TransCanada Pipeline’s Energy East pipeline (EE), if approved, will run from Hardisty Alberta to St. John, New Brunswick and will carry bitumen from Alberta’s Tar Sands to refineries in Quebec and New Brunswick.
A new Canadian Centre for Policy Alternatives MB report examines the purported economic benefits for Manitoba as presented in three different impact studies prepared by industry experts (Conference Board of Canada; Deloitte; and the Canadian Energy Research Institute). Benefits include the effect on GDP, the projected increase in tax revenue, as well as job creation numbers. The report raises concerns with these studies.
What the Three Studies Claim
The three impact studies use input/output (I/O) models to estimate the economic impact of the project. The benefits noted in the reports vary in magnitude (partly because the assumed lifespan of the pipeline varies), but all three studies claim the project will cause considerable direct and indirect increases to GDP and that tens of thousands of jobs will be created throughout the country.
The GDP impact for Manitoba is estimated at $2.2 billion (CBOC, over 20 years), $1.8 billion (Deloitte, over 40 years) and $3 billion (CERI, over 25 years). On annualized basis, these impacts are well below one per cent of current GDP estimates (0.17, 0.069, and 0.18).
The relative impact on Manitoba is small because most of the pipeline in the province already exists and new construction will only take place for a feeder pipeline connecting the Bakken crude oil formation, on the Saskatchewan/Manitoba border, to the Mainline. Accordingly, most of the benefit will be realised in the operation stage of the project. Crude oil storage tank terminals will be built in Manitoba and Saskatchewan. Four existing oil pumping stations in Manitoba will be expanded and four new pumping stations will be built. The forty-year old pipeline will be ‘repurposed’ to carry diluted bitumen which is more corrosive and toxic than the natural gas the pipeline was built to carry.
At first glance the number of estimated jobs, reported as Full Time Equivalents (FTEs) seems impressive. But an FTE is merely one job that lasts one year. So, the 32,000 FTEs estimated for Manitoba in the CERI report, for example, has to be divided by the estimated lifetime of the project – 25 years, giving us a total of 1,280 jobs. The Conference Board’s 11,547 FTEs divided by 20 years yields 577 jobs and Deloitte’s 13,858 FTEs divided by 40 years delivers 346 jobs.
I/O models can be useful for very rough estimates, but they must be tempered with the understanding that labour and other supply shortages likely exist and that calculating the full chain of employment and supplies is difficult. Furthermore, we cannot assume that interest rates or the exchange rate, price of oil or policy environment will remain constant. One need only consider the recent dramatic fall in the price of oil and the Canadian dollar to appreciate just how quickly I/O results can be rendered outdated.
What the Three Studies Ignore
None of the reports use a cost/benefit analysis to estimate the environmental damage, potential loss of life and property value depreciation caused by pipeline leaks, spills or explosions. Experts have noted that it’s not a matter of whether the pipeline will leak, but when. There were five such leaks, at least two with explosions, in Manitoba between 1994 and 2014. The project carries the potential to contaminate drinking water – including Winnipeg’s water source at Shoal Lake and the aqueduct to Winnipeg – warranting a re-evaluation of its present route. EE will contribute heavily to Canada’s (and Manitoba’s) emissions profile, with associated future costs. The Social Cost of Carbon (SCC) is not considered in any of the reports.
The SCC explicitly acknowledges that extracting, processing and combusting fossil fuels imposes a cost on society in the form of pollution, illness and climate change. Building, refitting and operating EE over 40 years, will, according to Deloitte, yield a net present benefit to the Canadian economy of $35.3 billion. But using a similar discount rate, we calculate that in just 25 years the social costs of the GHGs additional to the project will amount to an estimated $307 billion—almost 9 times the projected benefit.
The exercise of calculating the SCC highlights how the pipeline will add dramatically to Canada’s emissions profile. Following COP-21, in which the world agreed to pursue efforts to limit warming to 1.5 degrees, Manitoba and Canada will have to abandon pipeline projects if we are to take this more ambitious target seriously. As the CCPA report points out, Manitoba is well positioned to move away from fossil fuels
The Energy Return on Investment (amount of energy gained for the amount of energy invested) of Canada’s unconventional heavy crude is poor (4:1), while hydroelectricity – Manitoba’s staple fuel source – is comparatively much better (84:1); even wind and solar photovoltaic have better returns than tar sands, with a ratios of about 20:1 and 10:1, respectively.
If the allure of the pipeline is the prospect of job creation, then there are better ways to achieve this while mitigating climate impacts and delivering higher quality energy directly to the economy. Estimates from Manitoba Hydro’s Demand Supply Management strategy, which includes conservation, retrofitting and use of renewables, show 40,000 FTEs over 15 years, compared with CERI’s estimate of 12,000 FTEs over 25 years (2,666 vs. 480).
Beyond environmental risks the most straightforward reason to pause and reflect on EE development is that it is not economical to invest in pipeline infrastructure for heavy Canadian crude at present oil prices. With prices currently sitting below extraction costs, and the growing geo-political pressure to ‘leave it in the ground’, the economic viability of processing and transporting bitumen is shaky at best.
Proponents have not presented a compelling case for EE: it does not make sense economically or environmentally. If Manitoba is to follow through on its ambition to achieve carbon neutrality by 2080, as stated only months ago, it is imperative that we abandon fossil-fuel intensive infrastructure.
The path to carbon neutrality and sustainable economic activity lies in a different direction from EE; it is up to our political leaders to chart a course in that direction.
Lynne Fernandez holds the Errol Black Chair in Labour Issues at CCPA MB. Mark Hudson is CCPA MB steering committee member and research associate, and James Magnus-Johnston teaches Economics at the Canadian Mennonite University and is the Canadian Director of the Centre for the Advancement of the Steady State Economy (CASSE).