Proceedings of the Standing Senate Committee on
Transport and Communications
Issue No. 2 - Evidence, April 19, 2016
OTTAWA, Tuesday, April 19, 2016
The Standing Senate Committee on Transport and Communications met this day at 9:30 a.m. to study the development of a strategy to facilitate the transport of crude oil to Eastern Canadian refineries and to ports on the East and West Coasts of Canada.
Senator Dennis Dawson (Chair) in the chair.
[English]
The Chair: Today the committee is continuing to study the development of a strategy to facilitate the transport of crude oil to Eastern Canadian refineries and to ports on the East and West coasts of Canada.
[Translation]
One of the objectives of our public meetings is to determine the best way to apportion risks and benefits throughout Canada.
[Translation]
I would like to welcome our two witnesses for today.
Via tele-video, we have Mr. Kenneth Green, Senior Director of Natural Resource Studies, from the Fraser Institute in Calgary. In front of us, we have Benjamin Dachis, Associate Director of Research, C.D. Howe Institute.
We'll start with a presentation from Mr. Green and then we will hear from Mr. Dachis.
Kenneth Green, Senior Director of Natural Resource Studies, Fraser Institute: Good morning. I'd like to thank Chairman Dawson, Deputy Chair MacDonald and members of the committee for giving me the opportunity to share the work of the Fraser Institute with you today; I am grateful for this chance to help improve public policy in Canada. I'd also like to thank Daniel Charbonneau for making the arrangements that allowed me to appear before you from Calgary where, by the way, the weather is supposed to be quite gorgeous today, so I don't mind being up this early.
My comments today reflect only my personal opinions and observations about the findings of research I have conducted. I do not speak today for anyone else at the Fraser Institute or any other organization.
I am Kenneth Green, Senior Director of Natural Resource Studies at the Fraser Institute, a non-profit, non- partisan, public policy research institute. The mission of the Fraser Institute is to help average Canadians understand the impacts that government policies may have on their lives and those of future generations.
I'd like to start with a few words of background. By training, I am a biologist and environmental scientist, holding a Bachelor's Degree in general biology, a Master's Degree in molecular genetics and a Doctoral Degree in environmental science and engineering. By vocation, however, I have been studying public policy for over 20 years at think tanks in both Canada and the United States. I worked for the Reason Foundation in Los Angeles, the American Enterprise Institute in Washington, D.C. and the Fraser Institute, for which I worked from 2002 to 2005 and returned to in 2013.
I am speaking to you today specifically about research that I have conducted for the Fraser Institute, examining the safety of oil transport by pipelines and rail. We have actually published two studies on this topic: In 2013, we published Intermodal safety in the transport of oil, and in 2015, along with my colleague Taylor Jackson, we published Safety in the Transportation of Oil and Gas: Pipelines or Rail?, using an updated data set that allowed us to gain significantly better resolution than in the past.
Our motivation in doing this research is to better understand the potential environmental and health ramifications of an ongoing increase in the rail transport of oil and in the face of increasing opposition to the pipeline transport of oil and gas.
Our 2013 study, coauthored with Diana Furchtgott-Roth of the Manhattan Institute, who pioneered this kind of research, was mostly driven by U.S. data, as Canadian data was not readily available to us at the time.
In that study, we found that in moving a billion tonnes of oil over the course of a mile during the period from 2005 to 2009 — as I said, data was limited — there were two incidents — spills or leaks — when transportation was by railway, but only 0.6 incidents when moving the same quantity of oil over the same distance by pipeline. That's a ratio of about 3.6 to 1, meaning that the probability you'll have an incident when moving oil by rail is 3.6 times higher than by pipeline.
In 2015, we had the opportunity to update our research because we managed to secure high-quality data from Transport Canada, Statistics Canada and the Transportation Safety Board.
In safety in the transportation of oil and gas, my colleague and I showed that from 2003 to 2013, a ten-year data set that's more recent, there was an average of 0.23 incidents per million barrels of oil equivalent transported by rail, but only 0.05 incidents moving the same quantity of oil by pipeline. Again, to make it simple, that's a ratio of 4.5 to 1: It was 4.5 times more likely you would have an incident when moving the same amount of oil by rail than you would if you moved it by pipeline.
