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Unpaid fines, leaks and spills at volumes beyond worst case scenarios for Enbridge Inc.

(Page 4 of 4)

The company maintains that the project is needed to diversify the export market by opening up access to Asia and elsewhere—places where producers will find the highest demand and best prices for raw crude. Their application estimates that increased prices for Canadian oil would result in a $2.39 billion jump in annual producer revenues in the first year of operations alone. By 2025, they claim those revenues could increase by over $4.47 billion.


Canadians not working in the industry aren’t generally swayed by the prospect of bigger corporate profits. That’s where the “benefits to all Canadians” come in. To help prove that these benefits exist, Enbridge commissioned Wright Mansell Research to conduct an independent assessment of the project from a “Canadian public interest” perspective.


Enbridge claims that that over its 30-year lifetime, the Northern Gateway pipeline would increase the country’s GDP by up to $270 billion., provide additional labour income to the tune of $48 billion and result in 558,000 person years of employment. The federal and provincial governments, they said, could rake in about $81 billion in revenue.


Enbridge’s application states that the project would provide up to 558,000 person-years of employment, 62,700 of which would be generated during project construction (including direct, indirect and induced employment). In BC alone, they claim there will be about 3000 jobs created during the three-year construction phase. The company estimated that about 57 per cent of the construction employment would be in British Columbia, 24 per cent would be in Alberta and the remaining 19 per cent in the rest of Canada


Enbridge says more than 400 workers will be needed to construct the Kitimat marine terminal and related infrastructure, and about 165 permanent jobs would be created for the terminal’s ongoing operations. In total, the company promises approximately 1,150 long-term jobs for Canadians—with about 560 of them based in British Columbia.


According to Lee, the only bankable jobs are the 1,850 construction jobs per year for three years, and a handful of permanent new jobs. The oil and gas industry is one of the most capital intensive in the world, meaning relatively few jobs are created per million dollars of output. Enbridge’s direct job estimates assume a direct relationship between investment and job creation, which means the job numbers can be inflated by overstating the total investment. For example, Enbridge’s job estimates are based on a $5.5 billion investment. This number includes a $500 million contingency reserve which inflates job numbers by 10%. An additional $100 million has already been spent and won’t create “new” jobs.


The remainder of the 63,000 person hours are indirect employment and induced employment. The indirect employment would come in the form of 3000 jobs if the steel pipes are purchased from a plant in Saskatchewan. Those jobs already exist. Nearly half the person hours come from induced employment, jobs created when those with direct and indirect jobs spend their money. Those job numbers s are extremely most speculative. As Lee puts it, “Induced numbers should be heavily discounted, because they are modeled as if (an already overstated) 36,000 previously unemployed workers showed up out of nowhere, each earning $68,000 per year, and paying taxes to governments that were interested in supporting public services.”


Taking Enbridge’s inflated job numbers at face value, they would make a very small relative to the BC and Canadian economies. . Enbridge acknowledges that the “overall effects on the provincial and national economies are considered not significant relative to the overall size of these economies.” In BC alone, there are more than 2.4 million people employed.


There are places in the province where new jobs could make a significant impact on local economies. But Enbridge’s lack of commitment to local training means that locals and Aboriginal people would be more likely to occupy the low skill/low wage jobs. Skilled labour would probably come from outside the region. Since the publication of Lee’s report, Enbridge has publicly stated that PetroChina is interested in investing in the pipeline and using its employees to provide skilled labour, would make the prospects for good BC jobs even dimmer.


According to Lee, the $270 million figure rests on assumptions with flaws. Half the figure speculates that the pipeline will create a large profit margin from higher prices in both Asian and North American markets. The other half assumes that profits will be reinvested with the same rate of return of current investments. This isn’t likely because bitumen deposits are increasingly expensive to access as the most convenient deposits get mined out.


Out of the projected increase in Canadian GDP of $270 billion, total labour income is expected to be $48 billion, or 18%. Canada has traditionally seen a labour share of income in excess of 50% of GDP. But the oil and gas industry is extremely capital-intensive so there are fewer jobs for the investment than would be achieved by investments in other sectors.


At the national level, the financial flow to the oil and gas industry has inflated the Canadian dollar to an extent that harms exports from the manufacturing sector. This situation, known as “Dutch Disease,” is widely debated but it seems that Canada has at least a mild case of it. While GDP may go up overall due to oil and gas profits, contributions from other sectors are heading down. A recent study suggests this has already happened in 30 percent of the manufacturing sectors.


Putting aside environmental problems, Lee points out refining the bitumen in Canada would create 26,000 additional jobs. If pipelines ran east instead of west, eastern Canada could rely on domestic oil sources and the nation would increase its energy security.


But this nation-based strategy is increasingly unlikely due to the growing entrenchment of foreign ownership of Canada’s oil resources. In 2009, foreign corporations received over half of the revenues and more than two fifths of the profits. Since then, there has been a major rise in Chinese ownership. Chinese investment is estimated at $12 to $20 billion and comprises a substantial portion of the up-front costs for the Northern Gateway pipeline. Sinopec, the Chinese state oil company that owns a 9% stake in Syncrude oil consortium, has veto power over new investments to upgrade bitumen in Canada.


