Pipeline Politics

Note: This essay is written from the viewpoint that no decision on the Trans Mountain Pipeline has been made


My predecessor wanted you to know Canada for its resources, I want you to know Canadians for our resourcefulness.
— The Right Honorable Justin Trudeau [1]

Canada’s climate change commitments over the past decades have been numerous, but have resulted in little action to curb carbon dioxide emissions [2]. In 1990, Canada launched the Green Plan, with the goal of investing $3 billion on environmental initiatives [3]. Back then, the goal was “stabilization of carbon dioxide and other greenhouse gas emissions at 1990 levels by the year 2000.” In 1990, greenhouse gas emissions were at 590 MT CO2-equivalent; in 2014, Canada breached the 730 MT mark [4]. Then in 2002, Canada ratified the Kyoto Protocol with the aim of reducing emissions by 5% from 1990 levels by 2012 [5]; in 2013, Canada withdrew from the Kyoto Protocol, being the only country to do so, with emissions at 726 MT [6].   With a new sense of optimism, Justin Trudeau won the 2015 federal election on the promise of “Real Change” and a new plan for Canada’s environment and economy which includes acting on climate change, investing in clean technology, and creating clean jobs [2]. In December of 2015, Trudeau signed the Paris Agreement, where Canada and 195 countries committed to reduce greenhouse gas emissions by 30% from 2005 levels by the year 2030 [7]. Pledging to such an agreement comes at a time where Canada’s oil industry, the sector that pollutes the most, is seeking to expand its operations by expanding pipeline carrying capacity [8, 9]. Does committing to the Paris Agreement mean there is a future for pipelines in Trudeau’s Canada? This essay will discuss whether construction of a new pipeline can be reconciled with Canada’s climate change commitments.

The Project

The pipeline in question, owned by Kinder Morgan, is the 980 km Trans Mountain Pipeline that would carry heavy oil from Edmonton, Alberta to Burnaby, British Columbia. If implemented, the new project would increase the existing oil capacity from 300,000 barrels per day to 890,000 barrels per day [10].  Access to global markets increase profits for Kinder Morgan. As shown in the figure below, West Canada Select, a heavy crude oil and Brent Crude, a light crude oil, differ by 45% in price; the price difference is due to Brent being easier and cheaper to refine [11]. By expanding the Trans Mountain Pipeline, Kinder Morgan will have greater access to refineries and global markets, reducing the price discount [12] . Locally, the Trans Mountain Pipeline will add 15,000 jobs during construction, and 37,000 jobs during normal operation [13]. The tax revenue for British Columbia, Alberta and the rest of Canada would be $5.7 billion, $19.4 billion, and $21.6 billion respectively. Overall, the project would create $18.5 billion in economic growth for the country over the next 20 years. 

Figure 1: Oil Price Change [11]

Figure 1: Oil Price Change [11]

A quantitative comparison serves to qualify whether the proposed pipeline can be labelled environmentally “good” or “bad”. Per the Environmental Protection Agency, one barrel of oil emits 0.43 metric tons of carbon dioxide [14].  Approval of the pipeline means CO2 emissions from this pipeline would increase from 47.1 MT to 125.6 MT. To put this number into perspective, Canada’s 2020 emission target is 607 MT per year and in 2012, Canada emitted 726 MT of CO2. If Canada wants to approve both the pipeline and achieve its emissions target, a reduction of 244.6 MT is required, which is equivalent to the emissions produced by both the transportation and electricity sectors [8]. The two pie charts compare the emissions from each sector if the pipeline is rejected, and if it is approved. Approval of this pipeline alone would increase emissions from oil and gas by 7% from 26% to 33%. 

Figure 2: Effect of Approving Pipeline on GHG Emissions [8]

Figure 2: Effect of Approving Pipeline on GHG Emissions [8]

Figure 2: Effect of Approving Pipeline on GHG Emissions [8]

Figure 2: Effect of Approving Pipeline on GHG Emissions [8]

With Justin Trudeau declaring “Canada is Back” in the environmental sense raises the question of whether a future for oil exists for Canada, or whether these are just statements to appeal to his supporters [15]. For Canada to be a leader in green energy and reduce emission targets, its dependency on oil needs to be reduced.

