This piece originally appeared on the Canadian Centre for Policy Alternatives.

There is no question that the new B.C. government’s decision to proceed with the Site C dam was a very difficult one. The previous government left them with a poison pill.

With $2 billion already spent, the Horgan government faced a no-win choice, with substantial political and economic costs for either terminating or proceeding with what is one of the largest and most expensive capital projects in B.C. history.

I don’t envy them.

But count me among those who believe the wrong decision was made.

In a difficult decision like this one, it matters who gets listened to, whose expertise wields authority and what considerations win the day. That’s why unpacking this decision matters — so we can consider how progressives might shake up the framework by which future decisions are made.

First things first, this decision does deep harm to the prospects for reconciliation with Indigenous people. It is fundamentally at odds with the government’s stated commitment — affirmed in the NDP-Green Agreement and in the mandate letters of each Minister — to implement the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP).

Fundamental to UNDRIP is the duty to secure consent before engaging in major projects that impact the land and title of First Nations people. Achieving that consent should be embedded in our decision-making process. And yet in this case it is absent.

For thousands of people who strongly oppose Site C for both environmental and Indigenous rights reasons, this decision feels like a political betrayal — and will for many years. And with every likely new announcement of a cost overrun in the years to come, more salt will be ground into the wound.

The CCPA’s Marc Lee, in his submission last summer to the B.C. Utilities Commission, outlined why he felt the electricity Site C will provide is not needed. Indeed, our contention for many years has been that what was truly driving the push for Site C was the natural gas industry’s demand for electricity — both for fracking operations and, down the road, to electrify the process of liquefying that gas. Meaning it was primarily about producing “clean” energy in service of dirty fossil fuels, and it still might be.

In the final years of the Clark government, the push to take Site C “past the point of no return” was, I believe, driven by a different but related political imperative.

Having failed to secure foreign investment for a new LNG industry (and the associated promise of thousands of jobs for B.C.’s northern regions), Premier Clark, ironically, beat a path back to the public sector and looked to BC Hydro to deliver those jobs through construction of the Site C dam.

“In a difficult decision like this one, it matters who gets listened to, whose expertise wields authority and what considerations win the day. That’s why unpacking this decision matters.” via @SethDKlein and @CCPA_BC https://t.co/UFcqbxEui2

— DeSmog Canada (@DeSmogCanada) January 18, 2018

Economic rationale doesn’t hold water

Notably, when Premier Horgan made the announcement that the government would proceed with Site C he appeared decidedly unenthusiastic. Make that downright miserable. He made clear that Site C was, at its outset, a wrong-headed policy choice, and not a project his government would have started. But with $2 billion spent and reclamation costs of termination pegged at $1–2 billion more (likely the low end), the Premier felt his government had “no choice” but to proceed.

Granted, the prospect of spending $3–4 billion and having nothing to show for it hurts.

But the government went further, stating that absorbing such a bill would put its progressive economic and social agenda at risk. Some ministers expressed the view that termination costs would threaten B.C.’s Triple-A credit rating and would consequently drive up our debt service costs.

Minister Mungall, in an email sent to those who wrote to her about Site C, stated, “To do anything but move forward would require British Columbians to take on $4 billion in debt that would have to result in massive cuts to the services people count on us to deliver. After witnessing the legacy of BC Liberal cuts, I can’t allow that to happen again” (emphasis mine).

This line of argument may sound compelling. But on closer inspection, it is not at all convincing.

Had the costs of termination remained on BC Hydro’s books, this would indeed have resulted in an increase in Hydro rates, but not to the degree stated by the government. And proceeding with Site C will also result in increases in Hydro rates down the road (quite possibly more so).

Given that the decision to green-light Site C was politically driven by the previous government, my view is that the costs of terminating the project should not have been borne by BC Hydro, but rather by the provincial government as whole (as it seems the government considered).

