How to Build a Pipeline
One of the most peculiar political paradoxes in the country is that we treasure the world’s 3rd largest proven oil reserve (Alberta alone has the 4th largest), but we can’t build a pipeline. A labyrinth of Federal bureaucracy is to blame.
No mode of fossil-fuel transport is as efficient, economically desirable, or safe, as a pipeline. They are unobtrusive, environmentally friendly, critical apparatus’ of infrastructure shipping our oil to market. Of course, the more oil we harvest and sell, the more real wealth our province creates. The more wealth we create, the more money flows into Alberta. The more money that flows into Alberta, the higher our standard of living as new jobs, wages, and savings, are transferred into the hands of working families. Therefore, Alberta should build some pipelines!
Of course, because we’re hitched to Confederation, there’s a problem:
- Alberta wants (and needs) to build pipelines
- The Federal Government of Canada does not want Alberta to build pipelines
- Alberta cannot build pipelines
What would an independent Alberta do to clear this frustrating obstruction of wealth and make sure it never happens again?
- Our Current System
Just as a doctor has to diagnose a patient with a disease to prescribe a cure, we must diagnose the issues halting pipeline construction to administer an economic cure. In this case, the problem is an obtrusive bill protruding from the House of Commons and stabbing Alberta in the back—Bill C-69.
Simply described, Bill C-69 introduced an “Impact Assessment Agency” (IAA) to the economic regulatory process in Canada.
What does the IAA do?
The IAA’s public purpose is to preserve the natural landscape of Canada by fostering sustainability and protecting components of the environment. In addition to this, their assessments of energy projects (like pipelines) are substantive analyses on the effects of health, culture, and socio-economic conditions inflicted on citizens from the project.
If an investor wants to construct a pipeline, he must approach the IAA and acquire an environmental assessment. The IAA asks and answers the questions, “How will this pipeline affect the environment? How will it affect the health, culture, and socio-economic conditions of those it comes in contact with?”
Once the IAA completes its report (however long it takes), they present their discoveries and analysis to none other than the Minister for Environment and Climate Change, Steven Guilbeault. Guilbeault is a noted environmentalist and is, perhaps, the most anti-pipeline protestor in Canada. After that, Cabinet debates and decides to reject or accept the pipeline’s construction.
Knowing this information, we can diagnose this particular economic disease in Canada:
No one has confidence in our regulatory process.
Pipelines are very expensive to build. Once they’re constructed and trenched into the ground, an investor can’t recover that cost of the pipeline by putting it to other uses. This is why pipelines are called sunk costs. If they don’t do exactly what they’re designed to do (in this case, transport oil), the investor will lose money, and lots of it.
Now that Bill C-69 is the regulatory law of the land, no one knows if a government will shut down a pipeline halfway through construction, or worse yet, after it’s completed. Because the Federal Government in Ottawa appointed itself the power to halt and open pipelines as it pleases, investors must consider the substantial risk (that few are willing to bear) of losing their investment.
Some might argue, “Well, we have to just vote in a Conservative Government or the PPC. Then we’ll get a pipeline built!”
The problem is that pipelines take a long time to build and recover costs. A Conservative Government might permit that a pipeline be built, but what happens when the Liberals return to power five years later? The pipeline will be shut down, and investors will lose millions. Again, no one wants to risk that happening, so they manoeuvre their capital to other projects or other countries.
- The Solution
At the APP, we are committed to getting government out of the private sector. However, pipelines are extensive natural monopolies, so some form of regulation is required to generate an efficient market outcome. The APP is resolute that Bill C-69 must be scrapped, and a new, independent, regulatory institution, needs to take its place.
Government must be excised from the regulatory process entirely. An effective regulatory institution would contain the following:
a) The regulator’s only objective is to maximize economic efficiency [Total Surplus].
b) A regulatory board is to be composed of an “x” number of board members who possess expertise in the field of regulatory economics.
c) Board Members must serve for a set term on the board.
d) Politicians must not possess any power to replace and/or appoint board members within the regulatory agency.
e) Politicians and businesses are to be wholly excluded from the regulatory process to eliminate political interference, and other regulatory problems
f) Regulatory hearings are not to include special interest groups. Only certified experts of the relative case have the right to testify in front of the board.
g) The regulatory board is the sole decider about what energy projects are constructed.
h) If the regulator does not rule to maximize total surplus, the decision may be appealed and challenged in court.
An investor would approach the regulatory board with an application to construct a pipeline. The board would investigate the benefits from the pipeline (like jobs, GDP growth, and savings) in contrast to the cost of the pipeline (like damage to the environment). Then, after performing an analysis, the regulator would decide whether the pipeline generates an economic surplus or not. If it does, the pipeline should be constructed. If not, the pipeline should be rejected. Because the board would rule on the grounds of economic efficiency, investors would generally know the outcome even before the regulatory process begins! An independent regulator would eliminate the present concerns with risk and holdup, and investors could invest in Alberta without fear of having intrusive governments sour their investments ever again.