The Politics

The Trans Mountain Pipeline won’t gain approval based on its environmental impact; instead, it would be based on the political effect approving or disapproving the pipeline will have. Politicians want to get re-elected, and satisfying voters is their game: even if shifting from fossil fuels to cleaner forms of energy is possible, political obstacles hinder the shift. For example, Canada’s least popular Premier, Kathleen Wynne, decided to cancel the latest round of green energy projects to save consumers money and rescue her party [16, 17]. Her predecessor, Dalton McGuinty, cancelled gas-fired power plants that cost Ontario residents $1 billion dollars to win a Liberal minority in 2011 [18]. The environment benefits from a shift away from fossil fuels, but if basing your platform on that means losing an election, politicians are unlikely to implement this change.

However, a recent poll commissioned by Insights West, a British Columbia NGO, found that 31% of voters who voted Liberal in 2015 would vote differently if Justin Trudeau approved of the Trans Mountain Pipeline [19]. 62% also stated that approving the pipeline would contradict the Liberals campaign promise of environmental commitment. Despite voters seeming in favour of disapproving the pipeline, the repercussions of doing so may affect Justin Trudeau in negotiating with British Columbia and other provinces on a National Energy Strategy. The decentralization of power from the federation means national plans are often subject to negotiations between the federal and provincial governments, i.e. give British Columbia the pipeline and they will accept a National Energy Strategy. This is a problem with a federal approach; appeasing different provinces with different resources to work on a national plan is difficult.

Historically, federal-provincial negotiations have failed. Take for example the National Energy Program, which was instituted by Pierre Trudeau in 1980. Due to the Gulf War and the resulting oil peak, the NEP had three main objectives: increase Canadian ownership of the oil industry, allow Canada to become self-sufficient produced of oil, and increase federal revenue from oil [20]. The more profitable price meant that the federal government received a share of the revenue at the expense of Alberta; Alberta, with the 3rd largest oil reserves in the world, resented this policy [21]. The oil price collapse in the later parts of the 1980s resulted in the failure of the NEP. The NEP contributed to the election loss of Pierre Trudeau, and his successor, Brian Mulroney cancelled the program.

According to Hoberg, veto point access determines the success of approval of a pipeline [9]. A veto point is any authoritative power which can block a project, e.g. the Supreme Court of Canada. In the case of the Trans Mountain Pipeline, opposition groups include environmentalist and Aboriginal Groups. As British Columbia’s Aboriginal Groups did not cede their land, and have their rights enshrined in the Constitution, it means approval of the pipeline does not guarantee the actual expansion happening as the approval can be stalled in the courts. Knowing this, Justin Trudeau should approve of the pipeline; on the one hand, he loses a portion of votes in British Columbia, but he gets the support of the provinces for a National Energy Strategy. In the long run, if the pipeline expansion gets rejected by the courts, and voters see progress on the environmental front, the 31% may revert their stance of not voting for Trudeau.

The EcoFiscal Commission

Assuming an approved pipeline, and an enacted National Energy Strategy, is it possible to increase oil production and act on climate change, or are the two mutually exclusive? There are two stances regarding this issue. On one hand, the EcoFiscal Commission believe a carbon price will negate externalities, whereas Naomi Klein, co-author of the environmentally-conscious Leap Manifesto, sees no future for oil in Canada [22].

The EcoFiscal Commission, “a group of independent, policy-minded Canadian economists working together to align Canada’s economic and environmental aspirations.”, state in their report, “The Way Forward” that markets have failed in allocating a price on carbon [23]. The solution: internalizing the externalities. Whether it’s a cap-and-trade, or a carbon tax, these solutions act to making the polluter pay. Market failures are easier to fix that government failures. The effectiveness of carbon taxes on the Trans Mountain Pipeline depends on how high the carbon price is; a sensitivity analysis (Figure 3) was conducted to highlight the effect of varying carbon tax prices from $0 to $150 has on profits. Profits in this analysis are the selling price of oil, which was made to vary from $30 to $130, minus the cost of production, which was fixed to $26.64 per barrel [24]. By 2022, Canada plans to have a carbon tax of $50 [25]. Assuming an average oil price of $50, this would reduce Trans Mountain profits by 93% from $7 million to $0.5 million [26]. However, if the price of oil is $70, the carbon price needs to be $100 to reduce profits to $0.5 million. For this policy to reduce production, a high carbon price is needed whilst the price of oil is low.

