Oil prices are at a 5-year low, and that’s having some big impacts on the Canadian economy.

The Toronto Stock Exchange is plummeting in lock step with the fall in oil prices. The loonie is heading in the same direction, hopefully putting to bed any debate as to whether Canada has a petro-currency. Provinces that rely on oil royalties and revenues will likely have difficulty balancing their budgets. The federal government may be in a similar predicament, too. The drop in oil prices may even imperil Canada’s economic recovery.

All of this should serve as a wake-up call – a clear indication that that putting all our economic eggs in that tar sands basket wasn’t wise.

Commodities like oil are prone to roller-coaster-like ups and downs. And while it may be fun on the way up, it’s painful on the way down.

This drop in oil prices is a clear sign that we need to get off the roller coaster. We need to break with our reliance on the tar sands, and move toward a clean economy. Because this is likely just the beginning of a larger shift.

Today’s fall in oil prices is mostly about supply and demand. China’s not growing as fast as people thought it would, and more oil has come online thanks to the “shale revolution.” Economics 101 tells us that lower demand and higher supply will send prices down, and that’s what’s happening.

But an oil surplus isn’t the only threat looming on the horizon. Much of the oil we have found is “unburnable” and therefore practically worthless. The reason is, if we want to have any hope of avoiding run-away climate change, at least two thirds of all the oil, gas and coal that’s already been discovered needs to stay in the ground. And when everyone finally wakes up to this reality, there will be an even larger impact on oil prices than the one we’re seeing today.

Sure, deniers will keep on denying. But with the rise in floods, droughts, hurricanes, and other extreme weather events, climate change is not some far away event. It’s happening now, close to home, and the costs are already piling up.

Increasingly conservative organizations like the World Bank, the International Monetary Fund, and others are saying that we must take action to address climate change. It’s just a matter of time before countries around the world step up and fundamentally step away from polluting fossil fuels.

Here, in Canada, where our oil industry looms large, it’s possible, tempting even for many, to believe that this isn’t true. But the writing is on the wall. We just need to take a step back to see it.

Case in point: former head of the Bank of Canada, Mark Carney, has changed his tune. While he was in charge of the Bank of Canada, Mr. Carney obligingly said, “oil is good, oil is great.” But now that he’s the head of the Bank of England, he admits that most of the fossil fuels we’ve found can never be burned, and investors should wise up to the long-term threats.

This is particularly troubling for Canada. As a country, we’re heavily invested in oil.

Worse still, we’re not just invested in any old oil. We’re invested in the tar sands – some of the most expensive and carbon intensive reserves in the world. Exactly the kind of oil that will be hardest hit when the game changes.

This may sound like a dire situation, but it’s not. Despite what many people think, oil doesn’t play that big a role in the real economy. Tar sands account for just two per cent of Canada’s GDP. The point is, we can break with this reliance now, rather than double down, as industry would have us do.

And we’re well positioned to do so. We have abundant renewable resources. We have supremely skilled workers. Canada, in fact, can be a leader in the shift to a prosperous, clean economy.

So let this serve as a wake-up call. Now is the time to cut our losses. When you’re in a hole, they say, stop digging.

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