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Credibility, commitment and the Northern Gateway Pipeline

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Credibility, commitment and the Northern Gateway Pipeline

The farce has begun. Pity Sheila Leggett, Ken Bateman and Hans Matthews who have been given the thankless job of conducting almost two years of hearings on the Northern Gateway pipeline. The hearings will be a waste of time and money and should be shut down very quickly. I will explain my reasons shortly.

Andrew Coyne wrote an excellent column last week in the National Post commenting on the ever-increasing demands for the creation of a National Energy Strategy for Canada. These demands have originated primarily from groups directly involved in the oil and pipeline sectors.

But why focus just on the energy sector? As I argued in an earlier blog, Canada should not build its future around the oil sands and pipelines. Neither sector will do anything to improve productivity growth rates in Canada (remember our productivity gap?). Nor is either sector particularly important for Canada’s future development and prosperity. We all would be better off if we could develop a presence in the biotech field, or create the next Nortel or RIM (and avoid the weak corporate governance and poor management issues), or the next SNC Lavalin (but with a better moral compass) than if we build another oil sands plant.

However, the people calling for a National Energy Strategy have no interest in expanding the scope for fear that others will be quick to realize the relative unimportance of the oil sands and the pipelines required to export the product. As for a National Energy Strategy, I am sure that the proponents have no desire to discuss issues such as: should we be reducing our dependence on fossil fuels; should we be promoting energy efficiency; who should benefit from the rents that materialize periodically when oil prices spike; should we introduce a carbon tax; etc.

No, as Coyne suggested, the proponents want the federal government to commit to fast-tracking regulatory approvals by weakening the environmental rules and oversight, and running roughshod over the rights of First Nations. They also probably want governments to reduce their take from the oil sands and the pipeline. These most likely are their objectives for a National Energy Strategy.

I have a better idea! According to a study by Jack Mintz, the Northern Gateway and expansion of the oil sands may generate significant economic benefits for all of Canada, including enormous new tax revenues, and profits for the backers of the project. Since talk is cheap, I suggest that the backers put money where their mouths are and commit to the following, especially if they truly believe that there will be significant benefits all round.

First, they should set up an environmental damage fund with $15 to $20 billion. They could backstop this fund with lines of credit from banks, secured bonds, cash, or insurance policies. If any spills occur at any time during the lifetime of the pipeline, money from the fund would be used to clean up the spill and compensate the people affected. The federal government would have to commit to top up the fund whenever payouts are made to keep the amount constantly between $15 and $20 billion.

Next, based on Mintz’s calculations and the internal projections of the prospective investors, the backers of the project together with the federal government and the governments of Alberta and British Columbia should commit to pay all the First Nations involved 50% of the expected incremental profits and tax revenues to be generated by the pipeline and oil sands exports. Indeed, the amounts committed should be the minimum amounts and a substantial portion should be paid up-front once the pipeline is operational (just in case the project turns out to be a failure). If the incremental revenues fall short of the projections, the backers of the project should take the hit. The private sector prides itself on taking risks, and so they should in this case. If the incremental revenues exceed the projections, the First Nations should share on the upside.

Now, if the parties supporting the Northern Gateway agree to these suggestions and paper such an agreement quickly, then the dynamic trio should end the hearings and approve the pipeline. On the other hand, if the parties do not agree to these suggestions, Legget et al should end the hearings immediately and reject the pipeline.

Let’s cut to the chase and not waste time.

The opinions expressed in this blog are personal and do not reflect the views of either Global Brief or the Glendon School of Public and International Affairs.


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