In the course of that same study, we also gained access to the findings of the United States State Department report on the Keystone XL pipeline, which had an appendix comparing the risks of building the pipeline versus not building it, with the assumption that not building the pipeline would result in the oil being moved by rail.
They had more recent U.S. data than our previous study. The State Department looked at data from 2002 to 2009 and found that, based on the number of yearly releases for a million tonne miles for pipelines and rail — I won't give you the tiny numbers, but they are there in the testimony — the ratio of risk was 5.5 times more likely that there would be an incident by rail versus pipeline.
I'd like to note that both modes of transport are extremely safe. Better than 99.99 per cent of all product that gets into a transport system at one end — rail or pipe — will move safely to its destination and come out safely. But there is a small differential in risk, and when you scale that up to the quantities of oil we move every year, it can be significant.
Another thing I'd like to point out is that most spills, in fact, happen at what I call transfer facilities, where the oil is being changed from one mode to another: loaded into a truck; taken out of a truck and loaded into a train; taken out of a train and loaded into a truck, and so forth. Those facilities are designed to be able to capture the oil and not have it escape into the environment. It's actually quite rare for oil to cause an environmental problem, given the amount of it that we move every year and every day.
In summation, moving oil by pipeline is simply safer than moving the same quantity of oil by rail. The ratio of incidents in our research, using both U.S. and Canadian data, range from a risk differential of 3.6 to 5.5, which is reassuring, since it is a relatively small variance.
All modes of transportation for oil and gas are necessary to service the various and disparate small, medium and large markets spread across North America. Virtually all modes — rail, pipeline, barge or oil tanker — have excellent safety records. Insofar as opposition to pipelines is driving oil movement to a certain mode — to rail, rather than what the private sector would prefer, which is pipelines — we are increasing the risk to people and the environment and doing no favour to either human health or the environment.
With that, I'm going to wrap up my testimony. I would be glad to take your questions and discuss this or other research we've done at the Fraser Institute or that I've done elsewhere. Thank you again for this opportunity to relate some of the work of the Fraser Institute. Energy is such a vital part of our society. We are, in my opinion, an energy civilization, and getting public policy right regarding energy is vital to our future and to future generations. I thank you again for giving me input into your decision-making and into your considerations. Thank you.
The Chair: Thank you very much, Mr. Green. We'll hear from Mr. Dachis, and then the senators will ask questions to both of our witnesses.
Benjamin Dachis, Associate Director of Research, C.D. Howe Institute: Thank you very much for inviting me here to speak today. I'm with the C.D. Howe Institute. We are a national, non-partisan public policy think tank whose mission is to improve Canadians' living standards by fostering sound economic policy.
I am going to be discussing a C.D. Howe paper published a few months ago with a former colleague of mine, Grant Bishop. You should have a copy in French and English in your package. I'm not a lawyer. I do play one on TV every once in a while, but I do get to work with smart lawyers like Grant. He will have provided the legal framework around this, with myself giving some of the economics, but I'm happy to talk about both points during the question and answer period.
Getting Canada's oil to markets depends critically on the regulatory process for pipelines addressing the right things, and that's what I'm going to talk about today.
Canada's new federal government has pledged to revise the process the National Energy Board uses to approve Canada's pipelines. It stated that, during National Energy Board reviews, "direct and upstream greenhouse gas emissions linked to the projects under review will be assessed.'' The federal government also released, about a month ago, the draft regulations on how it will enforce this assessing of upstream emissions, which is the new part.
However, this federal policy is going to be a mistake for two reasons. First, its requirement for the National Energy Board to consider upstream emissions of greenhouse gases in its pipeline approval process could exceed the constitutional grounds for federal environmental reviews and intrudes into provincial jurisdiction. Second, counting upstream greenhouse gases against an interprovincial pipeline will be economically costly without resulting in a reduction of emissions.
We've seen this movie before. The Obama Administration refused to allow Trans-Canada to build the Keystone XL pipeline in the United States and explicitly acknowledged greenhouse gas reasons for doing so. The question before us today is whether the Canadian federal government can do likewise and reject the pipeline on climate grounds.
