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March 5, 2019 | Citizen’s Guide: Economic impacts of Trans Mountain pipeline expansion

Stewart Muir is founder and executive director of the Resource Works Society, a Vancouver-based group open to participation by British Columbians from all walks of life who are concerned about their future economic opportunities. He is an author, journalist and historian with experience on three continents including a financial editor of The Vancouver Sun responsible for mining and markets coverage. Since Resource Works was established in 2014, the group has gained international recognition for its practical approach to the public challenges of responsible natural resource development and use.

In our ongoing Citizen’s Guide series, Resource Works tackles the question of what economic benefits will flow from completion of the Trans Mountain Pipeline Expansion project. This document was independently prepared by veteran journalists Stewart Muir and Don Hauka.

Trans Mountain pipeline expansion: What does it mean for the economy?

Fact-based information can be hard to come by on this topic, so we’ve done our best to lend our efforts during what will no doubt be a period of robust discussion of the Trans Mountain project to twin an oil pipeline between Alberta and Canada’s west coast. We hope that this document can be a starting point on which to have a meaningful discussion on the risks and benefits surrounding  the expansion of Trans Mountain, and energy shipments from Canada’s west coast.

READ HIGHLIGHTS BELOW

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There are a lot of reasons why a new pipeline project has been described as necessary to our shared prosperity as a country, and there is a mass of numbers to prove it. It’s easy to get lost in the intricacies of benefits analyses, federal transfer payments and commodity price forecasts. But the bottom line is, expanding our pipeline capacity will help Canadians pay the bills, pave the way to the green economy and allow us to get a better price for a precious natural resource product.

The existing pipeline is so important to BC’s way of life that Attorney General David Eby argues: “A significant disruption in the supply of gasoline, diesel, and crude oil from Alberta to British Columbia would cause British Columbia irreparable harm. In addition to economic harm, a sudden disruption in supply could injure human health and safety in remote communities.” The pipeline expansion will help to prevent such economic harm in future because it will create additional capacity to ship refined products to the growing population centres of Metro Vancouver and elsewhere.

To appreciate the reward side of risk-reward analysis for the Trans Mountain Expansion Project (TMEP), here are some of the considerations foremost in the minds of decision makers.

1. Climate leadership?

An increasing number of people in the world want to have the same lifestyle as Canadians.  The problem with this is that our lifestyle makes us among the world’s highest generators of per capita emissions.  Our top selling vehicles are trucks and SUVs and three quarters of commuters head off to work by themselves in their vehicle each day. Rather than increasing our fuel consumption while trying to demonstrate global leadership in climate change by keeping Canada’s oil resources in the ground, wouldn’t we be better off using the revenue that oil generates to fund the research and advance the public policies required to wean ourselves off of it?

Constraining Canadian oil exports at this stage will not reduce carbon emissions.  If Canada vacates its place in the market it would immediately be assumed by one or more of the 27 other countries who produce oil. The oil they supply won’t be superior in any respect to Canadian oil, it will simply allow them to gain an economic advantage at Canada’s expense and make Canada less able to confront the threat of climate change.

2. Significance of Canada’s primary sectors has been downplayed

As the second largest country in the world, Canada has vast natural resources and primary sectors of the economy such as oil and gas and mining have helped it become one of the world’s leading economies.  Those who claim that the oil and gas sectors make up a tiny fraction of Canada’s overall economy and provide comparatively few jobs either don’t understand industry GDP statistics, or they don’t understand how national economies work.

