducing carbon emissions will encourage those to pursue more sustainable practices. Businesses will then decrease spending and costs associated with fossil fuel energy production. As well, private markets should stop backing companies and their activities that are damaging the environment and transfer investments into sustainable businesses to further encourage those to change operations.
Several changes must be made to our planet now to sustain a healthy environment for current and future generations. There is still time to reverse and fix the destruction that has occurred and if these changes are not made in 10 to 20 years, the destruction will be irreversible. People worldwide need to come together to make these changes as it affects everyone everywhere and these simple but detrimental changes are truly for the greater good.
Analysis:
The article we have chosen breaks down many aspects that we would consider to be similar within the natural world and the economic world. It seems that the more growth achieved within the economic world, the more decay there is within the natural world. Using the statistic that around 50% of the world is now urbanized, we can understand that now is the time for careful thought and action to help maintain both the economic landscape, and natural landscapes. The main take away from this piece is that there needs to be a balance created between these two worlds. By using sustainable practices when it comes to things such as energy consumption, or food waste humans could make a large difference within the environment.
The comparison that stood out the most within this article is that between financial capital and the prevalent problems of overfishing, and deforestation. The basis of the argument being that as a society, we would never purposefully deplete all our financial capital as it would lead to many economic issues. Yet, at the same time we continue to deplete our natural resources such as fish populations, as well as our forests. Another statistic used is the 2017 global costs for the undercharging of energy and its environmental costs, which reached $5.2 trillion. This money could be used in a number of possible beneficial ways, for example to help maintain certain ecosystems that have been decimated by human development.
| Category | Mark | Comments |
|---|---|---|
| Article Source (10) | 10 | |
| Article Relevance (10) | 10 | |
| Summary (20) | 20 | |
| Course Related Analysis (30-50) | 50 | Nicely connecting core issues of chapter, that the economy is embedded in the economy, and that natural resources are like capital, an asset. |
| Extended Analysis (00-20) | ||
| Presentation (10) | 10 | |
| Total | 100 |
Group #6
| Category | Mark | Comments |
|---|---|---|
| Article Source (10) | ||
| Article Relevance (10) | ||
| Summary (20) | ||
| Course Related Analysis (30-40) | ||
| Extended Analysis (10-20) | ||
| Presentation (10) | ||
| Total | 0 |
Group #7
| Category | Mark | Comments |
|---|---|---|
| Article Source (10) | ||
| Article Relevance (10) | ||
| Summary (20) | ||
| Course Related Analysis (30-40) | ||
| Extended Analysis (10-20) | ||
| Presentation (10) | ||
| Total | 0 |
Group #8
https://www.cbc.ca/news/politics/climate-change-bank-of-canada-financial-system-review-1.5137625
Summary:
The Bank of Canada has released their first report of the threat that climate change has on the countries financial system. In this article written by Karina Roman, she explains what the Bank of Canada has done in response to climate change. The Bank of Canada has joined the Network for Greening the Financial System. This worldwide forum is comprised of central banks and financial systems looking to better manage and understand the financial risks of climate change. In another point the author states that "when the Bank of Canada speaks, people listen." Under the Paris Accord, Canada committed to do their part to limit the rise of global temperatures to less than two degrees. Joining this network is one way that Canada is shaping a greener economy to uphold their commitment.
The article emphasizes the vital role which natural resources play in Canada's economy and also claims that, "the natural environment is a defining feature of our national identity." One consultant criticized the Bank of Canada for taking two years to join the Network for Greening the Financial System because natural resources play an important role in Canada's economy and he believes that Canada was at a disadvantage by not being involved in the initial discussion. Many European central banks joined in 2017 when the network was formed, but the United States has yet to join.
Currently, public companies are not required to disclose their industry/company climate change risks and there are no standardized national accounting measurement practices for this area. Companies who do report their environmental performance and potential risks tend to be overly optimistic with regards to climate change. unlike financial reporting, climate disclosures made by a company are not audited. Therefore, companies often highlight things that they have done well and downplay their negative impact on climate change and the risk exposure climate change presents. It is difficult to estimate the financial impact of climate change on a company, country, or the world because there is little modelling done. The article concludes by addressing more climate change related financial risks to our economy and suggests that more analysis needs to be done to mitigate these costs. There is no sense of what this overall cost could be, but it is likely a massive number.
Analysis:
The CBC News article, "Climate change threatens 'both the economy and the financial system' says Bank of Canada," illustrates how the Bank of Canada is making climate change more of a priority in the financial industry. In 2019, two years after it was founded, the Bank of Canada joined the Network for Greening the Financial System. Canada has committed to better recognizing, understanding, and managing the financial risks that climate change poses on its economy. This is an important step in the battle against climate change because as the article says, "when the Bank of Canada speaks, people listen." By joining this worldwide forum, the Bank of Canada may raise awareness to the costs of climate change.
Natural resource economics uses economical analysis through economic models to better understand how natural resources flow into the economy and then use the collected data to suggest policies to use these resources sustainably. The article claims that it is difficult to evaluate the total financial impact of climate change because there is little modelling done on this issue. The Bank of Canada's action to join this network will hopefully initiate more research and modelling to be performed on the financial consequences on climate change.
For a rational and prudent investor, understanding and managing risk is important when developing an investment portfolio. Public companies are required to disclose extensive information about their financial performance, operations details, and potential risks and mitigations the company may face. This information is audited so that potential stockholders can be confident that the accounting is reliable and make informed decisions as to where they will invest. For climate change risks, there are no laws in place requiring companies to disclose this information to shareholders and there are "no agreed-upon standards of how and what to report." This means that potential investors could be unaware of the risk exposure climate change presents to a company because they do not need to be researched and disclosed. The article explains that many companies have recently begun voluntarily disclosing this information with stakeholders, but without national standards and auditing systems companies tend to be overly optimistic.
Mandatory standardized environmental performance reports and disclosure of companies' vulnerability to climate change would affect the way people invest. For companies involved in or heavily reliant on the fossil fuel industry, government financial regulations regarding climate change could be detrimental to their financial health. Many investors may invest their capital elsewhere once they are shown the climate risk exposure of these industries. Some of these risks include extreme weather patterns increasing insurance costs and an "eventual consumer-driven shift away from fossil fuels." A system of accounting rules on this subject would make investors more knowledgeable about climate change effects. This in turn would incentivize public companies to be aware of their climate impact/risks and take measures to lower them since more investments will be directed towards the companies with lower climate risk. The article summarizes this well: "Capital has more power to make change than anything else.
| Category | Mark | Comments |
|---|---|---|
| Article Source (10) | 10 | |
| Article Relevance (10) | 10 | |
| Summary (20) | 20 | |
| Course Related Analysis (30-50) | 50 | |
| Extended Analysis (0-20) | ||
| Presentation (10) | 10 | |
| Total | 100 |