THE BOTTOM LINE: Taxpayers Will Pay for Alberta’s New Pipeline Because Federal Government Policy Has Chased Away Private Investment

By: Julio Mejía and Elmira Aliakbari

The Alberta government and the Carney government recently jointly submitted a new oil pipeline proposal to the federal “Major Projects Office” where Carney and his cabinet will decide whether or not to fast-track the proposal through the regulatory process.

Why do the Smith and Carney governments plan to build a pipeline, with taxpayers assuming most of the cost and risk? In short, because no private company wants to, under Canada’s current regulatory regime.

At first glance, the pipeline, which would run from Alberta’s oilsands to the British Columbia coast, should be a major business opportunity. Global demand for oil is growing and Canada has the world’s third-largest oil reserves, decades of industry expertise, world-class engineering firms and the political stability many major oil producing countries lack. But for years, the federal government has deterred—or outright derailed—pipeline proposals from the private sector.

For example, in 2014 the Harper government approved a proposal by Enbridge, an energy infrastructure company based in Calgary, to build the Northern Gateway pipeline, which would transport crude oil from Alberta to B.C.’s coast (sound familiar?) and expand access to Asian markets. But in 2016, arguing that the “Great Bear Rainforest is no place for a pipeline,” the Trudeau government cancelled the project, leaving Enbridge with $373 million in losses.

Another example. Faced with new regulatory hurdles from the Trudeau government, including a review of “upstream and downstream greenhouse gas emissions,” TransCanada Corporation in 2017 withdrew its proposal for its Energy East pipeline, which would have moved oil from the Prairies to the East Coast and opened access to European markets, taking losses of nearly $1 billion.

Fast-forward to today. Federal Bill C-48, which became law in 2019, currently bans large oil tankers from loading or unloading at ports from northern Vancouver Island to the Alaska border. Because of the ban, potential pipeline investors must rule out geographic assets such as Prince Rupert, which is North America’s closest port to Asia, reachable up to three days faster than other ports in the region, and the country’s deepest natural harbour perfect for large crude carriers used for long-haul Asian exports. Crucially, the law does not—and cannot—restrict international oil tankers travelling along B.C.’s northwest coast to and from U.S. terminals in Alaska, effectively only restricting Canada from using its competitive advantage while traffic from the U.S. and elsewhere continues through the same waters.

Then there’s the industrial carbon tax. In May, Ottawa and Alberta agreed to increase the tax from $95 per tonne of CO2 emissions in 2026 to $140 by 2040. According to a recent study by economist Jack Mintz, as Alberta’s carbon tax rises to $140 per tonne, the province’s oil production will be heavily disadvantaged relative to U.S. producers. Moreover, no other major energy-producing country imposes a comparable burden on carbon-intensive sectors.

Which takes us back to last week’s announcement. If approved by Ottawa’s Major Projects Office, the Smith/Carney pipeline will be developed and operated by the Trans Mountain Corporation (which is now owned by the federal government) and the Alberta Petroleum Marketing Commission (a provincial Crown corporation). Pembina Pipeline, the only private-sector partner so far, would hold a 10 per cent stake during the construction phase. Put simply, taxpayers will pay almost all project costs because government policies have made it economically unattractive for private investors to do so.

Why should Canadians care?

For starters, it’s your money. The Carney and Smith governments will use taxpayer dollars (an estimated $35.2 billion to $43.7 billion, so far) to develop the proposal and, if approved, build the pipeline. That means taxpayers will also assume the risk and pay for any cost overruns or losses.

Moreover, the energy sector supports more than 760,000 direct and indirect jobs, and oil is one of Canada’s largest and most valuable export. By discouraging investment—which is exactly what the federal government’s regulatory regime is doing—Ottawa all but guarantees there will be fewer projects and opportunities in an industry that pays (on average) more than twice what workers earn elsewhere. Our economy still relies heavily on fossil fuels and governments benefit greatly from resource revenue royalties and tax revenue from the industry. And from an environmental perspective, oil production—if not maintained here at home—will simply shift to other countries with lower safety standards, resulting in greater damage to the global environment.

In light of its proponents—the Alberta and federal governments—this latest pipeline proposal likely has a better chance of success than private-sector proposals of the recent past. But make no mistake—the reason you’ll pay for this project is because the federal government made it almost economically impossible for private investors to fund major energy infrastructure in Canada. If the Carney government wants to restore confidence in Canada’s investment climate, it must remove unnecessary barriers and ensure bad policy doesn’t price Canadian projects out of global markets.

Share This:

---

More News Articles