Considering only the direct impact of oil and gas on Canada’s GDP overlooks the demand for goods and services generated by the sector.  For example, in 2014, total capital spending in the oil and gas sector was over $80 billion. This was spent on equipment and machinery, cement and lumber, environmental technology, engineering services, camps and catering, parts supply, corporate services, legal services, information and communications technologies, road, rail and air transportation, among others.  This generates thousands of contracts for construction, manufacturing and services companies and jobs that pay 125% of the wages earned by similarly skilled workers in other sectors. This is not confined to oil producing regions of the country either. Between 2007 and 2014 the demand for construction workers in the three western provinces resulted in building trades union halls being cleared out right across the country.  Dozens of new flights had to be planned to get them to and from worksites and new hotels and work camps had to be constructed to house and feed them. To this day, over 700 BC companies supply goods and services to the oil and gas supply chain, and over 30,000 BC workers commute to high-paying oil and gas jobs in Alberta and Saskatchewan. These BC businesses and BC workers earn revenue outside of the province, but they pay income and sales taxes here in British Columbia and this represents hundreds of millions of dollars in tax revenue for the provincial government and the local economy.

The portrayal of Canada’s primary sectors as lacking in sustainability or innovation is also false. No other sector spends more on research and development or does a better job of coordinating research and development investment. The fact is that oil and gas and mining are a comparatively high margin sector where companies of every size routinely make significant investments in research and development and this has driven global advances in technologies that have broad environmental applications, such as sustainable water treatment technologies and air quality monitoring. When you think of Big Data, wireless sensor networks, data analytics, artificial intelligence, next-generation cybersecurity, you might not immediately think of primary sectors like oil and gas and mining – but they are among the largest consumers of these leading edge technologies and this drives the development of new innovation. This kind of innovation has  enabled the industry to reduce oil sands greenhouse gas emissions per barrel by 31% since 1990 and while resource development opponents would have you believe that Alberta’s oil generates many times more emissions than other types of crude oil, the reality is that today the average oil sands emissions per barrel are only 9% greater than the average barrel of oil refined in North America.  We should be proud of this success and take encouragement from the fact that industry executives indicate that exciting new technologies are emerging that will reduce production-associated emissions even further.

Another benefit provided by high-margin primary industries is their contribution to Canada’s social sustainability.  On average, people who work in oil and gas and mining earn 125% of the Canadian average for people in similar vocations working elsewhere. This empowers them to pay off their student loans, purchase a home and raise a family. Because they earn more they also they pay more taxes than their counterparts in other sectors and they spread this wealth around by spending their money on local goods and services, thereby creating additional employment in areas like tourism.

As noted economist and commodities guru Patricia Mohr says, the trade figures speak for themselves. According to national trade data for 2016, net exports of crude oil alone created a trade surplus of $33.1 billion for Canada. This makes oil by far the biggest money-generating commodity we export. Nothing else comes close, with metals and minerals a distant second. That oil money helps Canada as Mohr, formerly of Scotiabank, reminds her audiences. You can check out Mohr’s presentation and check her statistics here.

2. Economic and environmental benefits

TMEP represents a $7.4 billion major project that will provide direct employment for 9,000 BC tradespeople over the four-year construction period, and indirect employment for thousands more who work for local companies that will supply goods and services to the project.

By increasing Canada’s capacity to get resources to market, producers are expected to increase revenues by $73.5 billion over 20 years, and; governments are expected to generate $46.7 billion in additional taxes.

Given the debate over TMEP it seems counterintuitive that the TMEP  could present environmental benefits. However, the fact is that it will result in vastly improved risk mitigation systems and provide billions of dollars for new research and development aimed at preventing and mitigating the impacts of climate change.

The additional $73.5 billion in revenue that is expected to be generated by oil companies will allow them to continue spending billions of dollars on research and development associated with reducing their greenhouse gas emissions. Economist Patricia Mohr is on the Board of Emissions Reduction Alberta (ERA), with a mandate to “identify and accelerate innovative solutions that secure Alberta’s success in a lower carbon economy.” (Surce: “Emissions Reduction Alberta 2017 Annual Report”). The ERA has to date funded 122 projects worth $327 million that will reduce greenhouse gas emissions by eight million tonnes by 2020. The bulk of their funding comes from the Climate Change and Emissions Management Fund, set up by the Alberta government to tax industries that exceed the province’s greenhouse gas emissions reduction targets. Since 2007, about $740 million has been paid into the fund, much of it by oil producers.

