Saturday, June 02, 2018

The arguments against theTrans Mountain Pipeline look more convincing

It is no longer news that the Canadian government's decision to pump $4.5 billion of taxpayers' money into buying up the Trans Mountain Pipeline project from American-Canadian pipeline giant Kinder Morgan, which was not willing to put up with the commercial and political risk of the controversial oil pipeline, which is to transport diluted bitumen from northern Alberta's tar sands to the British Columbia coast for export. However, the controversy has not gone away, and the project - and the federal government's inexorable support of it - continues to set economists, environmentalists and ethicists against each other.
As an example of how the issue has split opinions in two, a couple of the Globe and Mail's business commentators faced off in today's issue, each coming to diametrically opposite conclusions on the subject.
One the one hand, Barrie McKenna is persuaded by the evidence he sees that the government has taken a huge and irresponsible gamble on yesterday's technology. Even setting aside the environmental arguments against the project, McKenna sees nothing but bad things in the commercial and business outlook for the pipeline. Firstly, the government has now involved itself in something that is certain to attract increasing and potentially violent protests (imagine a Standing Rock situation, but in easily-accessible suburban Vancouver), protracted legal proceedings, and an extremely uncertain market for the dirty and carbon-intensive bitumen that the pipeline is to be used to transport, not to mention the potential (some would say certainty) of substantial cost construction overruns. All if this would make the government's resale of the project back to the private sector within a couple of years (its stated intention) much more problematic than it is publicly admitting, and some analyses suggest that the government has already paid well over the odds to Kinder Morgan in order to save the project.
One of the main commercial planks on which the government's decision rests is the need to export crude oil to the Asian market, and thereby reduce Canadian reliance on the unreliable USA. However, McKenna argues, the evidence suggests that Asia is actually very unlikely to pay more than the US, and it does not have the refining technology to deal with diluted bitumen anyway. So, the odds are that America will continue to be the major destination for Alberta crude anyway, with all that THAT entails. Currently, just 1% of Alberta crude makes its way to Asia, and that is probably not about to change significantly any time soon. The government could therefore be saddled with a very expensive white elephant, and the Canadian taxpayer is, of course, on the hook for it.
Free marketeer Andrew Willis, on the other hand, sees only sunshine and light, a tidy profit for Canadian taxpayers, and a better Canada in the process. Willis sees selling to the burgeoning Asian market (particularly China) as a panacea for the low margins Alberta heavy crude is currently experiencing from its American market. Willis maintains that "the public will come round to the logic of using the massive wealth locked up in Alberta's oil sands to help pay for the country's transformation to an economy based on other sources of energy, such as renewable power". That seems to be some tortuous pretzel logic indeed, and Willis tries to justify it by arguing that it is a similar situation to the idea that taxing cigarettes has helped in the fight against cancer (hmm...)
He further argues that Mr. Trudeau had basically no choice in the matter, because no private business would be willing to swallow the risks of protracted litigation and protests, although that seems to me to be a warning to leave well enough alone rather than to get involved. Even if Trudeau does manage to get some First Nations groups to participate as part-owners of the pipeline (and a few DO seem interested), you just know that many others will fight tooth and nail not to have the project anywhere near their land. Mr. Trudeau is persuasive and charming, but not THAT persuasive and charming.
As you can probably tell from my exposition of these two opposing viewpoints, Mr. Willis' seems a lot less convincing than Mr. McKenna's, not to mention more Pollyanna-ish and less fact-driven. The bit about using an oil pipeline as a means of shifting to a low-carbon economy seems particularly implausible and lame, not to say cynical. Imagine what a direct investment of $4.5 billion in clean-tech could do for Canada's renewable energy and carbon reduction plans. As it is, there seems to be no way we can even come close to our Paris Treaty commitments, and Trans Mountain can only make this worse, not better. Mr. Trudeau is still saying that climate change is still a key priority of his government, but his words are starting to ring increasingly hollow. I can't help feeling like Trudeau's protection of the moribund heavy oil industry is very comparable to Trump's espousal of the even-more-moribund American coal industry.

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