When economist Robyn Allan’s son visited her in the autumn of 2011, he was preoccupied by the Northern Gateway pipeline.
Allan was generally aware of the issues but his concern spurred her to look more closely. She found that Enbirdge’s application misrepresented the impact of the project.
She applied for intervenor status so that she could raise these issues before the JRP in a more substantive manner than public comment provides for.
Her reports belie Enbridge’s rosy assertions about the benefits of the proposed Northern Gateway pipeline.
“The economic issues were presented purely as a benefit to Canada as if there were no economic costs,” Allan told the Vancouver Observer. “And that clearly wasn’t the case.”
As former CEO of ICBC, Allan views the project from the perspective of business insurance risks. Even where those risks are described in related reports on the Northern Gateway proposal, Allan has found a pattern of bite sized headlines that aren’t true to the content of the reports.
“I’m consistently seeing information provided by headlines, titles, bumper-sticker type statements and tweets that give one story,” Allan said. “But when I look at the details, there’s a completely different story being presented in the depth of the analysis.....”
She’s particularly concerned by the public statements by Prime Minister Harper, Minister Joe Oliver, Premier Redford and Premier Clark that seem to be “marketing slogans to deliver the solution they’ve already decided.”
Dutch disease and name calling
For instance, the Institute for Research on Public Policy’s study on the Dutch disease was used as an opportunity to criticize opposition leader Thomas Mulcair, who brought the issue to national prominence.
When the study came out, the spokeswoman for Industry Minister Christian Paradis stated that it did not reflect the views of the Harper government (it was commissioned by the Harper government but carried out by an independent institution).
Without addressing the study’s content, she asserted that “Mr. Mulcair’s politics of division, pitting one region of the country against others, and his ill-informed remarks show that his foolish economic policy will raise prices and cost Canadian jobs.” (Peter Jarrett of the Organization for Economic Co-operation and Development recently confirmed that concerns about the Dutch disease in Canada are based on fact.)
To Allan, name calling instead of debate is a bad sign. “Name-calling is a propaganda technique to try to sway opinion to a point you want to make,” she notes. “It’s used as a shield to deflect away the real issues that have to be addressed. As soon as I see name-calling or denigration, I ask, ‘What are they trying to hide?’”
Allan explains Dutch disease in simple terms. If oil rises from $50 in 2006 to $100 a barrel now, there is double the amount of currency coming into the economy for the same amount of output.
It’s a windfall gain known in economics as “rent.”
The increase of money in the economy makes the exchange rate for the dollar rise even though the productive capacity of the economy has not expanded. It’s a very weak model of economic growth because the value of the dollar appreciates without any increase to the economic strength of society.
“When you talk about inflated dollars, it’s kind of like an inflated ego,” Allan said. “You’re getting a lot of benefit in terms of dollars, but the strength of the economy has not changed.”
Raw exports inflate the dollar without strengthening the economy
According to Allan, Canada’s Dutch disease is not only hollowing out the manufacturing sector, it is hollowing out the oil industry itself.
In 2008 Alberta had plans to build upgraders and refineries in Canada, as well as expanding output.
That would have resulted in manufacturing jobs to refine raw bitumen into products like gasoline and jet fuel for export.
Adding value to the raw resource creates a more valuable product for export.
Allan describes how the US financial crisis of 2008 resulted in a structural shift in Canada’s oil industry. First, everything slowed down or stopped. “All the upgrading and refining plans went off the table,” Allan explained, “along with expanded production plans.”
In 2009, the production plans came back on line but the plans for upgraders or refineries did not. As a result, the exported raw bitumen creates jobs in the United States and China rather than in Canada.
“One reason it doesn’t make economic sense [to export the raw resource] is because we’re paying our workers the standard of living that existed in 2007,” Allan said.
“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 sexism...it 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.”