The Supreme Court has emphasized that federal environmental assessments should not be a Trojan horse for the federal government to inject itself into general industrial regulation. We must remember that the federal government doesn't have specific authority for the environment, as it shares that with the provinces. Federal environmental assessments must be connected to other federal powers. Under Canada's Constitution, provincial governments have jurisdiction over natural resources and industrial regulation within their provinces. The Constitution gives the federal government jurisdiction over interprovincial and international works and undertakings. That means pipelines.
Any federal environmental assessment must be connected to the constitutional jurisdiction under which the federal government regulates a given activity — that is, the environmental issue that the National Energy Board is addressing must be connected to the pipeline, such as direct environmental risks, like crossing waterways, or the social and economic effects of a pipeline on nearby communities.
Emissions are different as they are already subject to direct provincial regulation. We're clearly seeing provinces across the country tackle this issue. Requiring that the National Energy Board scrutinize emissions from upstream industrial activities looks suspiciously like an intrusion into provincial jurisdiction for industrial regulation and control over natural resources. It amounts to counting the harm of emissions twice.
The risk of the federal government rejecting a pipeline on these environmental grounds is a potential constitutional challenge.
Furthermore, there are some basic administrative difficulties with the federal plan. First, how would the federal government link upstream oil and gas projects to a specific pipeline? The emissions intensity from a new project that's enabled by a pipeline could be much lower than that using the proposed regulations. Nor is any upstream user required to use a specific pipeline, such as that under any review under the new rules.
Rejecting a pipeline because of related upstream emissions might result in the transport of oil by other means in which upstream emissions would not be regulated, such as rail. That would make the rejection both economically costly and ineffective in reducing emissions and, as we just heard, likely less safe.
The federal plan also totally ignores downstream emissions, which is the vast majority of emissions from oil.
At the end of the day, rejecting a pipeline for the purpose of reducing emissions will be not only an uncertain tactical approach because of this constitutional risk but also an economically inefficient way of reducing emissions. It's bad economic strategy too.
Some form of carbon pricing, either by the federal government or provincial governments, would be a more effective means of reducing emissions instead. A gram of carbon dioxide has the same effect in the atmosphere whether emitted from oil extraction or other activities. There is no reason to presuppose that each tonne of carbon emissions generated by oil production in Alberta or Saskatchewan would yield less economic value for Canada's economy than, say, cement production in Quebec, steel manufacturing in Hamilton or coal mining in Cape Breton. The new federal rules make this judgment on behalf of Canadians.
Limiting pipelines only addresses the emissions from oil. Limiting pipelines reduces the economic returns that oil workers and companies get. That's a very indirect way of getting companies to reduce emissions. If we want Canadians to reduce emissions, the Canadian government should put in place emissions pricing to directly target emissions.
Adding a pipeline would improve the profitability of oil producers and make society as a whole better off without increasing total emissions, if we were instead to rely on carbon pricing. We could have a carbon pricing system, greenhouse gas reductions and a profitable oil and gas sector to help drive a growing economy as long as we have pipelines.
To summarize, the federal pledge to count upstream emissions against pipeline projects under review by the National Energy Board is probably both legally dubious and economically unsound. Blocking pipelines, as opposed to putting a price on emitting greenhouse gases, would hinder rather than help Canada as we try to achieve our promised emissions reductions at the lowest cost to the economy.
Thank you very much. I look forward to your questions.
The Chair: Thank you very much.
Senator Doyle: Thank you for your presentation. Assume for a moment that we're not going to be shutting down anytime soon industries that use oil and gas in their operations. You make the point that serving them by pipeline increases their profit margins, which it does. But is serving these industries by pipeline infinitely more environmentally friendly? Does getting petroleum stock to market by truck or train leave a much bigger carbon footprint over the long term than a pipeline would leave?
Mr. Dachis: I might throw that to Ken first. He has done more work specifically on the trade-off of rail versus pipelines.
Mr. Green: Yes, thank you for the question. There are more when moving the same amount of oil by rail and/or truck. We did not study the exact ratio of emissions, but it's well understood that pipelines are less emitting and the safest, most efficient and economical way to move liquids, essentially, across large distances. We move many things by pipelines. Clearly, that is historically the preferred way to move things.
