Enbridge Northern Gateway pipeline: former ICBC CEO weighs projects' risks

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“We need to look at that because it’s not in our interest to dumb down our society and lower our standards of work and opportunity for jobs just because the United States had a financial crisis.”

Another pressure toward exporting raw bitumen is lower environmental standards in Asia. Asia can pay higher prices for raw bitumen because they don’t have the expense of complying with pollution standards. If the US needs the oil too, that puts downward pressure on its environmental standards.

“That’s where the term ‘dumbing down’ comes from,” Allan said. “The competitive forces in an environment of scarce resources leads to pressure to downgrade standards—whether they’re labour standards, or wages, or environmental standards or standards around all gets dumbed down to a lower standard because competition dictates it.”

Allan notes that Enbridge documents actually state that one of the reasons its wants to export the oil to China is to avoid the environmental standards in North America.

This result, in Allan’s view, does not comport with Canadian values. “By shipping [the bitumen] out, we’ve endorsed other cultures’ attitudes towards the environment. I don’t believe Canadians would be happy with that if they knew about it.”

Prime Minister Harper used to agree. During he 2008 campaign, he told a Calgary audience, “We will not permit the export of bitumen to any country that does not have the same greenhouse gas regulations that we are imposing.”

He acknowledged that this stance could impact exports to Asia.

John Baird, the Environment Minister, stated it could affect the construction of a major pipeline from Alberta to the Pacific coast to feed the Asian market.

So when Mulcair [leader of the federal NDP opposition party] talks about having to internalize the externalities, he’s saying that businesses need to absorb more of the costs that they’re creating as they absorb the profits.”

In Allan’s view, a progressive, decent society is one that accounts for the environmental costs of production.

“It’s not fair,” Allan stated, “for us to pollute the air and the water for future generations to clean up.”

Cure for the Dutch disease

Canada relies on foreign sources for 50 per cent of its fuel.

Allan suggests that smart economic policy could cure both the Dutch disease and this reliance.

If Canada were to require that expansions in oil production go to meet its own energy demands rather than to Asia, this could improve Canada’s balance of trade and exchange rates. “The overall price [of oil] to Canadians would fall,” Allan explained, “and the overall profits to producers in Canada would not be detrimentally affected.”

“If you could stabilize prices, and you could stabilize the currency by ensuring you had domestic demand met first,” Allan said, “I actually believe that you would have an overall positive gain for everyone in the Canadian economy.”

The oil industry’s currency woes

Prioritizing Canadian markets for Canadian fuel could help even the oil industry in its race against a run-away exchange rate.

A one cent increase in the Canadian dollar, according to Allan’s analysis, reduces oil industry profits in Canada by about $500 million. But the oil companies still pay salaries and dividends and invest capital in Canadian dollars.

Allan thinks the oil industry expects to stay ahead of the problem by expanding quickly and relying on the lax regulation of environmental and labour standards. But if the Canadian dollar goes up by the same amount of the price of oil, the oil industry won’t make more money in real terms than they make today.

If inflation gets added onto currency appreciation, the oil industry won’t have the profits they anticipate in their plans and won’t be able to expand as quickly as they plan. This goes to the heart of the false economics that Allan sees at the foundation of the Northern Gateway proposal. “They’re not going to attract foreign capital the way they’re talking about,” Allan told the VO. “They’re not going to be able to create the supply and hence they don’t need the pipelines.”

Allan states that when she called the Canadian Investor Relations Institute to discuss the currency error, they agreed that the exchange rate acts like a cost and that cost has not been included in CIRI’s supply estimates.

She sees this as further evidence that a forced agenda is taking precedence over scientific research.

“We have to be very aware of the weaknesses of the research that’s being done by the industry and industry-based institutes. Will they continue to trot out studies with the same weaknesses? Because if they do, it shows that they are not interested in advancing the discussion.”

If that is the case, Allan said, one of two things will happen. Either the public will start to mistrust the media or we will have to bring a higher standard to bear on the responsibility inherent in translating research for public consumption.

“Resources in journalism are shrinking,” Allan noted. “People with agendas can take advantage of that.”

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