MEMORANDUM
TO THE MINISTER OF INTERGOVERNMENTAL AFFAIRS
(FOR
DECISION)
SUMMARY
The deadlock between Premier Clark and Premier Redford
regarding Northern Gateway pipeline is putting the project in jeopardy. The disagreement is about whether Alberta’s
royalties from this project should be shared with BC, in order to compensate it
for potential environmental risks.
Main considerations: Firstly, BC faces more risks and
less rewards than Alberta. Secondly,
Canada does not have an adequate infrastructure to deal with an oil spill, as
concluded in Fall 2010 Report of the Commissioner of the Environment and
Sustainable Development to the House of Commons: Chapter 1.
Thirdly, Enbridge does have a history of pipeline breaches. Fourthly, Enbridge Northern Gateway Project Joint Review Panel
has not yet approved the safety of this project. Lastly, public opinion polls
show that 71% of Canadians support Premier Clark’s demands.
Therefore, the Premier Clark’s concerns are legitimate
and as such they must be addressed in order to propel this initiative forward.
However, this must be done without sharing Alberta’s royalties in order to
avoid a challenge to the Canadian Constitution. Consequently, we recommend that
BC taxes Enbridge in order to ensure that its economic benefits outweigh
potential environmental risks.
Background & Current Status
In
the effort to develop a national energy strategy, the premiers of BC and
Alberta met in July 2012 in order to discuss Northern Gateway pipeline project.
Currently, the premiers are at an impasse due to conflicting needs of each
province: Alberta’s need to protect its jurisdiction over its resources versus
BC’s need to ensure that the economic profit outweighs the possible negative environmental
effects.
Although Premier Clark is not opposed to the
project, she has five demands before she considers approving it. Firstly, the Enbridge Northern Gateway Project Joint Review Panel’s
must give their approval of the project after consideration of all possible
environmental effects. Secondly, top marine
oil-spill prevention and response systems must be developed in order to protect
BC wildlife and its ecosystems. Thirdly, there should be an
on-land spill response that is in line with “world-leading standards”. Fourthly, aboriginal treaty rights must be addressed. Specifically, aboriginal communities must
profit from this pipeline project. Lastly, fiscal
and economic benefits of the Enbridge project have to be in line with what BC “justly”
deserves, considering the risks it runs by allowing this project to come to life.
Currently,
there aren’t any precedents in Canada where one provincial government collected
royalties from another government in exchange for movement of goods. Consequently,
Premier Redford argues that the requested economic compensation infringes on
Alberta’s constitutional right to have jurisdiction over its resources.
However, she conceded that BC’s other requests are reasonable. The premiers
have discussed the possibility of meeting the first week of October in order to
discuss the issue further.
Considerations & Analysis
There
aren’t any major environmental risks for Alberta in pursuing this initiative.
However, total project construction will cost Alberta around $1.58 billion. On
the other hand, it will provide “1,400
person-years of direct on-site employment in AB” and “15,000 person-years of
total employment in AB”, as estimated by Enbridge.
As
for BC, Enbridge describes the benefits to British Columbians as follows: “$1.2 billion in tax revenues over 30 years”
and “35,000 person-years of total employment.” According to BC’s research commission,
around 8.2 % of the Northern Gateway’s $81 billion tax revenue would flow to
B.C. over a 30-year period. However, unlike
Alberta, BC will bear most of the potential environmental risks. It should be
noted that tankers’ route does go through Hecate
Strait, which is some of the most volatile body of water in the world. In
addition, the tankers will go through Caamano Sound, which is covered in fog 20
% of the time. Moreover, these tankers
will need at 33 metres in depth to navigate safely. In one area, the route
passes over a spot that is 35 metres deep. The tankers’
route is home to an abundance of wildlife, some of which is endangered and/or
delicate. The effects of an oil spill in
these parts would be catastrophic.
There
is also a legislative deterrence, 1972 moratorium, which needs to be addressed.
It bans super-tanker traffic along the BC coastline. It is not a law, but it’s observance over
decades has solidified the moratorium into a convention.
Enbridge does have a history of having major oil spills
after pipeline breaches. In light of this, Enbridge Northern Gateway Project
Joint Review Panel was created in order to review the Northern Gateway project. The Panel has considered all written and oral
comments received from BC and Alberta oral hearing sessions. As a result of
those sessions, the Panel required Northern Gateway to file additional
information “on the design and risk assessment of the pipeline.” Once the
requested information from Enbridge is provided, the Panel will have new locations
for oral hearing sessions. The deadline for this report is Dec. 31, 2013.