Some may say this makes no difference — taxpayers and ratepayers are one and the same after all. But it does make a difference. As the CCPA has noted in past research, Hydro rates are regressive — they impact lower-income households harder than upper-income ones. In contrast, provincial government debt is serviced from overall taxes, which are mildly progressive now that the new government has brought in an upper-income tax bracket and is phasing out MSP premiums. With further fair tax reform, the costs would be even more fairly distributed.

Relieving BC Hydro of the costs of termination could have been done by either transferring the Site C sunk costs and termination costs onto the provincial government’s debt or, if the government did not want to assume the $3–4 billion debt from BC Hydro, it could simply have agreed to annually transfer the interest costs of that debt to BC Hydro (as restitution for this politically imposed cost).

Four billion dollars in debt would result in additional interest costs of at most $150 million a year. That’s not insignificant. But neither is it enough to derail a government’s agenda: it is 0.3 per cent of the province’s $50 billion annual budget.

Would taking on $3–4 billion in termination debt, with no asset to show for it, squeeze out the rest of the government’s agenda and potentially erode B.C.’s credit rating with the consequence of driving up debt interest costs? This seems highly unlikely.

At today’s interest rates, $4 billion in debt would result in additional interest costs of at most $150 million a year. That’s not insignificant. But neither is it enough to derail a government’s agenda. $150 million is less than the current surplus. And for context: it is 0.3 per cent of the province’s $50 billion annual budget.

In contrast, consider that in the September 2017 Mini-Budget, the new government cut MSP premiums by 50 per cent and chose not to replace those revenues with progressive tax increases (as the CCPA has previously recommended). In doing so, the government chose to walk away from $1.2 billion in annual revenues — a much more costly decision it did not feel put the rest of its agenda at risk.

Similarly, as Green Party leader Andrew Weaver has noted, the government chose to cancel tolls on the Port Mann Bridge and take on that debt at a price of $3.5 billion (and annual costs of replacing the toll revenues of about $150 million), but expressed little concern about the impact this would have on the affordability of B.C.’s debt.

The September Mini-Budget estimated that taking on the Port Mann Bridge debt would increase B.C.’s debt-to-GDP ratio (the size of the provincial debt compared to the size of the economy) by about 1.2 percentage points. The cost of terminating Site C would have been similar in debt-to-GDP terms — an impact that is entirely manageable in economic terms and well within B.C.’s recent debt levels.

Would taking on this debt have resulted in a downgrade to B.C.’s credit rating?

Possibly, but not necessarily. B.C.’s fiscal situation would have remained enviable (with respect to both debt-to-GDP and debt service costs relative to other provinces). It is arguably also possible that credit rating agencies would have given kudos for termination, seeing it as an expression of fiscal caution that avoided further potential multi-billion dollar cost over-runs (as is common with such mega-projects), particularly given the fact the credit agencies and B.C.’s Auditor General have already expressed concerns about BC Hydro’s debt load.

Even with a downgrade (if it occurred), would B.C. face significantly higher interest costs?

Again, while there is frequently fear-mongering about this outcome, this result should not be assumed — bond markets don’t respond slavishly to credit rating agency assessments. And if there was a credit market response to a downgrade, it would have been minimal.

Canadian provincial credit ratings vary from B.C.’s Triple-A high to PEI’s Single-A low. But as economists Trevor Tombe and Blake Shaffer note, the practical significance of this difference is that long-term provincial bond interest varies from 3.1 per cent in B.C. to 3.5 per cent in the Atlantic provinces. They note further that, “On average, each notch on the S&P ratings scale is associated with 0.04 per cent higher yield on a 25-year bond.”

In other words, not much.

Letting others call the tune

Numerous NDP MLAs have offered public explanations of the decision to proceed, all stating some variant of: we referred the BCUC’s report for further analysis to financial experts, and with great regret, were told that, while the actual costs of termination versus completion were similar, the accounting treatment of the choices would be very different.

Effectively, the government has said that accounting practices — as interpreted by finance ministry officials — trumped good policy and UNDRIP.

