Spending $12.6 billion of taxpayer funds to build a pipeline when private sector companies are adding more than enough capacity to meet the projected need is hard to justify, writes Thomas Gunton.
This column is an opinion by Thomas Gunton, professor and director of the Resource and Environmental Planning Program at Simon Fraser University, and former Deputy Minister of Environment for B.C. For more information about CBC’s Opinion section, please see the FAQ.
The federal government’s recent Throne Speech stated that climate action will be at the core of its plan to create a stronger and more resilient Canada. This is good news; although it has been overshadowed by the pandemic, climate change remains an existential crisis that threatens our health and economy.
However, we have heard these promises before.
These promises are easy to make yet hard to keep. Under the Paris agreement, for example, Canada committed to a 30 per cent reduction in greenhouse gas emissions below 2005 levels by 2030. The United Nations forecasts that Canada’s greenhouse gas emissions will be at least 15 per cent higher than its 2030 target.
And even if Canada and other countries meet their targets, the United Nations forecasts that world temperature will still rise by 3 to 3.5 C by the end of this century, more than twice the Paris target of 1.5 degrees. Clearly, stronger measures to address climate change are imperative.
While the government’s commitment to stronger climate action is therefore laudable, its actions raise serious doubts about its sincerity. One of the most glaring examples of the inconsistency between its actions and commitments on climate change is the decision to spend an estimated $12.6 billion of taxpayer funds to build the Trans Mountain oil pipeline expansion.
The government justifies this investment as a necessary compromise to balance the interests of Alberta and the oil industry with the interests of those supporting climate action.
The irony is that building the Trans Mountain Expansion Project is in no one’s interest.
Since the project was proposed, oil demand forecasts have fallen. The International Energy Agency (IEA) predicts that oil demand in 2020 will drop by as much as 9 per cent due largely to the pandemic, the largest decline on record. Its latest forecast, released Tuesday, concludes that “the era of growth in oil demand comes to an end within 10 years,” and that demand will have to fall permanently by about one-third by 2040 to meet the Paris climate change targets.
Energy giant BP recently released its 2020 forecast that includes three scenarios, ranging from a small decline in oil demand to an almost 80 per cent drop by 2050.
At the same time that demand is declining and oil producers are cutting back, Canada is expanding its oil pipeline capacity by just over 2.4 million barrels per day (bpd). That expansion comprises Enbridge’s Line 3 (370,000 bpd), Enbridge mainline expansions and Southern Lights reversal (450,000 bpd), the Trans Mountain expansion (590,000 bpd), Keystone XL (830,000 bpd), plus 170,000 bpd from several smaller upgrades including Keystone, Rangeland and Express.
Pre-COVID forecasts of the growth in western Canadian oil production to 2030 range from a low of about 300,000 bpd according to the IEA, to a high of 1.2 million bpd according to the Canadian Association of Petroleum Producers.
These pre-pandemic forecasts are certainly on the optimistic side – if BP’s report is correct, oil production will actually decline and no new pipelines will be required. And even under the optimistic pre-COVID forecasts, pipeline expansions exceed the expected increase in oil production by between 1.2 and 2.1 million bpd.
That means if the Trans Mountain project were not built, the other planned expansions still exceed projected production increases by between 610,000 and 1.5 million bpd.
While some pipeline expansion may be warranted, spending $12.6 billion of taxpayer funds to build a pipeline when private sector companies are adding more than enough capacity to meet Canada’s need without any taxpayer support is hard to justify.
Ironically, the oil sector may also be adversely impacted by building the Trans Mountain Expansion, because shipping tolls will have to be increased to cover the costs of redundant pipeline capacity. This will reduce oil company profits and tax payments to government.
The industry argues that higher costs will be offset by getting higher prices in Asia. But oil is traded in a world market that erodes any price advantage in Asia, and in recent years prices for heavy oil there have actually been lower than in the U.S. Gulf.
The government also points to the shipping contracts that Trans Mountain has as evidence the pipeline is needed. But these contracts were signed when the oil market was booming and, when they expire, it is unlikely that they will be renewed, leaving Trans Mountain and the taxpayer at risk. In the interim, oil will just be moved off existing pipelines to ship on Trans Mountain.
The fact is that the combination of environmental risks from increased oil tanker traffic, the weak demand for oil, escalating construction costs, and expansion of other pipelines raises serious doubts about the economic wisdom of building the Trans Mountain expansion. This is why Kinder Morgan was eager to sell the project to the government, and why a large number of Canadian energy experts recently sent a letter to the federal government asking them to defer additional spending on Trans Mountain.
Oil will remain an important part of the Canadian economy, but the oil boom is over. That is why major oil companies such as Shell and BP are transitioning to green investment and Alberta is looking at new sectors such as hydrogen.
The federal government should adjust its policies to match this new reality by reallocating the estimated $12.6 billion from building an oil pipeline to implementing the commitments in the Throne Speech on climate change. Those funds can also be used to help Alberta transition to cleaner growth sectors and build a more sustainable economy that studies show will generate more jobs than the fossil fuel sector.
We cannot afford to spend money on unneeded oil pipelines, and we cannot afford another broken promise on climate change.