It makes sense because pipelines go from our fixed route infrastructure, point A to point B, they avoid the centres of population areas, and they're often underground where they can't be impacted by other modes of transport. Rail and truck tend to run above ground, and highways tend to be routed directly through the centres of cities and towns because that's where you want to bring goods to market. Therefore, there's more exposure to people based on those modes of transport than there would be using pipelines.
Mr. Dachis: I would defend one thing: we have to remember that rail is going to have a role in transporting oil, at least in the near term, no matter what. There are other benefits to rail transportation that we have to keep in mind. First and foremost, it allows a lot of flexibility for shipping companies. An ability for a company to not have to direct all their oil to one specific part of, say, the Midwestern United States and being able to serve diverse parts of the U.S. market can lead to higher economic returns for these producers. There are a couple of specific things about rail, such as lower cost of dilution for crude oil from the oil sands, in particular, for being able to ship it more easily, and also the lower capital cost of rail. Rail will have a role, so we shouldn't be thinking about completely foreclosing on rail in the future but remembering that pipelines are the better long-term option for the larger scale shipment.
Senator Doyle: For pipelines to take their petroleum products to tidewater for export overseas, is it fair to consider the upstream uses of these products, given the fact that they might be exported overseas to countries that may not share in our emission control standards and that kind of thing?
Mr. Dachis: Do you mean applying the same sort of rules that the federal government is talking about?
Senator Doyle: Yes.
Mr. Dachis: That would be nearly impossible to do for the rail sector. There is no infrastructure for any kind of approval process, at least at the federal level that I'm familiar with, say with transloading facilities for oil, or any kind of loading process for oil onto rail. There's no way I can possibly conceive of a similar system for rail that you're considering for the pipeline sector for upstream emissions.
Senator Unger: How great is the difference between transporting by rail versus by pipeline and/or trucking in the cost to the producer?
Mr. Green: I will leave the cost to the producer to my fellow testifier. We did not look at the cost to the producers. We looked at the actual risk of moving this unit of oil by rail versus by pipeline.
I want to completely agree with my colleague. We need all of these modes of transport. You can't service small markets with a pipeline. You can't service shifting markets with pipelines either. We need rail and we need truck. We need barge, and we need tanker to get the products that humans need to their markets.
A as I said, the risk with regard to moving a given amount of oil by rail is between 3.5 to 5.5 times as high as moving that same amount by a pipeline. By risk, I mean the risk of an incident or accident, which is a breach or a spill or a derailing or a leak in a train car. The risk is a bit higher.
The costs, from what I understand, are significantly lower for moving by pipeline versus by rail, but I have not studied specifically the costs of moving by truck or by rail or by pipeline.
Mr. Dachis: The costs of shipping by rail are definitely higher than pipelines. The costs, however, do depend on the type of train being used. There are two types of ways of using a train. One is called a unit train, where every single carriage in that train carries oil, and it goes from one destination to the other without any stops or dropping off anything or changing a load. It's just a direct shuttle route. The other option is having oil interspersed with other things like grain or whatever else you can imagine goes into a railcar. That's the highest cost option per barrel. How much does vary, I don't know, but the real value of pipelines is getting a higher price for Canadian producers, a higher price of oil. That's really what it's really all about.
Senator Unger: And do either of you retain some degree of optimism about the fate of Keystone when there's a change south of the border?
Mr. Green: I was with the American Enterprise Institute, in Washington, D.C, for about seven years, and it seemed obvious to me that, when the Keystone pipeline became a point of political dispute between the two presidential candidates, Mitt Romney and Barack Obama, the project may have been doomed at that moment because it drove the parties so far apart that there was no room left for compromise on the issue. It became a purely political consideration and a point of dispute between the two parties in the United States that, really, there was no bridging.
I'm not optimistic about that project. I'm cautiously optimistic that Canada will find a way to get its oil and its gas to tidewater, whether that's Energy East or one of the other proposed pipelines. I think, economically, it's a necessity that we do so, and I'm cautiously optimistic that everyone is seeing that reality and that it's changing the rhetoric that we're hearing about Energy East especially. But it's a cautious optimism because opposition is pretty fierce.
