A new report from the Canadian Centre for Policy Alternatives and the Polaris Institute warns that the poorly regulated bitumen industry is creating a double threat to Canada: a "staples trap," with an economy over-reliant on bitumen exports, and a "carbon trap," locking Canada into fossil fuels instead of adapting to climate change.

The Bitumen Cliff was co-authored by Tony Clarke, executive director of the Polaris Institute; Jim Stanford, economist with the Canadian Auto Workers; Diana Gibson, former director of research with the Parkland Institute; and Brendan Haley, a Ph.D. candidate at Carleton University.

The report's summary lists five economic impacts of over-reliance on bitumen:

• Employment Impacts: Although 16,500 mostly well-paying direct jobs were created in the petroleum industry (mostly in bitumen-related developments) in the decade ending in 2011, this amounts to less than 1 percent of all the new jobs generated by the Canadian economy during this period. Meanwhile, some 520,000 manufacturing jobs alone were lost in Canada in the same time frame. Being such a uniquely capital-intensive industry, petroleum extraction demonstrates among the weakest job-creation effects of any sector in the economy as a whole. Jobs lost in other tradeable industries vastly outweigh jobs created in the bitumen sector.

• Income Distribution: While the bitumen industry provides a number of well-compensated jobs, total labour income constitutes a uniquely low proportion of the industry’s total revenues. Indeed, the dramatic expansion of petroleum production (with its uniquely low share of labour compensation) has been an important cause of the overall shift in national income away from labour income and towards capital income. In the three oil-producing provinces, corporate profits account for a much higher portion of GDP than in the rest of Canada. And even in Alberta, high nominal wages are offset by soaring prices for housing and other essentials; incredibly, real wage growth in Alberta has been among the weakest of any province.

• International Trade: Canada's petroleum exports have steadily increased over the past decade, but non-petroleum exports (including manufactured goods, tourism, and tradable services) have declined at a much faster rate. The decline in non-petroleum exports has been 8.5 times greater (measured as a share of GDP) than the increase in petroleum exports. As a result, Canada's overall export performance has deteriorated dramatically, and we now experience a large and chronic current account deficit. Among the contributing factors behind this imbalance are the continuing net outflow of profit and dividends on foreign investments in the petroleum industry, and the reliance on imports for the vast majority of machinery and equipment purchased for bitumen investment projects.

• Manufacturing Crisis: Although all non-resource export industries have been impacted by the side-effects of the bitumen boom, the manufacturing sector has borne the brunt of the damage. By 2011, employment in manufacturing had dropped to barely 10 percent of total employment in Canada, by far the lowest in postwar history, and lower now than other OECD economies. Across all manufactured goods, Canada moved from a balanced trade position at the turn of the century to an enormous $90 billion trade deficit by 2012.

• Foreign Direct Investment: Foreign direct investment can have positive benefits if it enhances the host country's technical and productive capacities. It is difficult to see this outcome in the case of surging foreign investment in the bitumen sector, however. Inflows of foreign finance have reinforced the link between Canada's currency and the price of oil, with resulting negative impacts on other sectors. Long-run payments of interest, dividends, and profits back to foreign-based owners further weaken Canada’s already-deteriorating current account balance. More generally, the growing degree of foreign ownership and control in the petroleum industry clearly undermines Canadian control over our energy industry, and reduces our national capacity to manage its social and environmental costs.

The summary suggests a "two-track" policy to avoid a "two-trap" economy:

To avoid falling off the "bitumen cliff," the report concludes that two tracks of policy should be pursued simultaneously. First, powerful efforts must be made to more tightly regulate the bitumen industry, with the goal of slowing the pace of extraction, enhancing its net benefits to Canadians (including by significantly boosting Canadian content in the upstream and downstream supply chains), and attaining a better balance between sectors and regions in the national economy. This track would help to enhance the benefits of the industry, minimize its costs, and limit the extent to which our whole national economy depends on the extraction and export of a resource which will inevitably fall out of use.

At the same time, however, a second track must work energetically to re-orient Canada’s economy around more balanced, innovative and low-carbon industries, thus catching an economic upside from coming necessary investments in sustainable products and services.

Crawford Kilian is a contributing editor of The Tyee.