Figure 3: Effectiveness of Carbon Taxes

Figure 3: Effectiveness of Carbon Taxes

Politically, setting up a high carbon price with the intent of making oil production unprofitable while at the same time approving of pipelines would be hard for fossil fuel dependent provinces to agree to. Mark Jaccard, professor of Sustainable Energy in the School of Resource and Environmental Management at Simon Fraser University, states a tax of $160 is needed to achieve Paris 2030 carbon emission reduction targets; however, a carbon tax that high would cost Justin Trudeau his job [27]. Professor Jaccard argues instead for regulation, like California's fuel emission standards, or Ontario’s coal-power phase out, to impose climate change policy, as they are easier to implement politically. Not only are they easier to implement politically, but so far, they have been the most effective at reducing CO2 emissions over time. The graph below (Figure 4) shows that out of the three largest polluting sectors (oil and gas, transportation, and electricity), electricity is the only one that has seen a large downward trend in emissions. Meanwhile, oil and gas has been on an upwards trend since 2011. 

Figure 4: GHG Emissions from different Sectors [8]

Figure 4: GHG Emissions from different Sectors [8]

Another point of contention with The EcoFiscal Commission’s report is the suggestion of using carbon tax revenue generated from the oil industry to fund green initiatives. This means that tax revenue generated at the expense of Kinder Morgan would be spent on developing renewable energy: the competing industry against Big Oil. Another proposed use of the tax revenue generated would on reducing corporate and income taxes. Of the two tax revenue uses, the latter would be the option oil companies would push for, as it does not undermine their status quo. However, a reduction in corporate taxes would test the Liberals election promise of “a commitment to phase out subsidies for the fossil fuel industry.”; these subsidies total to $3.3 billion [28]. Applying the EcoFiscal’s recommendations to the Trans Mountain Pipeline has a few advantages: it internalizes externalities and thus, reduces oil production. It also creates a revenue stream for the government that can be used to fund the renewable energy sector. However, the effectiveness of this policy is limited by the price of the carbon tax compared to the selling price of oil, as well as agreement by industry on the way the government distributes the tax revenue.

Blockadia

Is it possible for Canada to phase out oil and gas and replace it with renewables? In his paper “Global Energy Shifts in World Perspective”, Podobnik correlates energy shifts to four factors: geopolitical rivalry, corporate competition, social conflict, and finally, hegemonic sequence, which is the interaction of the former three factors with each other [29]. He states that “period of profound change in global energy systems occur when hegemonic stability breaks down.” Intense conflict, radical business innovation, and revolutionary social change characterize this period. In Naomi Klein’s book, “This Changes Everything”, she proposes a similar argument to Podobnik’s: uprooting the status quo requires a revolution [30]. Klein depicts oil corporations as an embodiment of capitalism, promoting greed at the cost of plundering the land. For her, consultation between the oil industry, with opposing actors, mainly environmentalist and Aboriginal Groups, is a form of co-optation. Co-optation as defined by Oliver, “entails bringing in and establishing institutional linkages with outside actors with the intention of neutralizing the opposition and enhancing legitimacy” [31]. For Klein, Blockadia serves as an act of renouncing the legitimacy of these institutional links. Blockadia is “not a specific location on a map but rather a roving transnational conflict zone that is cropping up with increasing frequency and intensity wherever extractive projects are attempting to dig and drill, whether for open-pit mines, or gas fracking, or tar sands oil pipelines. [30]