The additional $46.7 billion in revenue that is expected to be generated by government can be used to reduce the massive tax burden associated with climate change. For example, the 2018 Federal Budget released on February 27 details billions of dollars in commitments, including:

  • Investing $3.2 billion over the next five years in Canadian science and research, including $2.8 billion for new federal research centres, to bring together government scientists from across departments and fields to look into climate change, ocean protection and health and other issues. There’s also $1.3 billion set aside for equipment and technology for university-based researchers.
  • Improvements to the Pan-Canadian Framework on Clean Growth and Climate Change, a $5.7 billion commitment over 12 years, including $2 billion for the Low Carbon Economy Fund to combat climate change.
  • Maintaining the Low Carbon Economy Leadership Fund, a $1.4 billion investment in projects that generate clean growth and reduce greenhouse gas emissions while creating jobs for Canadians, which includes $162 million for B.C. to support projects including the reforestation of public forests.
  • Tax breaks for businesses to encourage investment in clean energy generation and to promote the use of energy efficient equipment, measures worth $123 million over the next five years.

The choice is stark: expand the tax base and reap the financial rewards offered by TMEP and pave the way to the green economy, or; risk losing $46.7 billion in government revenues and all the potential good it could do.

3. Indigenous benefits

The company has stated its intention to maximize employment opportunities for Aboriginal Peoples and they have established a funding program to contribute to education and training initiatives focusing on transferable construction and related skills that allow for employment in various work environments.

Benefits will also flow to Aboriginal-owned and First Nations-owned businesses through the company’s Aboriginal; Procurement Policy.

Trans Mountain’s Community Benefits Program is committed to investing in communities that may be impacted by construction along the pipeline route. Through many conversations and engaging with communities, we’ve determined priority areas of investment such as community programs and infrastructure improvements, environmental stewardship, as well as education and training.

Along with the economic benefits provided by land access agreements and annual property tax payments throughout the lifetime of the pipeline, communities will also see financial contributions. These investments could help fund anything from improvements to local emergency management to enhancement of trails and parks, infrastructure improvements or support for local educational and training programs.

5. Responsibly produced crude oil finds its place in global energy growth story

Whether or not Canada expands its participation in global oil trading, the global demand for crude oil is going to continue to grow. The world is going to use more and more oil over the next two decades whether we ship it or not, and if we choose “not,” then that oil will come from countries that don’t have our high environmental and regulatory standards and carbon emissions rules. And the countries that are expected to increase their oil exports the most are Asia-Pacific nations like China and India – countries that can only buy Canadian crude if TMEP is built.

The Paris-based International Energy Agency’s (IEA) Annual Energy Outlook 2017forecasts total energy production will increase by more than 20 per cent from 2016 through 2040, led by increases in renewables, natural gas and crude oil production. The increased demand for crude oil is being driven by surface transport, aviation, petrochemicals and shipping. Emerging economies also play a role. The IEA outlook estimates Asia’s combined crude oil import needs will rise by 9 million barrels a day to around 30 million barrels a day by 2040, with strong growth in China, Southeast Asia and India. Asia’s share of global crude oil imports rises from 50 per cent today to more than two-thirds by 2040.

Those are exactly the markets Canadian crude oil exports could reach once TMEP is built. Those countries will get their oil elsewhere if we don’t ship it to them, says Claus Thornberg of Cenovus Energy: “Preventing pipelines from being built in Canada will not reduce global oil demand but it will prevent Canadians from receiving the benefits of supplying oil to fill that growing demand,” said Thornberg, Cenovus Vice-President of Transportation.

“And it will mean customers around the world won’t have access to Canadian oil that is produced with stringent safety and environmental laws – including those that address climate change – and a rigorous regulatory system.”