Senator Unger: Mr. Dachis, you make the assertion that, if the NEB reviews and directs upstream greenhouse gas emissions linked to the projects under its review, the federal government will likely be intruding into an area of provincial responsibility. What's the practical implication of that, and could you possibly anticipate that someone will object and that there will be a court challenge?
Mr. Dachis: The practical implication is that let's say that the federal government makes an explicit ruling that says, "As part of our rejection for this pipeline, we cite these reasons.'' You could very well envision that the directly affected party, being the pipeline or the oil and gas companies that had planned to use that pipeline, would bring a challenge against that ruling that might wind its way up to the Supreme Court. That would be the practical implication of a constitutional challenge.
Senator Eggleton: Thank you, gentlemen. Mr. Green, first of all, you indicated the statistics with respect to the comparison of oil by rail versus oil by pipeline, and you indicated there are fewer incidents with respect to pipeline than by rail, but you also said, at the same time, that you felt both of the systems were 99.9 per cent safe. That's a pretty big figure. It doesn't seem that these incident ratios really make all that much difference in view of that. Let me ask you: Have you done any studies with respect to the impact or damage of any of these incidents?
Mr. Green: Not specifically in terms of specific rail incidents or specific pipeline incidents. With reference to the 99.9 per cent, it's not my opinion. It's simply what is out there in the literature as to the safety issues. If you were only moving one barrel of oil, the difference is not going to be meaningful. If you're moving a billion barrels of oil, it will be somewhat meaningful.
We have not really looked at the damage other than that, again, the data from Transport Canada, from the Transportation Safety Board, suggests that very few incidents, either by rail or pipeline, lead to persistent environmental damage, which is not to say none. I am certainly not downplaying either the human suffering or the environmental damage that can happen with a large oil spill or a significant oil spill, but, in the main, given how much we move, the safety record is really quite impressive.
Senator Eggleton: Okay. But nothing specific on the impact or damages.
The second question: With respect to Canadian municipalities, they've often expressed concern about dangerous goods, in whatever mode of transportation, coming through their communities. I happen to know exactly where the pipeline goes through Toronto because I used to represent the constituency through which much of it goes, but it's a question of information — whatever the mode of transportation, again — and getting information in a timely fashion. This seems to have been a problem for some period of time now. Can you comment on how better information might be able to flow to municipalities?
Mr. Green: I believe that, in the revised rail guidelines that have been put forward both in the United States and Canada, one element of those increased safety standards was provisions to improve the communication and notification to first responders when moving dangerous goods.
There is, of course, always a trade-off with regard to safety, with regard to informing your first responders of what may be moving through a community and informing potentially bad actors who may want to cause mischief about what's moving in specific rail lines as well. There's also, of course, ramifications with regard to revealing industry preferences for how things are moved.
I think improving the communication to first responders is part of the revised rail safety plans in Canada and the United States. How exactly that would work, I don't know, and I have not read detailed plans as to how that would work and how a rail company would inform first responders about exactly what's on a multicar train that's not a unit train and exactly what the characteristics are of the things in the individual railcars. That I don't know.
Senator Eggleton: What about pipelines? Is there any protocol if there's a leak in some part of system? If it's not in that municipality, perhaps it could evolve into that part of the pipeline. Is this kind of information provided for first responders?
Mr. Green: I don't have specific knowledge about that. Pipelines in a sense are not really pure; they are like a railcar, in a sense. Different things go through pipelines in pulses, and the characteristics of a given unit of diluted bitumen or oil moving through a pipeline coming from one facility will be somewhat different from that coming from another producing facilityi.
I'm not aware of whether or not jurisdictions, or as you say municipalities, are informed or can be informed about the specific characteristics of what's moving through a pipeline in a vicinity where they may have to respond to a breach.
Senator Eggleton: Mr. Dachis, you said you weren't a lawyer, and yet much of your presentation is legal argument. Was your co-author a lawyer?
Mr. Dachis: Absolutely. I get to work with some really good lawyers like Grant.
