Contributed by Robert Lyman © 2017

Robert Lyman is an Ottawa energy policy consultant, former Canadian public servant of 27 years and a diplomat for 10 years prior to that.

Introduction

 

In a speech to the Friends of Science annual conference in May 2017, I addressed the question, “Can Canada survive climate policy?” I chose to interpret that question as relating to whether current climate change policy posed a serious threat to national unity, and I concluded that, while the outcome was difficult to foresee, recent events were very troubling. A year later, I thought that it would be a good time to take stock.

Robert Lyman’s presentation “Can Canada Survive Climate Change Policy?” from the 2017 Friends of Science Society’s Annual Event.  Tickets now on sale for this year’s event “Extreme Climate Uncertainty.”  

 

The announcement by Kinder Morgan on April 8 that it has suspended all “non-essential” spending on its Trans Mountain pipeline expansion due to opposition from the British Columbia government has brought to a head the controversy over oil pipeline construction in Canada. Kinder Morgan warned that it will not commit any more dollars to the $7.4-billion project unless it can get agreement from the province to stand aside by the end of May.

 

The pipeline expansion would increase the flow of crude oil from Alberta to British Columbia and on to Asian markets.  Despite being approved by the federal government after lengthy review by the National Energy Board and other agencies, the pipeline’s progress continues to be threatened by provincial regulations, legal challenges and popular demonstrations. As they say in the disaster movies, “How did it ever come to this?”

 

The Trans Mountain Expansion has thus found itself right at the nexus between national climate policies, environmental radicalism, the Alberta oil industry’s desperate need for more access to markets, and regional politics.

 

The Issue

 

Objectively, and despite the claims of environmentalist opponents, the case in favour of the pipeline expansion is overwhelming. The expanded capacity would remove many of the infrastructure constraints that now limit market access and force Canadian oil producers to sell their production at deeply discounted prices.   Scotiabank recently estimated that these discounts will cost Canada more than $30 billion over the 2017 to 2019 period. That is $30 billion that would otherwise go not just to industry but also to governments in the form of taxes and royalties. The National Energy Board probed every conceivable environmental effect of the project in depth during three and a half years of hearings and quasi-judicial review. The Transport Canada TERMPOL Review similarly examined all aspects of the potential for oil spills during the marine transport of oil from the Westridge Terminal, as well as the capability of industry and the Canadian Coast Guard to quickly and effectively deal with any spill; it found the current regime to be world-class. The federal government has issued a certificate for pipeline construction to proceed, and there is virtually no doubt that this matter falls exclusively under federal government jurisdiction. Federal ministers, including the Prime Minister, have repeatedly declared in public that they will ensure that the pipeline is built.

 

In its essence, therefore, the issue at stake is not climate change, the adequacy of present regimes to deal with pipeline or tanker spills, or the sharing of economic benefits from the project. The issue is whether the rule of law will be respected, and whether the federal government will defend its jurisdictional authority and override one province’s efforts to block interprovincial trade.

 

So, why has the federal government not taken the actions necessary to do this? The answer is, sadly, quite clear. There is no political “downside” to promising that the pipeline will proceed, only to actually ensuring that it does.

 

Retrospect

 

To be fair, the Trudeau government’s freedom for maneuver at this stage is very limited. It has spent its first two and a half years in office implementing a “progressive” agenda that places top priority on reducing emissions to meet global climate change goals, on promoting a feminist agenda, and on “reconciliation” with indigenous people, by which it means giving aboriginal groups significantly more authority and influence in public policy decisions. Its attitude towards the hydrocarbons industry and pipelines has been made clear through a series of decisions:

 

  • In December 2016 the Trudeau government imposed a five-year moratorium on all oil and gas drilling in Canada’s Arctic regions, and shortly thereafter announced that it would not allow companies with existing exploration licenses to extend them. Aboriginals and environmentalists cheered this as a victory for the government’s climate change policies.
  • In May 2017, with no empirical evidence to support its claim that increased oil tanker traffic unduly threatened the environment (indeed, with well-documented evidence from the National Energy Board’s examination of the proposed Northern Gateway Pipeline that no such threat exists), the government imposed a complete tanker ban off the coast of northern British Columbia. This lead to the cancellation of the Northern Gateway project.
  • When some municipalities in the Montreal region and a few rowdy demonstrators opposed the proposed Energy East Pipeline project, the Trudeau government announced in September 2017 that, for the first time, the scope of the NEB’s review would be broadened to examine not just the direct environmental effects of the pipeline but also the upstream (i.e. production-related) and downstream (i.e. refining and consumption-related) greenhouse gas emissions. In short, the already long environmental assessment process would be greatly expanded in scope. Trans-Canada Pipelines, the sponsor of Energy East, saw the writing on the wall, and abandoned the project.