The problem, I fear, is that the full scope of options gets lost at the Cabinet table. If one’s deputy minister, for example, sounds the debt and/or credit rating alarm, few politicians feel comfortable pushing back. Or if the government is spooked by a credit rating agency warning — Finance Minister Carole James did go visit the rating agencies early in the new government’s mandate — there is political fear of a downgrade.

It is a curse of modern social democratic governments that, on economic matters especially, they are inclined to let others tell them what is and isn’t allowed. This dynamic plagues otherwise progressive people who lack confidence in economics, and it is heightened when senior civil servants remain in place after a change of government — the same people giving the same advice as always.

It is a curse of modern social democratic governments that, on economic matters especially, they are inclined to let others tell them what is and isn’t allowed.

Another way was possible. The government could and should have taken on the costs of termination (realistically a figure closer to $3 billion). It could have taken on other energy conservation and renewable electricity projects over the coming years (wind, solar, geothermal, etc.) as needed and in partnership with local First Nations and the building trades.

In doing so, it could have created just as many jobs as Site C will provide, but more helpfully spread across the province and closer to where people actually live, rather than concentrated in one locale (which will mean having to import much of the labour). Indeed, this is exactly what the NDP proposed in its 2015 Power B.C. plan.

Sadly, that plan was short-lived. A lost opportunity to move forward with far less of a price and much more to gain.

What now?

In the end (and official explanations notwithstanding), Site C was clearly a political decision — not an economic one. Only time will tell if that political decision was strategically correct or a costly mistake.

The government made a calculation (affirmed by recent polls) that the majority of the public would support continuation. They likely worried about the reaction of mainstream media pundits and the corporate sector had they chosen termination.

But the economic and political costs of proceeding with Site C will haunt the government throughout its mandate and beyond.

It seems at this point that the prospects of an about-face are highly unlikely. So why bother rehashing the decision?

First, it is important that unconvincing economic justifications — and the fear-mongering of credit rating downgrades — be challenged, otherwise the precedent is set for more disheartening decisions down the road.

Second, understanding this decision matters so that the new government can be encouraged to approach future ones differently. Much progress is clearly still needed to truly implement and operationalize UNDRIP in B.C. policy-making. And this is an opportunity to change the frame, to shift whose expertise wields authority and to reconsider what priorities win out.

In the last election British Columbian voted for change. Rather than deferring to the same accountants and ministry officials, this still new-ish government can continue to bring in new voices, invite more creative solutions and engage more fully with civil society.

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This is a guest post by Mark Jaccard, professor of sustainable energy at Simon Fraser University and a convening lead author in the Global Energy Assessment. 

During B.C.’s 2013 election campaign, at a conference of energy economists in Washington, D.C., I spoke about how one of our politicians was promising huge benefits during the next decades from B.C. liquefied natural gas exports to eastern Asia. These benefits included lower income taxes, zero provincial debt, and a wealth fund for future generations. My remarks, however, drew laughter. Later, several people complimented my humour.

Why this reaction? The painful reality is that my economist colleagues smirk when people (especially politicians) assume extreme market imbalances will endure, whereas real-world evidence consistently proves they won’t. For B.C. Premier Christy Clark to make promises based on a continuation of today’s extreme difference between American and eastern Asian gas prices was, to be kind, laughable.

For many years, natural gas prices differed little from one region to another. But the shale-gas revolution in the U.S. in the past decade created a glut, causing rock-bottom prices in North America. Meanwhile, prices in eastern Asia were pegged to the price of oil, which has risen. These two trends led to a price divergence starting in 2008. By 2012, Japanese gas prices were more than four times higher than North America’s.

If that difference was to hold for several decades, producers could earn sufficient revenues from Asian sales to cover shale gas extraction, pipeline transport, cooling to liquid in LNG plants, shipment across the Pacific, healthy profits, and billions in royalties and corporate taxes. That’s an attractive image in an election. But it can quickly become a mirage as gas markets behave like markets.

