Enbridge pipeline bad for the economy

The Enbridge Northern Gateway Pipeline will deliver an inflationary oil price "shock" to Canadians of US$2 to $3 per barrel "every year for 30 years," a B.C. economist predicts.

Robyn Allan, former president of the Insurance Corp. of B.C. and senior economist for B.C. Central Credit Union, cites studies by Alberta Energy and the University of Calgary that predict Enbridge will trigger even higher domestic oil prices -- ranging between $8 to $10 per barrel respectively. She has taught money, public finance and economics at the university level.

Higher oil prices without any change in real economic activity -- the Enbridge case -- create inflation, she continues. Inflation from higher oil prices will be especially painful for Canadians since Canada must import almost half of its crude oil from offshore. It still has no pipeline to ship western crude to eastern markets.

As oil prices rise, income is transferred from consumers to producers, causing greater unemployment, higher interest rates and a decline in business investment.

Northern Gateway, Allan says, "will serve to permanently reduce GDP, increase unemployment, cause labour income to fall and decrease government revenues."

As it is, real average income has grown just 0.5 per cent per year over the past 33 years, while median income, due to economic inequality, has risen only 0.2 per cent, the Conference Board of Canada says.

"The price increase Northern Gateway hopes to realize is tantamount to a private-sector levied tax on consumption," Allan says. "The only difference is the revenue will be channelled into the corporate treasuries of Canadian corporations, foreign corporations and corporations acting on behalf of foreign governments, not into goods and services for Canadians."

With Enbridge, Allan warns, Ottawa has abandoned its pledge not to export raw bitumen to countries with lower greenhouse gas emission targets than Canada's. She predicts the massive export of raw bitumen to China will give Canada the so-called "Dutch Disease" whereby the exploitation of natural resources triggers a decline in manufacturing output.

The main symptom of the Dutch Disease is a rapid appreciation of the currency caused by raw resource sales and foreign direct investment. Growth stalls in other economic sectors, particularly the value-added ones of manufacturing and skilled employment, Allan continues. This causes a "reduction in the standard of living of many Canadians as spending power is transferred from consumers to multinational oil producers.

"The inflation Northern Gateway represents will lead to higher interest rates, a permanent and long-term decline in GDP, a loss of existing jobs, decline in labour income... as well as a deterioration of government revenue."

The 2011 census shows Canada's manufacturing sector -- the sector that provides good, well-paid, value-added employment and stable and secure lives for Canadians -- has already shrunk from 20 per cent of the economy in the mid-1970s to just 10 per cent today.

Canada has lost 580,000 manufacturing jobs since 2002 alone.

The retail sector has replaced manufacturing as the main source of employment. Retail jobs are primarily precarious, short term and low wage with little or no benefits, leaving families insecure and struggling.

Allan was refused intervenor status by the National Energy Board at its pipeline hearings. Her 74-page brief has instead been made part of the Alberta Federation of Labour's submission.

Natural Resources Minister Joe Oliver challenged Allan's price-shock claim on the CBC Radio program The House on Feb. 4.

"We don't see a major increase in prices as a result of this at all, if any," Oliver said. He boasted instead of "international prices for our resources" creating "$132 billion in extra revenue to Canada."

Allan is critical of the Harper government's decision to abandon former energy minister Jim Prentice's 2010 pledge not to ship raw bitumen to countries with lower emission standards than Canada's. Three major Chinese state oil companies -- Petro China, Sinopec and China Investment Corp. -- have purchased stakes of between $15 billion and $20 billion in the tar sands and Enbridge's pipeline to Kitimat.

"So we actually have a situation where the Chinese Communist government, through its national oil companies, has restriction over the right of Canada to refine oil," she told The House host Evan Solomon. "Essentially they're saying we can't create jobs in Canada by refining that oil."

Statistics Canada reports that in 2009, 35 per cent of all assets and 41 per cent of all profits from Canada's oil were controlled by foreign interests. ExxonMobil, BP and Imperial Oil are among the intervenors at the NEB's Gateway hearings. Five of Enbridge's 12 board members, including its chairman, are U.S. citizens.

Allan concludes Ottawa has abdicated its responsibility to create an energy policy beneficial to Canadians.

Frances Russell is a Winnipeg

author and political commentator.

Republished from the Winnipeg Free Press print edition February 16, 2012 A10