Cenovus Energy is one of the anchor (or primary) shippers for TMEP and has signed a long-term contract to move its products through the expanded pipeline. Thornberg says TMEP would open up a whole new world of possibilities for his and other companies, including California, the U.S. West Coast and Asia, where demand for heavy oil is strong and pricing is likely to be higher over the long term. The opportunity for Canada to supply those markets with crude oil produced under strict environmental standards is enormous.

“With the world’s third-largest oil resource, among the strictest and most transparent regulations of any oil-producing country, and now some of the globe’s toughest carbon regulations, Canada has the opportunity to become a preferred supplier of responsibly produced oil to the world,” he says.

7. Canada’s equalization system depends on sufficient revenues from resources

It’s in the Canadian constitution. Subsection 36(2) of the Constitution Act, 1982states that “Parliament and the government of Canada are committed to the principle of making Equalization payments to ensure that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation.” It’s how less prosperous provinces like Nova Scotia, Quebec and even Ontario help pay for the basic health care, social assistance and other services we expect to receive as Canadians from coast to coast to coast. Basically, provinces that are doing well (or better than the rest of Canada) contribute more to federal funds than those who are struggling. It’s the fiscal glue that keeps Confederation together: the principle that those who are doing better can afford to help their less-fortunate fellow citizens.

Canadians need to realize that much of the “glue” of equalization funds that flow across Canada comes from Alberta and it comes directly from the oil and gas business. How much? Alberta contributes $22 billion per year more to Ottawa than it receives in return, even after the effects of the oil downturn and the recession. That’s $5,148 per person, compared to B.C.’s $886 per capita. By comparison, Quebec will receive $23.7 billion through major transfers, or some $2,809 per capita. Where would Canada be as a nation without the revenue from crude oil and the lift it gives to Albertans’ annual income, even in tough times? Consider how much more of a lift it will be when TMEP gets built and Alberta and B.C. will be able to contribute even more to the federal transfers that keep this partnership called Canada together.

8. Basic fairness says provinces should help each other with market access

“If I had influence over the minds of the people of Canada, any power over their intellect, I would leave them this legacy: Whatever you do, adhere to the Union. We are a great country, and shall become one of the greatest in the universe if we preserve it; we shall sink into insignificance and adversity if we suffer it to be broken.”

Prime Minister Sir John A. MacDonald

Canada has always been a partnership, each province bringing its strengths to the whole to create something greater. Tacit in this partnership has been the freedom for provinces to move their goods and natural resources across the country for overseas export. Sir John A. MacDonald recognized this at the very founding of our nation: that Canada had to stick together or else fall apart in the face of adversity.

But the Canadian union is being strained by a seemingly endless debate and inter-provincial quarrelling over expanded pipeline capacity. Instead of following MacDonald’s principle of adhering to the union (or simple economic common sense), the controversy over TMEP has B.C. and Alberta engaged in an escalating trade war. Barrels of oil are pitted against bottles of wine. Meanwhile, the federal government, which has the clear jurisdiction over interprovincial trade and projects like TMEP, is being criticized by some as not being as forceful as it could in defending a project which is of crucial importance to Canada’s energy sector and overall economic well-being.

Given the threat posed to our economy by the unpredictable and protectionist U.S. administration under President Donald Trump, Canadians cannot afford to be fighting each other at this time. And there’s another big reason why we should end our inter-provincial quarrelling: it’s threatening our ability as a nation to meet our targets under the Pan-Canadian Framework on Clean Growth and Climate Change. In an interview with the National Observer, Prime Minister Justin Trudeau said B.C. Premier John Horgan’s opposition to the TMEP is jeopardizing Canada’s national climate change plan.

“John Horgan is actually trying to scuttle our national plan on fighting climate change. By blocking the Kinder Morgan pipeline, he’s putting at risk the entire national climate change plan, because Alberta will not be able to stay on if the Kinder Morgan pipeline doesn’t go through. And you will get politicians who are picking and choosing parts of the national plan they don’t like, and if we don’t continue to stand strongly in the national interest, the things that people don’t like within the agreement – which is always filled with compromises – are going to mean that there is no agreement and there is no capacity to reach our climate targets,” Trudeau said.