In competitive markets, a price imbalance triggers multiple profit-seeking actions, which work to eliminate the difference — usually sooner than expected — by those hoping to benefit from it. In this case, there are many potential competitors for the gas demands of China, Japan and their neighbours. China can invite foreign companies to help develop its massive shale gas resources. It can buy from Russia, which has enormous gas resources. It can also buy from other central Asian countries, such as Kazakhstan. It can also encourage a bidding war between prospective LNG suppliers from many parts of the world, some of which will have lower production costs than B.C.

The result will push down the price in eastern Asia. As was easily predicted by my smirking colleagues, it’s already happening. Unofficial reports put the price of a recent gas contract between China and Russia at $10.50 per million British Thermal Units, far below the peak Asian price, and close to (if not below) the cost of sending B.C. gas to China. At this price, there will be no government royalties, no lower income taxes, no debt retirement, no wealth fund. Maybe no LNG plants.

If any LNG plants are built in B.C., they will likely be constructed and operated as cheaply as possible, which will put the lie to another promise of Clark’s. In a province with legislated targets for reducing carbon pollution, she promised B.C. would have “the cleanest LNG produced anywhere in the world from well-head to waterline.”

As it turns out, this promise is easy to verify. Experts know the cleanest LNG in the world is the Snohvit project in Norway, which emits 0.35 tonnes of CO2 per tonne of LNG. The under-construction Gorgon facility in Australia will match it.

But, public documents indicate British Columbia’s proposed LNG industry will be three times worse, producing one tonne of CO2 per tonne of LNG. Were three such facilities built as proposed, they would bring oilsands-scale carbon pollution to B.C., doubling our current emissions and making it impossible to meet our legislated targets.

We could build the cleanest LNG systems in the world. This would require reducing methane leaks from processes and pipelines, capturing and storing carbon pollution, and using renewable energy to produce electricity for processing and cooling natural gas, as Clean Energy Canada has recently showed.

But this is unlikely, especially as those Asian gas prices fall. So brace yourself for another barrage of Orwellian doublespeak from government and industry, in which cleanest means dirty, great public wealth means modest private profits, and revised climate targets mean missed climate targets. No doubt my economist colleagues will be amused. But should they?

Image Credit: Province of B.C. via Flickr.

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The recent shelving of the Joslyn mine oilsands project in Alberta is a reminder of the fragile economics of the oilsands. No economic formula could be found to make the $11 billion project work and it has been put on hold indefinitely.           

Oil major Total E&P, the biggest partner in the project, said the Joslyn mine project “cannot be (financially) sustainable in the long term.” Interestingly, Total did not blame lack of new pipelines for squeezing profit margins either.

“You run the risk in developing fossil fuels that one day will either become fully depleted or too expensive to extract,” Philip Gass, a policy analyst at the International Institute of Sustainable Development, said from Winnipeg.

It would be difficult to deny Canada has economically benefited from developing the oilsands, a particularly difficult and expensive fossil fuel to mine and refine into light fuels — but failing to diversify the Canadian economy beyond an oil and gas ‘energy superpower’ makes for a very uncertain economic future for Canada.

“Canada could find itself an energy superpower overspecialized in the ‘old economy’ (resource extraction) in a world rapidly trying to cut carbon emissions and avoid catastrophic climate change,” Andrew Jackson, a senior policy advisor with the Broadbent Institute, told DeSmog Canada.

“Putting all your eggs in one basket is never a good economic strategy,” Jackson said.

Benefits of Energy Development Remain Largely Locked in the Sector

The idea that all Canadians benefit from a surging oil and gas industry is slowly turning into a farce. An International Monetary Fund (IMF) report earlier this year finds every dollar invested in the energy sector in Alberta grows Canadian gross domestic product — an economic vitality indicator — by 90 cents. Of this growth, 82 cents remains in Alberta, mostly in the energy sector (67 cents).

IMF‘s breakdown of $1 investment in the energy sector scenario.

“There appears to be an important scope to increase inter-industry linkages across Canada that would lead to wider sharing of benefits from the energy sector,” concludes the IMF report released in January.

Increasing inter-industry linkages or value-added jobs does not appear to be priority of the federal government. New oil pipeline projects are almost all geared to shipping Canadian oil and oilsands bitumen to refineries in the U.S. or overseas, not in Canada. Most of the heavy equipment for oilsands extraction comes from the U.S.

