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How Much Is a Truly 'Fair Share' of Northern Gateway Benefits for BC?

It's substantial. But will Clark have the courage to demand it from industry?

By Robyn Allan 8 Jan 2014 |

Robyn Allan is an independent economist and was an expert witness at the Northern Gateway hearings. Her reports are available at

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Premier Christy Clark keeps saying B.C. deserves its "fair share" of Northern Gateway's benefits. What does that amount to, mathematically? Pipeline photo via Shutterstock.

[Editor's note: In July 2012, the B.C. government announced five conditions which must be met before it would consider the approval of heavy oil pipeline projects in the province. For The Tyee, independent economist Robyn Allan has reviewed the first four in the context of Northern Gateway: condition one, condition two, condition three and condition four. In those examinations, Allan argued that the province has far from proven its commitment to meeting its own conditions over the years. Today, she sums up the status of the first four and breaks down the final condition, that "British Columbia receives a fair share of the fiscal and economic benefits of a proposed heavy oil project that reflects the level, degree and nature of the risk borne by the province, the environment and taxpayers."]

Premier Christy Clark should have cancelled the agreement to accept the National Energy Board Joint Review Panel's decision on the Northern Gateway pipeline once it became clear Prime Minister Stephen Harper rigged the game through omnibus budget Bill C-38, which gave the federal government full powers to approve the pipeline.

Instead, she trotted out requirements to get to yes, while keeping up a pretense of no.

Federal Employment Minister Jason Kenney, speaking from Calgary the day after the panel announced its approval of the pipeline (with conditions), tipped Ottawa's hand. He said the feds will consult with B.C., but the cabinet decides the fate of Northern Gateway.

It's unusual for a minister to stray from Harper's speaking notes. Kenney has probably been reined in, but Clark did not make herself, or any of her ministers, available for comment. She was likely too busy ticking the first requirement off her list -- that the panel recommend approval for Northern Gateway.

B.C.'s strong and definitive stand against the pipeline at the Joint Review Panel hearings is all but absent from the National Energy Board's final report. B.C. told the panel it must recommend against the project: Enbridge is not to be trusted and the marine and terrestrial environmental dangers of transporting diluted bitumen are too great. The panel dismissed B.C.'s concerns and came to a completely different conclusion.

The stage is set for miraculously fulfilling Clark's second and third conditions, that Canada have a world leading marine and terrestrial spill preparedness and response regime. For example, Ottawa set up a Tanker Safety Expert Panel last March to review Canada's marine spill regime. The independent study tabled by the tanker panel relied on historical spill statistics, and did not consider a diluted bitumen spill in its risk analysis.

As marketing campaigns mount in the next few months, and Natural Resources Minister Joe Oliver effuses about science-based research, we'll be led to believe diluted bitumen spill threats have been considered. Clark will claim Ottawa and Enbridge will protect us.

B.C.'s fourth condition focuses on respect for First Nations aboriginal and treaty rights. The province will keep up a façade that it cares while cowering behind the resolve of First Nations. There will be court cases. Had Clark stood for B.C.'s sovereign rights from the beginning, these battles would not be necessary.

When the dust settles, Clark is hoping to emerge unscathed. If any of the court challenges hold, she'll say the fourth condition is unmet and the project can't proceed. Hard won First Nations' victories will be claimed as the province's own. If none of the court challenges hold, Clark will deem her fourth condition met. Move onto condition five.

From eight to eighty

Heavy oil hurdle number five -- that B.C. receives a "fair share" of the fiscal and economic benefits of a proposed heavy oil project -- is the most recognizable condition, but the least understood. The province hasn't provided a definition of "fair share". It wasn't in its conditions paper released a year-and-a-half ago, and there was no edification in the Terms of Reference provided in advance of Clark and Alberta Premier Alison Redford's off-again on-again meeting in November.

