Sinking Investment: Why Betting on Oil and Gas is Canada’s Next Big Economic Risk
Canada is facing a seismic shift. As climate-fueled disasters become more frequent and more intense, the world is rapidly moving away from fossil fuels. Yet, here at home, our governments continue to treat oil and gas like an economic lifeline. The reality? That lifeline is quickly fraying.
Oil and gas companies have long tried to convince the public and our politicians that oil and gas is vital to Canada’s prosperity. However, new research shows that this industry is not only a shrinking part of our economy but is also on its way to becoming a severe liability. As global demand for oil and gas declines, the money poured into new projects is at a significant risk of becoming stranded assets that will never deliver an economic return.
A recent report by Environmental Defence and the International Institute of Sustainable Development shows that in a world that limits the rise in global warming to 1.5°C, which is the goal of the Paris Agreement, up to 66 per cent of planned capital investment in Canadian oil and gas from 2025-2040 – amounting to a staggering USD $445 billion (CAD $612 billion) – would become stranded. The amount of lost investment skyrockets to USD $622 billion (CAD $855 billion), 93% of total planned investments, in a scenario where carbon capture fails to reduce GHG emissions meaningfully.
This is not a distant scenario. It is right around the corner. The International Energy Agency has projected that global demand for oil and gas will peak by 2030, even if no additional climate policies are adopted. Clean technologies like solar and wind, electric vehicles and heat pumps are eating into fossil fuel markets. And for good reason too – they are cheaper, more efficient and do not produce climate-warming emissions.
All of this should pose a big question for Canadians: Why do the governments in Canada insist on doubling down on an industry whose global relevance is rapidly declining?
Despite what the oil and gas companies may want us to believe, this industry only contributes about 3 per cent to Canada’s GDP and accounts for less than 1 per cent of our workforce. Most of the oil and gas produced is exported, mainly to the United States, which makes this sector highly vulnerable to international disruptions like tariffs. Meanwhile, investments in clean energy are creating more jobs, delivering energy security and positioning other countries, like China, for long-term success.
Continuing to pump money into oil and gas expansion risks wasting public and private capital and delaying the urgent work of economic diversification and energy transition. Provinces like Alberta, Newfoundland and Labrador, which are more dependent on oil and gas revenues, will face deeper economic instability if they wait too long to pivot. The collapse of the cod fisheries in Newfoundland in the early 1990s and its devastating impact should be a stark reminder of what can happen if we fail to pivot in time.
This isn’t about an ideological distaste for fossil fuels. It is about recognizing that oil, gas and coal are the fossil fuels that are driving the climate crisis and the world needs to and is transitioning away from them.
Oil and gas did help fuel our past, but it is not the future. Markets are moving on, investors are adjusting, and countries around the world are adapting. Canada must do the same before we’re left behind.
The global energy transition will continue to accelerate, with or without Canada. However, if we want a resilient economy in a net-zero world, it is time to stop clinging to the past and start building forward. This means ending the approval of new oil and gas projects, eliminating all fossil fuel subsidies, ramping up investments in renewable energy, and investing in a just transition for workers. The cost of delay isn’t just environmental degradation, it is also an economic disaster. And the price tag for that is one we can’t afford.