“The spin-off effects of the energy boom are not being felt in Ontario and Quebec, where most Canadians are,” Jackson says.

The federal government’s low corporate tax rate and the exemption of provincial resource royalties from the Canadian system of wealth redistribution (which ensures all Canadians receive the same public services) further locks the economic benefits of the energy sector within the sector and resource-rich provinces.

Energy Sector Is Not A Big Jobs Creator

“The oil and gas sector is capital intensive, not labour intensive. Manufacturing could employ more people,” David Macdonald, a senior economist with the Canadian Centre for Policy Alternatives, says.

The same IMF report on the Canadian energy sector indicates that of the 752,000 jobs created in Canada between 2007 and 2012, the oil and gas sector can only take credit for less than 13,000, or 1.7 per cent, of them.

Job creation is not exactly Canada’s strong suit at the moment.

“The employment rate in Canada, that is the percentage of Canadians over fifteen years of age who are working, is sixty one per cent. This is the same level the employment rate was at during the worst of the recent financial crisis,” Macdonald told DeSmog Canada.

Employment rate (blue) and unemployment rate (black) from 2003 to 2013. SOURCE: Canadian Centre for Policy Alternatives 

The official unemployment rate (seven per cent) in Canada has returned to pre-recession levels, but Macdonald points out that Statistics Canada does not count Canadians who are not actively searching for employment as unemployed.

“Eighty per cent of the so-called ‘recovered jobs’ since the recession are Canadians who have simply given up looking for work,” Macdonald says from Ottawa.

Part-time/Temporary Job Creation On The Rise

Ninety-five percent of all net jobs created in Canada in 2013 were part-time according to the Canadian Chamber of Commerce. Part-time workers and the self-employed, who earn on average 20 per cent less than their employed counterparts according to CIBC, now make up 30 per cent of the Canadian work force.

Canada has created more full-time than part-time jobs since the recession but the rate of part-time job creation has grown faster than full-time. Fifty-three per cent of Canadians between the ages of 25 and 44 who found work since the recession could only find temporary jobs. The rate of Canadian part-time workers who want full-time work but cannot find it has grown 37 per cent during the same period.

“Since 2011 the number of underemployed workers has exceeded the number of unemployed workers — in 2013 there were 1.35 million unemployed workers and 1.43 million additional underemployed workers. And that is before we even begin to take into account skills-related underemployment. This is an issue that needs to be taken seriously,” a Canadian Labour Congress report concludes.

SOURCE: Canadian Labour Congress

Fourteen per cent of working Canadians are underemployed or unable to get enough work to meet their financial needs, a 28 per cent increase since 2008.

Canada Needs to Create Well-Paying, Long-Lasting Jobs

“Whether you are talking about green jobs or brown jobs (fossil fuels extraction) you want to create jobs that are fair, well-paying and long lasting,” Gass of the International Institute of Sustainable Development told DeSmog Canada.

“We would like to see federal policy facilitate the creation of more specialized manufacturing jobs and encourage unionization in the work place. Unions tend to create better paying full time jobs,” Macdonald says.

A report released last month by the Parkland Institute examining unions in Alberta (the province most hostile to unions) found in terms of economic performance, wage growth is lower in Alberta compared to other provinces with higher unionization rates, despite Alberta’s oilsands boom.

“There is $600 billion sitting on companies shelves in Canada that is not being reinvested in the economy. Companies only invest where there is an expectation for growth. At the moment it appears the expectations are low,” Jackson says from Ottawa.

Corporations operating in Canada are not the only ones with low expectations for growth. When polled earlier this year by the Broadbent Institute, Canadians between 20 and 30 believed they will face a future of precarious employment and the income gap will grow during their lifetimes despite Canada’s energy boom. Baby boomers (50 to 60 years of age) in the same poll stated they think their children are more likely to slip down an economic class than move up.

