Energy Policies

Let market decide on Energy East

The reactions to the federal government’s recent decisions to green-light two pipeline projects for transporting Alberta oil were mostly predictable: cheers from one corner, jeers from the other.

But approval for the expansion of Kinder Morgan’s Trans Mountain pipeline to British Columbia, and for the replacement of Enbridge’s Line 3 to Wisconsin, also elicited a different kind of response: If we’ve got these, then why do we still need Energy East?

Montreal Mayor Denis Coderre, a vocal opponent of this latter project to bring Alberta oil to New Brunswick, was among those singing this refrain.

But the question is not whether such a project remains economically viable given the unblocking of other projects. The question is whether, assuming a private company like TransCanada still thinks it is viable, government should override this market decision.

The answer, clearly, is that government should do no such thing. It is not the proper role of government to decide on the economic viability of business ventures. Market actors, investing their own funds, are much better placed to make such decisions — and have a much better track record making them.

Besides which, it is surely wrong to assume that because more Alberta oil will soon have an easier time getting to the Pacific Coast and the U.S. Midwest, it no longer needs to get to the Atlantic. The harbour at Saint John opens up on different markets. Again, it is up to market actors, not government, to determine if all the numbers add up and make a project worthwhile.

What does constitute the job of governments and regulatory agencies is to ensure that safety and environmental norms are respected, both in the construction of pipelines and in their operation and maintenance. This, they already do, contributing to the excellent records of the 73,000 km of pipeline under National Energy Board supervision, which already criss-cross Canada far more than many realize.

In addition to safety concerns, opponents of pipelines are also motivated by the fight against climate change. Some take particular issue with pipelines to move oil from Alberta’s oilsands, because the production process releases more greenhouse gases than for conventional oil.

Note that pipelines themselves do not emit GHGs, so production levels and emissions are an entirely different debate. Even so, most of the GHGs released due to our use of oil are released not during its production, but during its combustion — from 70 per cent to 80 per cent, in fact. Over their entire lifecycles, the difference in emissions for the two kinds of oil is minor. If conventional oil were so much cleaner, where are the cheers from the green movement for those projects?

At any rate, Alberta oil will get to market, by train or by truck if it can’t get there by pipeline. And if we didn’t use Alberta oil, we would use oil from somewhere else. As consumers, we demand oil, and that demand will be supplied one way or another. Blocking a pipeline or two will not change that.

The simple fact is that tackling climate change is not about supply; it’s about demand. Changing consumption habits are already having an effect. Governments can have some impact on demand too, although they are notoriously bad at weighing costs and benefits in such matters.

But it is technological innovation that is the real fount of solutions to such problems, reducing our demand for oil and its attendant GHGs by offering us better alternatives, and bringing down the cost of such alternatives — or by finding better, cheaper ways of capturing GHGs to neutralize our impact on the climate.

And again, it is not up to the government to choose technological winners and losers by doling out subsidies. Deciding which technologies to invest in, like deciding whether a pipeline project is worthwhile, is a job best left to the market.

Youri Chassin is Economist and Research Director at the Montreal Economic Institute. The views reflected in this op-ed are his own.

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