Thursday, January 24, 2013

Testimony to the Joint Review Panel on the Enbridge Northern Gateway Project


By Marc Lee, Canadian Centre for Policy Alternatives
January 16, 2013
My name is Marc Lee, and I have served as an economist for the Canadian Centre for Policy Alternatives for more than 14 years. Most recently I have been Senior Economist and the Co-Director of the Climate Justice Project, a multi-year SSHRC-funded research project with the University of British Columbia, in collaboration with a large team of academics and community groups.
A year ago, Natural Resource Minister Joe Oliver’s open letter stated that the Northern Gateway Pipeline was in the national interest and would substantially boost our GDP and employment. I decided to evaluate those claims, and published my findings in a report for the CCPA, called Enbridge Pipe Dreams and Nightmares: The Economic Costs and Benefits of the Proposed Northern Gateway Pipeline.
I believe that the government’s job should not be to be cheerleaders for proposals, but should make a ruling in the public interest by carefully weighing both benefits and costs. And on those grounds, I conclude that the Northern Gateway Pipeline fails the public interest test.
Enbridge’s claims about tens of thousands of jobs are grossly overstated, in part because a person-years of employment are not the same as jobs, but mostly because those large numbers are based on flawed input-output modelling that makes many unjustified assumptions. A closer look at Enbridge’s own numbers reveals a different story when it comes to job creation.
While there are clearly large profits that would accrue to the oil and gas industry, and governments will get a share of those profits through taxes and royalties, for ordinary Canadians the harsh reality is that very few jobs would be created by the pipeline.
The vast bulk of work associated with the pipeline would come during the three-year construction phase. In terms of jobs, we can bank on no more than 3,000 jobs per year for three years during the construction phase. Enbridge’s submission states 1,850 per year for three years for building the pipeline. If we assume that the steel and pipe will be manufactured in Canada – something that has not been committed to by Enbridge – that would lead to another 1,000 jobs for three years at most.
Once complete, Enbridge estimates a mere 217 direct jobs in pipeline operations. This is not surprising because the oil and gas industry is one of the most capital-intensive in the world, employing less than 1% of Canadian workers. The share of total income generated by the NGP going to workers, at 18%, is very small by historical standards.
Labour shortages in the construction sector imply that if the pipeline is not built the vast majority of workers would likely be working somewhere else. This is an important point because the modelling invoked by Enbridge essentially assumes that workers would otherwise be unemployed. In addition, the growing tens of thousands of temporary workers in the oil and gas industry suggest that jobs that are created may not even go to Canadians.
Similarly, Enbridge’s claim that Aboriginal employment will fill more than one-third of regional labour requirements is questionable. No commitment to training local residents is specified, so skilled work would only go to workers who already have the qualifications required. Thus, it is likely that Aboriginal workers will be more present in low-skill, low-wage employment, while temporary skilled labour will come from outside the region.
There are other problems in Enbridge’s input-output modelling, some of which seem to be endemic problems with that kind of approach, while others seem to be a mis-application of the modelling. More than two-fifths of Enbridge’s stated employment gains come from induced job creation, the local economic impact of expenditures by workers and governments. These impacts are particularly difficult to estimate and can easily be overstated.
Overall, implausibly large numbers derived from input-output modelling – 63,000 jobs during construction and 1,146 permanent jobs once complete – simply cannot be justified, and should be dismissed as evidence in favour of the pipeline.
Set against the employment fiction created by this modelling exercise, the Enbridge proposal instead passes up value-added employment creation opportunities from upgrading and refining in Canada.
Another missing element from input-output models is the alternative uses of funds. While the pipeline will create temporary and some permanent jobs, the choice for policy makers is not between the NGP and nothing. My report considers alternative investments of $5 billion, particularly in green economic development that would also reduce our greenhouse gas emissions and our reliance on fossil fuels.
Spending $5 billion on public transit, building retrofits, renewable energy and so forth would generate between 3 to 36 times more jobs than investing in the pipeline. A modest carbon tax of $10 a tonne applied nationally would generate $5 billion per year, every year, that could facilitate such investments.
Finally, there are economic costs of moving forward. Having 220 super-tankers up the inlet into Kitimat (in addition to hundreds of LNG tankers also being pursued) will have a negative impact on commercial and traditional fishing in the region even if there are no spills. Eco-tourism, as an alternative industry and employer in the region, would suffer if the pipeline is built.
Pipeline spills are an obvious environmental and economic cost. Given the track record of the industry in general and Enbridge in particular, the question is not if there will be a spill but when and how bad it is. Diluted bitumen is highly corrosive and breaks the pipes it travels through. Enbridge alone has had more than 800 leaks in its pipeline network going back just over a decade. In the US, there have been more than 5,000 pipeline spills going back to 1990. Spills are a just a routine aspect of doing business from a corporate perspective.
In the BC development region of North Coast and Nechako, there were about 5,500 jobs in 2010 in categories that would most likely be affected by an oil spill (such as tourism and fishing) and 12,670 jobs in the Cariboo development region. Even if one in ten of these jobs were affected, the job losses that could result from an oil spill would be larger than new permanent jobs created by the NGP.
Not counted in these statistics is the subsistence economy of fishing and trapping, an important source of non-market food for people in rural areas. The submission by the Gitga’at, whose territory covers the tanker route out of Kitimat, notes that these sources account for about two-fifths of their food supply.
While spills are more of a probabilistic matter, greenhouse emissions are not. The pipeline would facilitate 80-100 million tonnes of CO2 into the atmosphere every year, which is more than BC currently emits in total. Recent estimates of the external costs of carbon emissions are typically in the range of $50-200 per tonne, which implies some $4-20 billion in economic costs from GHG emissions facilitated by the pipeline.
Given that the pipeline is anticipated to create about $4 billion per year in profits to Enbridge shareholders and oil sands producers, these should be considered odious profits that come at the expense of people in other countries and into the future.
Already, the world is seeing growing economic costs resulting from historical GHG emissions. Scientists agree that action is needed to rapidly shift off of fossil fuels, and such a commitment will hopefully be reflected in a new international treaty. Locking in a multi-billion-dollar piece of fossil fuel infrastructure runs the risk of becoming a stranded asset as the world inevitably transitions to clean energy sources.
In sum, there are few economic benefits of the pipeline outside the gains that accrue to shareholders, and at the same time there are massive costs that will be imposed on people and nature from the pipeline. The Northern Gateway Pipeline therefore fails the cost-benefit test and the Joint Review Panel should not approve it.

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