“With interest rates at all time lows I would like to see public investment into mass transit, passenger rail, etcetera ramped up. Public investment can pave the way for private investment,” Jackson said.

Unfortunately the current priorities of the federal government — tax cuts, tax breaks, battling unions and cuts to public spending — are taking Canada in just the opposite direction.

Image Credit: Cheryl via Flickr

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This is a guest post by David Suzuki. 

Those who don’t outright deny the existence of human-caused global warming often argue we can’t or shouldn’t do anything about it because it would be too costly. Take Prime Minister Stephen Harper, who recently said, “No matter what they say, no country is going to take actions that are going to deliberately destroy jobs and growth in their country.”

But in failing to act on global warming, many leaders are putting jobs and economic prosperity at risk, according to recent studies. It’s suicidal, both economically and literally, to focus on the fossil fuel industry’s limited, short-term economic benefits at the expense of long-term prosperity, human health and the natural systems, plants and animals that make our well-being and survival possible. Those who refuse to take climate change seriously are subjecting us to enormous economic risks and foregoing the numerous benefits that solutions would bring.

The World Bank — hardly a radical organization — is behind one study. While still viewing the problem and solutions through the lens of outmoded economic thinking, its report demolishes arguments made by the likes of Stephen Harper.

“Climate change poses a severe risk to global economic stability,” said World Bank Group president Jim Yong Kim in a news release, adding, “We believe it’s possible to reduce emissions and deliver jobs and economic opportunity, while also cutting health care and energy costs.”

Risky Business, a report by prominent U.S. Republicans and Democrats, concludes, “The U.S. economy faces significant risks from unmitigated climate change,” especially in coastal regions and agricultural areas.

We’re making the same mistake with climate change we made leading to the economic meltdown of 2008, according to Henry Paulson, who served as treasury secretary under George W. Bush and sponsored the U.S. bipartisan report with former hedge fund executive Thomas Steyer and former New York mayor Michael Bloomberg. “But climate change is a more intractable problem,” he argued in the New York Times. “That means the decisions we’re making today — to continue along a path that’s almost entirely carbon-dependent — are locking us in for long-term consequences that we will not be able to change but only adapt to, at enormous cost.”

Both studies recommend carbon pricing as one method to address the climate crisis, with the World Bank arguing for “regulations, taxes, and incentives to stimulate a shift to clean transportation, improved industrial energy efficiency, and more energy efficient buildings and appliances.” 

Contrast that with Harper and Australian Prime Minister Tony Abbott’s recent mutual back-patting in Ottawa. Appearing oblivious to the reality of global warming and economic principles, both rejected the idea of a “job-killing carbon tax.”

One Risky Business author, former Clinton treasury secretary Robert Rubin, also warned about the economic risks of relying on “stranded assets” — resources that must stay in the ground if we are to avoid dangerous levels of climate change, including much of the bitumen in Canada’s tar sands.

In a commentary in Nature, a multidisciplinary group of economists, scientists and other experts called for a moratorium on all oil sands expansion and transportation projects such as pipelines because of what they described in a news release as the “failure to adequately address carbon emissions or the cumulative effect of multiple projects.” They want “Canada and the United States to develop a joint North American road map for energy development that recognizes the true social and environmental costs of infrastructure projects as well as account for national and international commitments to reduce carbon emissions.”

Those who fear or reject change are running out of excuses as humanity runs out of time. Pitting the natural environment against the human-invented economy and placing higher value on the latter is foolish. These reports show it’s time to consign that false dichotomy to the same dustbin as other debunked and discredited rubbish spread by those who profit from sowing doubt and confusion about global warming.

“Climate inaction inflicts costs that escalate every day,” World Bank Group vice-president Rachel Kyte said, adding its study “makes the case for actions that save lives, create jobs, grow economies and, at the same time, slow the rate of climate change. We place ourselves and our children at peril if we ignore these opportunities.”

If our leaders can’t comprehend that, let’s find some who can.

Written with Contributions from David Suzuki Foundation Senior Editor Ian Hanington.

Learn more at www.davidsuzuki.org.

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