If jobs are the objective, green investments would create 3 to 34 times more jobs per million dollars of investment. Applying a climate lens, fossil fuel infrastructure will need to be abandoned as the world moves toward solutions while green investments could create the valuable infrastructure needed to re-build a safe climate for humanity. Green investments could include switching to clean sources of electric power, building alternative transportation options, retrofitting homes and commercial buildings for energy efficiency and developing advanced recycling and waste recovery facilities to displace the need for GhG-intensive virgin materials.


A low national carbon tax of $10/per ton would yield about $5 billion, the equivalent of the Northern Gateway investment, every year to be used toward putting Canada on a path to safe levels of emissions.


Enbridge’s presentation of the Northern Gateway proposal doesn’t include the project’s impacts, such as the potential impact of pipeline and tanker spills on tourism and fishing.


Hard numbers don’t exist for the number of jobs at risk from an oil spill but they are in the hundreds of thousands with revenues near $8 billion (this figure is a very rough estimate of Lee’s estimates). If only one in ten jobs in vulnerable sectors was lost due to an oil spill, that number would exceed the permanent employment claimed by Enbridge. This doesn’t include First Nations subsistence harvest which has a replacement value of many millions of dollars in addition to incalculable cultural significance. For the Gitga’at alone, replacement value of its harvests is $2 million.


Spills happen. Lee describes them as a cost of doing business. Between 1999 and 2010, Enbridge pipelines experienced 804 spills, with the release of 168,645 barrels, or 26.8 million litres, of hydrocarbons into the environment. Jobs are only one aspect of the losses involved.


Enormous market failures are associated with green house gas emissions. It’s hard to measure global impacts with long time lags that come in the form of weather disasters. Current weather related insurance losses are about $130 billion per year compared to $25 billion per year in the 1980s. In Canada, the climate change burden is estimated at $5 billion per year by 2020 and rising to $21-43 billion per year by 2050.


Lee estimates a figure of externalized green house gas costs ranging from $4 billion/year (low estimate of 80 million tons of GHGs at $50/ton) to $200 billion (high estimate of 100 million tons at $200/ton). These numbers assume that the bitumen would stay in the ground without the Northern Gateway pipeline, which may be unrealistic. But the point is made: combustion of the large volumes of fossil fuel that would be transported by the pipeline would impose huge costs on third parties.


Profits from pipeline operations would be concentrated. For Enbridge, they could exceed $300 million/year. More generally, the gain in profits to oil companies from higher market prices in Asia is estimated to average $3.6 billion per year.


The federal government and Enbridge must ignore carbon emissions to promote the pipeline because the concentrated benefits and externalized costs are clearly unfair. If the damages from GHG emissions and the costs associated with likely oil spills were included in the cost of the project, Lee concludes that the Northern Gateway pipeline may well be uneconomical.



Faced with mounting criticism, and tasked with convincing the public that the Northern Gateway should go ahead, Enbridge's future in B.C. remains, as yet, uncertain.


On one hand, the heightened scrutiny of the firm's history of spills, and its operational culture, could arguably lead to real changes in how Enbridge works – potentially forcing it to transform from the so-called “Keystone Kops” to the responsible corporation it claims to be.


On the other hand – and with only a few exceptions – the vast majority of First Nations along the proposed pipeline route have maintained their unwavering opposition. No amount of reforms, they say, can save the Northern Gateway. To them, the project is as good as dead, a year before its environmental assessment is even complete.


Now even the country's churches have got on board, with the largest Protestant denomination, the United Church of Canada, voting to condemn the proposal at its August 2012 national convention, following criticisms from the Anglicans, Presbyterians and the multi-church coalition, Kairos: Canadian Ecumenical Justice Initiatives.


In the 62 years since Tommy Douglas lauded the opening of Interprovincial Pipe Line's first oil route to his home province, Saskatchewan, as “a modern miracle,” have the tables turned on the continent's largest pipeline corporation?


One could almost sense an aura of fate and destiny colliding when Douglas' NDP successor, Thomas Mulcair, decided to pick a fight with Prime Minister Stephen Harper over the oil sands and their accompanying pipelines.


Warning that Canada's increasing focus on Alberta bitumen could damage its struggling manufacturing sector – a legitimate phenomenon known by economists as “Dutch disease,” after Holland's industrial woes thanks to over-emphasis on the North Sea oil boom – Mulcair called for the oil sands to be more heavily regulated to make them sustainable. Notably, he opposed the export of raw bitumen, the very basis for the Northern Gateway proposal.


And while the Conservatives fought back, labelling the New Democrats anti-development and poor economists, opinion polls held Mulcair in steady approval and even some fiscal experts went to bat for him. The Official Opposition emerged from its oil sands scrap confident, even bolstered.


Will the Northern Gateway?


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