In 2010, the Commissioner for the Environment
and Sustainable Development has concluded in “Fall 2010 Report
of the Commissioner of the Environment and Sustainable Development to the House
of Commons: Chapter 1” that Canada
lacks the capacity to respond to an oil spill or other marine emergency. This
was concluded even before programs like Environment Canada’s Environmental
Emergency Programme, DFO’s Centre for Off-shore Oil, Gas and Energy Research
(COOGER) were cut down.
In
the past, Parliament has passed legislation in order to facilitate construction
of TransCanada Corp and Alaska gas pipeline. If Northern Gateway pipeline is
forced through when National Energy Board disapproves of it, this could damage
the credibility of NEB or risk a conflict with the aboriginal people.
A
number of benefits for the aboriginal people have been specified by Enbridge,
but aboriginal people do not support the construction of the pipeline. They are
promising physical and legal roadblocks. The trials and appeals could hold back
the pipeline project. There are more than 40 groups that have laid claim to the
land where the pipelines will pass through. Each of these groups have the right
to their separate negotiations with Enbridge. Some of these groups are
completely opposed to the pipeline. Federal government has the authority to
expropriate, but the consequences of such action will be problematic at best.
The
country’s support
for the Northern Gateway Pipeline is divided. An opinion poll done by Abacus
Data shows the following: 63% of Albertans support (strongly and somewhat)
construction of the pipeline and 56% of British Columbians do not; 71% of
Canadians believe that Premier Clark’s demands are justified, but 66% of
Albertans disagree. Abacus Data concluded that in the last seven months the
national support for initiative has declined. However, those who believe that
that all Canadians believe from oil sands are more likely to support the
pipeline construction. Consequently, it is crucial to stress the national benefits
to oil sands development in effort to acquire more support for the pipeline.
Options
In
consideration of the analysis above, it will be imperative to convince Premier
Clark that the economic benefits outweigh the potential environmental costs. In
view of this, we suggest two possible approaches to address the growing
provincial rift:
- Suggest to Premier Clark to examine a possibility of a tax to offset the environmental costs (Recommended)
- Satisfy BC government demands for top marine oil-spill prevention and response systems by adopting the recommendations of “Fall 2010 Report of the Commissioner of the Environment and Sustainable Development to the House of Commons: Chapter 1”. Consequently, the environmental risks will be lessened and Premier Clark might reconsider her position on royalties.
Option 1
BC
Legislature can introduce an export or port tax on Enbridge. It could also
introduce tax breaks if the ships meet certain safety standards. As a result, BC
will be providing the incentive for Enbridge to keep their ships at in the best
shape. Alternately, BC could tax different grades of oil at different rates.
The
legislative requirements are minimal for this option. The bill will have to go
through normal process in Legislative Assembly, and if passed, it should come
into the effect on the first day of operation of the pipeline. This tax will be
fully within the jurisdiction of the province. On the administrative side, an
infrastructure will need to be set up to collect the taxes at the port and evaluate
the condition of the tankers to make sure they meet the standards specified by
BC government.
By
meeting BC’s requirements for these systems, the Northern Gateway will acquire
more support from BC voters and other Canadians who are on the fence due to
environmental concerns. In addition, this
option should be supplemented by media blitz that outlines the national
benefits to oil sands development.
Option 2
In
hopes of minimizing the environmental costs to BC and by doing so persuading
Premier Clark to support the initiative, federal government can work with BC
government in effort to acquire the best marine oil-spill prevention and
response systems. The implementation of this option will be lengthy. However,
this action will be in line with the thinking of the Commissioner for the Environment and Sustainable Development, who
stressed Canada’s lack of adequate ability to clean up oil spills. If Canada is
to become “world energy superpower” via development in oil sands, then it would
be prudent to develop the systems to deal with any potential oil spills.
The
legislative requirements and legal requirements are extensive for this option
as outlined in aforementioned 2010 Report. Canadian Coast Guard, Environment
Canada and Transport Canada have agreed to implement the recommendations
outlined in the report.
Recommendation
We
recommend Option 1 in effort to
immediately diffuse the conflict between the provinces. It would persuade
Premier Clark that economic benefits outweigh the potential environmental
costs. However, as the Northern Gateway pipeline comes to fruition, Option 2 should be looked into
extensively in order to be prepared for the dangers associated with the
transfer of oil.
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