 

Perhaps the most telling blow to the prospects for new hydrocarbon development and pipeline construction in Canada came from the 2017 report of the government’s National Energy Board Modernization Review Panel.  The report set out a number of recommendations for major institutional change, including the elimination of the National Energy Board.

 

The alleged justification for this departure from long-standing Canadian regulatory practice is that the National Energy Board does not now provide an authoritative, independent and expert review of the public interest considerations that apply to energy transmission systems. Various parties, including several environmental and aboriginal representatives who provided comments to the panel, claimed this was so. In fact, the panel appears to have accepted all of this testimony as truth, without making any effort to check the factual accuracy of the allegations.

 

The Panel report presented a “vision” of a new policy and regulatory regime that would be a bureaucratic nightmare for any company that sought approval for new hydrocarbon energy infrastructure. The regime would have two stages. The first stage would entail a policy review and approval by federal officials and the Canadian Cabinet; as described in the panel report, it would be a thinly disguised screening process to test for acceptability to climate change considerations. The second stage would be a more technical review by a panel dominated by environmental and aboriginal interests. The process would, in theory, take one to four years, but as most projects would be denied after policy review, it can be presented as “more efficient”. Any project that made it through the entire process would almost certainly be wrapped up in regulatory reviews and public consultations for many years. The delay itself would probably make most projects unfeasible.

 

The Expert Panel recommended that the entire NEB organization and process be overturned in order to “align NEB activities with national policy goals”. What are the national energy policy goals? The NEB already undertakes extensive analysis and review of the economic, environmental, social, engineering, financial, and safety issues. Does that not offer a comprehensive list of all the non-political issues that a government might wish to consider on the record and with full public input? Yes, it does, with one large exception that the Expert Panel considers pre-eminent – climate change.

 

The Expert Panel’s report makes clear that it sees the public interest, the “strategic energy policy” consideration, as the need to constrain the growth of greenhouse gas emissions. It finds it intolerable that the “federal government (in partnership with the provinces) is exploring the creation of large pipeline projects which inherently signal planned increases in our overall production and continued global and domestic use of fossil fuels, an objective that is seemingly at irreconcilable odds with Canada’s stated goal of reducing emissions and moving away from fossil fuels.” It thus favoured the introduction of an initial energy strategy stage at which federal government departments, followed by the federal Cabinet, would make a decision on a project’s alignment with the national interest, meaning primarily with the government climate change policy.

 

The panel’s report, in short, stated that Canada has already decided to phase out the production and use of fossil fuels as part of its climate change policy and that all decisions on new energy infrastructure must be taken based upon this over-riding policy goal.  In fact, at no time has the federal government publicly accepted the premise that meeting Canada’s international climate change-related obligations requires us to shut down one of our most important industries or to deprive Canadians of access to low cost, efficient fossil fuels. Nonetheless, the Trudeau government accepted the panel’s recommendations and they are now being implemented. Having done this, it has undercut its own argument that the judgment of the NEB with respect to the Trans Mountain Pipeline Project can be relied on.

 

Apart from the policy issues, the Trudeau government has performed a delicate balancing act in terms of how it manages the politics of these issues. Ministers spoke of the need for major hydrocarbon projects to obtain a “social licence”, or general public acceptance that they are in the public interest, with again only one test of what constitutes the public interest – consistency with GHG emission reduction goals. Many leaders in Canada’s petroleum industry and in the Alberta government appear to have accepted on faith that the Trudeau government’s support, along with that of the major environmental organizations, could be secured if they acquiesced in the implementation of a series of climate change-inspired measures. These included the setting of caps on oil sands emissions, adoption of stringent emission reduction plans, and the imposition of carbon taxes at rates equal to or above the federal Canada-wide carbon tax regime. It is clear in retrospect that the environmentalist organizations never accepted such a tradeoff. Indeed, the very idea that a company that had secured approval from a well-qualified, independent regulatory body that its project was in the public interest should be further required to overcome a political hurdle undermines traditional standards of public governance. It was naïve of the industry to trust in such a compromise and scandalously cynical of the Trudeau government to have demanded it.

 

Prospects

At the present juncture, the Trudeau government still has a number of legal and policy instruments that it can call upon to persuade the British Columbia government to stop throwing up roadblocks and using delaying tactics in the hopes of pushing Kinder Morgan beyond the limits of the company’s patience. The meeting among the Prime Minister and the Premiers on April 15 resulted in no agreement, simply a signal that Canada and Alberta are prepared to take fiscal measures, presumably including taxpayer guarantees to Kinder Morgan, to reduce or eliminate the company’s risks. The federal government has provided large taxpayer guarantees to other large projects in the past, notably to ensure the building of the Lower Churchill hydro project in Newfoundland and Labrador. In this case, however, such assistance, even if warranted, does not address the central problem – the determined intransigence of the British Columbia government and the willingness of protesters in B.C. to physically block construction at every opportunity. Nothing less than a strong demonstration of the federal government’s willingness to address the security, as well as the legal and political issues will really eliminate the risks to Kinder Morgan or the rule of law.