While a deputy ministers' working group was to identify models to reflect economic and fiscal returns for the costs and risks each province bears, all we learned from the press conference was that B.C. should not expect to share in Alberta's royalties. If B.C. wants money, it needs to ask industry or Ottawa.

Clark posted a Facebook comment July 24, 2012 announcing her commitment "to defending B.C.'s fiscal and environmental interests." We are urged to watch her CBC interview to learn more. During that interview, she stressed: "Fair share has two words. It has to be fair for British Columbians, given that we are taking the vast majority of the risk for moving a very dangerous product… There's $81 billion estimated in tax revenues aside from royalties. Of that $81 billion, eight per cent accrues to British Columbia."

Hardly a good deal. Clark tells us offering up our coastline and fresh water rivers directly into harm's way is only a good idea if the price is right. What share would be enough? "I don't know the answer to that," she said. She hasn't told us anything further since.

A truly "fair share" has to be more than the public cost of cleaning up a spill. Negotiating a share of the revenues to pay for the inevitable oil spill is worse than a zero-sum game, and only a fool would accept a deal like that. If forced to engage in this distasteful exercise, B.C. needs to behave like a prudent investor. In the conditions paper, we are told B.C. bears all the marine and 58 per cent of the land-based environmental risk. Taking an average of the risk as a proxy for fair reward, we should demand 80 per cent of the fiscal revenues. It should be an incremental charge to Big Oil.

The province has accepted Enbridge's economics benefits case that says Northern Gateway would increase crude oil prices on average by US$2 to $3 per barrel more on every barrel, every year, for 30 years. Plugging those numbers into a model, Enbridge predicts fiscal benefits. To go from an eight to 80 per cent share, B.C. needs $10 more for every barrel shipped to its shores. This is the magnitude of the fiscal levy Clark should demand from industry.

Understand the misrepresentation

But why stop there? Enbridge President Al Monaco told the Toronto Board of Trade in June 2012 that pipeline access would increase Canadian crude oil prices by $20 to $30 per barrel -- 10 times the amount in Enbridge's application to the National Energy Board.

Why didn't Enbridge tell the same story to the panel as Monaco told Toronto's business elite? The story the panel heard translates into about 1.5 cents a litre at the pump, whereas Monaco's narrative translates into 15 cents a litre. Try selling that level of price gouging to the panel. Or maybe the deep discount narrative is bogus. Regardless, it's Enbridge's public story and it is sticking to it.

In December, Enbridge executive VP Janet Holder claimed Northern Gateway would "end a continental bottleneck that has resulted in a substantial discount for Canadian oil compared with international prices… The Canadian Chamber of Commerce recently reported that because we do not reach international markets for oil and gas, other than the United States, we are losing $50 million a day."

Holder is wrong about the gas part -- that figure is based on a faulty March 2012 CIBC report that only considered oil exports.

It's not just Enbridge that has latched onto the $50-million-a-day claim. Kinder Morgan relies on it for its promotion of the Trans Mountain expansion project. Kinder Morgan provides an estimate of the fiscal impact on government revenues embedded in the so-called $50-million-a-day lost revenue. They say it's $15 million.

To get our fair share of these benefits, Clark would need to slap a $20 per barrel premium on Northern Gateway throughput.

Clark needn't worry about Alberta's royalty pool. The fiscal revenue estimates have no affect on royalties. Applying a levy won't impact Alberta's royalty calculation either. The Alberta Energy Ministry has confirmed by email any additional "charges levied to transport oil on a B.C. pipeline would be paid by the shippers, and would not show up explicitly as an increase in handling charges for royalty calculation."

When Clark tells us she has a deal, anything shy of $20 per crude oil barrel shipped along Northern Gateway -- about $4 billion a year -- should be unacceptable. If she tries to sell us less, it will confirm not only is she incapable of protecting B.C.'s public interest, she's not any kind of deal-maker either.  [Tyee]

Read more: Energy, BC Politics

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