The Prime Minister went on to state that if TMEP doesn’t proceed “Alberta will withdraw its support for the national plan on climate change. We will not have them fighting to reach their carbon targets, and we will not then have them as partners in reaching our Paris targets.”

Canada was built on compromise. It’s what defines us as a nation. Approving and building TMEP would be in the finest tradition of this quintessential Canadian characteristic. Let’s not let getting hot under the collar over TMEP blow the lid off our climate change targets.

9. Use of rail to move crude oil raises a couple of issues

One of the main reasons for building TMEP is so Canadians can get better value for their crude oil exports. A key part of that equation is reducing the need to ship oil to market by rail. Producers pay roughly $10–12/bbl to move their product south by pipeline to refineries on the U.S. Gulf Coast. The cost of a train ticket for crude is twice as much at $20/bbl or more to make the same trip by rail car. The cost of shipping has to be discounted, meaning less money earned on every barrel shipped by rail. That’s money out of the pockets of Canadians. As well, the transportation of oil by pipeline produces far less GHG emissions.

But because of opposition to pipeline capacity expansion and delays in starting construction on TMEP, the amount of crude being shipped by rail is on the rise. Railways have been increasing their oil transport capacity. CN Rail, Canada’s largest railway, has tank cars that can handle about 600 barrels of bitumen. So approximately ten, 150-car trains per day could handle the equivalent amount of bitumen to be shipped via TMEP. But getting our oil to market this way raises safety concerns: significantly increased shipments increases the possibility of accidents. There would also be other impacts like constant rail movement through communities. All the while, Canadians would be losing $10-$12/bbl that could have gone back into our economy.

Bottom line? Scrapping TMEP won’t keep Alberta’s oil in the ground. It will still get to market, but the benefits to Canadians will be fewer and the risks of spills will increase.

10. Economic arguments provide clues to the meaning of “national interest”

Maybe the biggest reason for proceeding with TMEP is that everyone wins. Canadians, British Columbians, Albertans and First Nations will all share in the benefits that will flow from the project. Just count the ways…

Canadians win by:

  • Receiving an additional $21.6 billion in federal revenues to pay for services they need
  • Gaining a much improved British Columbia maritime spill response regime that will benefit all tanker shipping, not just one specific project’s
  • Getting a better price and more value for their crude oil (and upsetting Donald Trump, bigly)
  • More funding for research and development to reduce greenhouse gas emissions and transition to the green economy
  • Giving the Pan-Canadian Framework on Clean Growth and Climate Change a chance to succeed by keeping Alberta actively engaged in emission reductions
  • Getting more value for every barrel of oil that doesn’t have to be shipped by rail
  • Taking a significant step forward in assuring our future as a major energy exporter

British Columbians win by:

  • Receiving an additional $5.7 billion in provincial revenues
  • Having 9,250 jobs created, many of them in rural communities
  • Getting $888 million pumped into the B.C. economy
  • Receiving $2.5 billion in additional spending over the first 20 years of operations coming into the Port of Vancouver thanks to increased tanker traffic

As well, the 41 Aboriginal communities along the TMEP corridor from Alberta to Vancouver Island who have signed Mutual Benefit Agreements will also receive significant benefits, including pipeline construction education and jobs training, skills enhancement, business opportunities and improved community services and infrastructure.

The other big winner? Confederation. Building TMEP will prove that the spirit of compromise that is at the heart of the Canadian partnership is alive, that our governments can work together to solve difficult issues and resolve them in the national interest for the benefit of all.

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For technical background on shipping safety and spill response, check out our earlier Citizen’s Guide on those topics:

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March 5th, 2019

Posted In: Resource Works

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