If the Trans Mountain Pipeline is approved, Blockadia would involve hindering the construction of the pipeline through protest or through the courts. Both these methods have succeeded in the past. For the latter, an alliance between Aboriginal Groups, rights rich but monetary poor, and environmental NGOs, rights poor but monetary rich is needed. This has worked previously in 2014 in the case of Enbridge’s Northern Gateway Pipeline, whose approval was overturned by the Federal Court of Appeal as Enbridge did not properly consult with Aboriginal Groups, and did not disclose the full impacts the project would have on the communities[32]. For the former, Klein states that “A new anti-establishment movement has broken with Washington’s embedded elites and has energized a new generation to stand in front of the bulldozers and coal trucks. [30]”  This form of protest caused President Obama to veto the Keystone XL Pipeline; however, it can also be argued that it is the same anti-establishment, “drain the swamp” mentality that got Donald Trump elected. The rise of the extreme-left has given rise to the extreme-right. As different as Klein and Trump are on the political spectrum, it’s ironic that they both agree free-trade is the problem; for Klein, it is the reason why environmental action has taken a backseat, and for Trump, it’s why America isn’t the economic powerhouse it was once. For Klein, expanding pipeline operations and Canada achieving its climate change commitments are mutually exclusive; therefore, pipeline expansion needs to be stopped.

For Blockadia to work, it must be on a global scale rather on a local scale. If Canada decides to reject the Kinder Morgan pipeline, the costs of doing so will be local and specific, whereas the benefits would be general.  This point is ever more relevant with the election of Donald Trump, a man who believes climate change is a hoax created by the Chinese to make US manufacturing less competitive [33]. If Canada decides to reject the pipeline, the oil industry will try to find another location to build pipelines. This means jobs and tax revenue will be lost in Canada. In the case of the Trans Mountain Pipeline that equates to a loss of $18.5 billion in economic growth for the next 20 years [34]. Secondly, the net impact of reducing carbon emissions is zero, as the industry will be emitting carbon, only in a different location. Is uprooting the establishment the only way in which Canada will be able to achieve its climate change commitments?  When evaluating whether the Trans Mountain Pipeline expansion can be reconciled with Canada’s climate change commitments, a prudent approach is needed. In the words of the great philosopher and thinker Edmund Burke, prudence is “the god of this lower world [35].”

Summary

This essay has provided multiple analyses on whether construction of a new Trans Mountain Pipeline be reconciled with Canada’s climate change commitments. Canada signing on to the Paris Agreement means reducing emissions by 30% from 2005 levels by 2030. For Canada to achieve its reduction target, such growth should stop in the oil and gas sector, making it hard to justify the approval of this pipeline. However, the EcoFiscal Commission argues that both construction of the pipeline and achieving climate change commitments are possible by making the polluter pay. Correcting market failure through a carbon tax internalizes the externalities, which will limit growth of the Trans Mountain Pipeline. In the long-term, the revenue generated from the pipeline can be used to fund an energy shift to renewables. The success of carbon pricing will vary: if oil prices are high, but the carbon tax is low, there will be little impact on Kinder Morgan profits. Also, implementing a high carbon tax is a political challenge. Naomi Klein on the other hand, believes building pipelines and achieving climate change commitments are dichotomous: building pipelines must be stopped at any cost. The above analysis supports Klein in that pipelines and achieving climate change commitments are mutually exclusive. Klein’s approach of Blockadia may stop oil expansion in Canada, therefore reducing the potential of Canada increasing emissions, but there may be no positive environmental impact globally from such an approach, especially if other countries do not follow Canada’s lead in rejecting expansion of the oil industry. In conclusion though, the decision by Justin Trudeau to approve or reject this pipeline does not depend on the environmental impact such a decision will make, but on the political effect it has for him and his party in both the short and long term.

 

References

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[30] N. Klein, This Changes Everything: Capitalism vs. The Climate, London: Penguin Books, 2014. 

[31] G. H. Phillips, "Playing Defence: Early Responses to Conflict Expansion in the Oil Sands Policy Subsystem," Canadian Journal of Political Science, vol. 44, no. 3, pp. 507-527, November 2011. 

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[34] The Conference Board of Canada, "A Summary of the Economic Impacts That Result From the Trans Mountain Expansion Project," December 2015. [Online]. Available: https://www.transmountain.com/uploads/pages/1452115261-7648_WhoBenefits_E_BR.PDF. [Accessed 5 December 2016].

[35] P. Berkowitz, "The liberalism of Edmund Burke," Policy Review, no. 176, p. 51, 2012.