 

Some will criticize Kinder Morgan if it backs away in the absence of a clear resolution. However, to date the company has done all that is asked of it in terms of due diligence and compliance with regulatory requirements. It is reasonable for it to demand, on behalf of its shareholders, that governments provide regulatory certainty. At the same time, it is a major company with interests and investment opportunities all over North America; it will make its choices based on what best serves the company’s interests, not necessarily those of Canada or the Canadian petroleum industry.

 

The political dynamic for the Trudeau government does not favour a punitive response, in terms of legal actions or withholding of federal funds, to B.C.’s intransigence.  Its chances for re-election certainly do not rest on gaining seats in Alberta; the entire 21 seats in the province can probably be written off in any case, whereas there are potentially 28 seats in British Columbia.

 

Implications for Confederation

 

If, as seems likely, British Columbia maintains its opposition and Kinder Morgan withdraws its application to build the pipeline expansion, the environmentalists in British Columbia and those inside and outside of Canada who fund them will be much encouraged to take on the next challenge. One can only speculate at the political consequences for the Trudeau government. It will have further validated its “climate change credentials”. To understand what that will mean for the rest of Canada, one has to recall the magnitude of the emissions reductions goals that the Trudeau government and several provincial governments have voluntarily imposed on Canada.

 

The present federal targets are to achieve a 17% emissions reduction from 2005 levels by 2020 and a 30% emissions reduction from 2005 levels by 2030. I previously posted an article that examined the implications for Canada of seeking to attain these goals. It can be read here:

 

http://blog.friendsofscience.org/2018/03/30/the-storyline-that-does-not-add-up/

 

In essence, Canada seems very unlikely to meet the 2020 emission reduction goal even if we experienced a recession similar to that during the 2007-2009 period. Meeting the 2030 target would require that emissions decline from a 2015 level of 722 megatonnes of carbon dioxide equivalent (Mt) to 447 Mt, a reduction of 275 Mt. The Canadian public and the media seem to have no idea of how large and costly such a change would be. To illustrate, completely stopping emissions from oil and gas production everywhere in Canada and shutting down all heavy industry would only achieve a reduction of 264 Mt, not meet the target.

 

Cuts of that magnitude seem beyond belief, but who would have imagined ten years ago that a radical minority of environmentalists could bring the Canadian oil sands industry to its knees and ride roughshod over the economic ambitions of an entire province?  Even going half way to such an emissions reduction goal would mean severe cuts to industries like auto and parts manufacturing, refineries and petrochemicals, mining and metals fabrication, cement, aluminum and steel. Whatever benefits Canadian industry would hope to attain from a renewed North American Free Trade Agreement would be eliminated. The cost in terms of lost revenues for the federal and provincial governments would compel an unprecedented austerity program that would entail cuts to almost every area of expenditure. Even the vaunted carbon tax revenues would not be sufficient to avoid this.

 

The advocates of deep emissions cuts will claim that they can all be achieved by the construction of more wind and solar energy generation. This conveniently ignores that even if this were possible, wind and solar are useful only for electricity generation, and all the electricity generation in Canada only accounts for 79 Mt of emissions per year. Given this, try to envision scenarios in which Canada’s energy consumption and related emissions can be cut by 275 Mt in twelve years without wrenching changes and high costs.

 

We are only at the beginning of a period in which climate policy causes strains in federal-provincial relations. The impact of carbon taxes, now scheduled to rise to $50 per tonne in 2022 but probably much higher after that, will fall most heavily on Alberta and Saskatchewan but also on all industries than must compete with foreign suppliers. The differences in charges imposed on consumers in provinces that use cap and trade programs and those that use carbon taxes may give rise to more inter-provincial trade disputes and battles between the federal and provincial governments. The ever-increasing burden of regulations and restrictions on resource development will stress the provinces without strong industrial or service sectors. The cumulative effects of these measures will strain Confederation more than any other issue. If, as now appears possible, new provincial governments opposed to federal climate measures are elected, there will be a continuation and expansion of the profoundly divisive national debate on this subject.

Trans Mountain Expansion Project-TERMPOL Assessment of Oil Spill Risk

MOVING OIL BY TANKER IN CANADA: The Facts.

MOVING OIL BY TANKER IN CANADA: The Facts.