The Trans Mountain expansion

From here in BC, the Trans Mountain expansion project (TMX) seems like an irresistible force meeting an immovable object. I think the Trudeau government will still make it happen, but it won't be easy.

Lack of pipeline capacity is costing the Canadian economy something like $15B/year, due to the increased discount on Canadian oil exports. Most of that cost is borne by Alberta, but not all of it, since the oil sands bid up wages across Canada. Scotiabank.

On the other side, there's three major obstacles: the increased risk of a tanker spill, opposition to climate policy in Alberta, and most importantly, the delicate political situation with First Nations in BC.

Finally, there's people who are fine with the pipeline when it's the private sector that's taking on the financial risks, but who don't like taxpayers bearing the risk.

(1) Increased risk of a tanker spill

People in Vancouver are concerned about the increased risk of a tanker spill - the number of tanker visits will increase from 1/week to 1/day. That said, the Trans Mountain expansion is following an existing right-of-way to a busy commercial port (unlike Northern Gateway, which would have been a new pipeline to the north coast). Vancouver has 3200 large container ships and cruise ships visiting each year, along with the ferries going back and forth. We've shipped oil out of Vancouver for the last 60 years, and diluted bitumen for the last 30 years. The Trudeau government is aiming to boost marine safety for all commercial shipping in and out of Vancouver, not just the additional tankers.

It's probably worth noting that without new pipelines, Alberta will buy thousands of tanker cars and ship the oil by rail, which is both more expensive and less safe.

(2) Climate change

The Trans Mountain expansion also ties into people's concerns over climate change, and Alberta's opposition to climate policy. It's great that the Notley government has put a serious climate policy in place (with a broad carbon tax and phasing out coal-fired power), halting Alberta's total growth in emissions. But Kenney's promising to reverse this if he defeats Notley in May 2019.

This is where the federal backstop comes in. Under the national climate policy, each province can either do carbon pricing itself, or the federal government will do it for them, using a federal carbon tax starting at $20/t or 4.4 c/L (and returning the revenues to households in the province). This starts April 1 in Ontario, Saskatchewan, Manitoba, and New Brunswick.

Why is carbon pricing so important? (There's other measures in the national climate plan, like phasing out coal-fired power by 2030, but carbon pricing is the centrepiece.) The basic idea is that first we cut emissions which are worth less than $20/t, than those which are worth between $20/t and $30/t, and so on. This is cost-effective, because we're always cutting the cheapest, least valuable emissions first. And it's fair, because it distributes the costs across the entire economy, rather than putting them all on a particular province (Alberta) or a particular economic sector (the oil sands).

Andrew Scheer's vowed to end the federal carbon tax if he's elected in October 2019. But defeating Trudeau will be a much heavier lift than defeating Notley.

The other question is: okay, cutting emissions with a carbon tax is fine, but shouldn't we also be trying to cut global emissions by not adding any more supply? (The "keep it in the ground" / "climate leaders don't build pipelines" argument.)

It turns out that trying to cut global emissions by withholding supply is ineffective as well as expensive. It's ineffective because oil-importing countries will just buy their oil elsewhere. (If I buy all my groceries from my local Safeway, and it shuts down, I won't starve.) Replacing a barrel of Canadian oil with a barrel of oil from elsewhere isn't entirely ineffective, because Canadian oil is somewhat more emissions-intensive to extract than the world average - but most of the emissions come from actually burning the oil. And it's expensive, of course, because of the resulting discount on Canadian oil. Trevor Tombe.

Abacus asked about this directly:

Most Canadians reject the argument that increasing the capacity of pipelines to get our oil to new markets will end up meaning more oil will be used in the world for longer. The majority (68%) believes that expanding our access to new markets won’t affect global oil consumption but will increase the economic benefits for Canadians.

(3) First Nations

First Nations in BC never ceded their land by treaty, unlike the rest of Canada. I think of them as our landlords. Northern Gateway was overturned by the courts because the Harper government had failed to consult with First Nations, and in fact had really aggravated them. (Eden Robinson, writing in 2014: "If Enbridge has poked the hornet's nest of aboriginal unrest, then the federal Conservatives, Stephen Harper's government, has spent the last few years whacking it like a pinata.")

The Trudeau government, bearing this in mind, did more consultation. The courts ruled that it was still inadequate - the government had listened to First Nations concerns, but their duty is to assess and respond to these concerns, not just listen. Timothy Huyer explains. The Trudeau government is working on remedying this, rather than trying to rush the process and causing further delays. It's a stitch-in-time-saves-nine situation.

To me, this is the biggest obstacle. It's primarily legal rather than political.

(4) Financial risk

Finally there's the view that it's fine if a private company (Kinder Morgan) wants to build the pipeline and bear the risks, but the federal government shouldn't be buying it for $4.5 billion (plus construction costs), putting the financial risk on the taxpayer.

I understand people's concerns about the risk of a tanker spill, but I'm not so worried about the financial risk. Shippers are desperate for more pipeline capacity, so much so that they've already bought most of the capacity of the pipeline for the next 15-20 years. Pipeline tolls are fixed, so there's no risk of low prices. Tripling the capacity of the pipeline will bring annual revenue up to about $1B/year.


Originally posted to Reddit: What are some of your thoughts on the Trans-Mountain-pipeline?

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