Senator Eggleton: I'm reading this from our Library of Parliament documents. You suggest that considering upstream greenhouse gas emissions might be a stretch of federal authority; however, in 2005, based on its power to regulate toxic substances as an aspect of criminal law, the federal government added six GHGs to the list of toxic substances in Schedule 1 of the Canadian Environmental Protection Act. Since then, it has enacted a number of regulations relating to GHGs based on certain powers. Doesn't that change the picture in terms of federal government jurisdiction?
Mr. Dachis: This goes back to the question of what's called a "federal head of power.'' The federal government has clear authority to address criminal issues, and they can ban or forbid a certain substance. That's a specific head of power. A federal environmental assessment is a different story, where it's not about banning or prohibiting these things, it's about trying to balance this issue against another benefit.
A federal environment assessment, as the Supreme Court has said, cannot be a Trojan Horse for these other elements. You can't use a criminal prohibition as one justification for allowing something to happen as part of a federal environmental process.
Senator Eggleton: That depends on how they treat the results of the NEB report. Is anybody challenging this at this point in time, or are they waiting to see how the federal government uses this information for making its decision?
Mr. Dachis: The press conference on this topic only happened in late January. I don't know if the consultation period has closed, but this is still very much an open issue. As a committee, I encourage you to look at this as part of your report.
Senator Eggleton: At the end of the day, it's a Governor-in-Council decision; it's not a legislative decision.
Mr. Dachis: Yes, it would be. Again, the courts have addressed this question of a federal environmental assessment, addressing numerous other instances.
The Chair: For the sake of Senator Eggleton and the people watching, the Library of Parliament analyst has told me there is an app called AskRail launched in June 2015, and it tells you what's going on in your backyard. I haven't tried it.
Senator Black: Thank you both for being here. This is, in my view, the most pressing economic issue facing Canada today, and your passionate, informed testimony is very helpful to the deliberations going on.
Mr. Green, in respect of the excellent questions from my colleague Senator Eggleton, you have indicated that the statistics indicate that rail and pipeline are effectively 100 per cent safe, for all intents and purposes. But you have indicated that risk factors — rail versus pipelines — is quite a dramatic difference. Would you elaborate, please?
Mr. Green: Certainly. I am sorry to contradict you. I would never say that either mode of transport, rail or pipeline or any other, is 100 per cent safe. This is something I've dealt with most of my career, which is there's no such thing as a no-risk world or a 100 per cent safe environment. There is a small risk differential.
If you eat a certain food and it increases your risk of heart disease by a small amount, for you as an individual that may be unimportant. For us as a society of more than 35 million people, the risk starts to lead to people having health incidents, which you have to deal with.
It's much the same with the question of oil transport. The differential is relatively low, and indeed the vast majority is moved with no incidents or damage to people or the environment, but at the margin of things, there is a differential. To the extent that government policy drives more oil to rail than would be there based on the market, those policies are slightly increasing the risk to Canadians and their environment.
Senator Black: I want to be clear on what you're saying. Would you have this committee believe that, from a policy point of view, pipelines are a better method of transporting oil than rail, the reverse, or are they equal in your view?
Mr. Green: Specifically, moving a given amount of oil or gas by pipeline is incrementally safer with regard to both the environment and human health than moving that same quantity of oil or gas by rail. That's what the data from Transport Canada and the Transportation Safety Board and Environment Canada shows us. Incrementally, there's a slight increase in safety by pipeline versus rail.
Language is important here because "better'' is not only about safety. "Better'' involves other considerations such as routing through human environments, the cost of transport and benefits to society of higher returns on the transport. It's a term that's overly broad for me to use. Our study specifically used safety data for spills and human health incidents, and not economic data.
Senator Black: I found your testimony very helpful and informative. You have focused on the GHG standard that has recently been imposed and is ongoing, and you have suggested that potentially that action of the Government of Canada is unconstitutional. You have also suggested, if I understood your evidence, that it's a little unfair because the pipelines are being asked to quantify their GHG emissions, but there's no comparative standard. We're not talking about cement or steel. I took you to say that the analysis of GHG omissions from the upstream pipelines is likely a little unfair, in your point of view.
Mr. Dachis: I think that's a fair assessment.
Senator Black: Let's accept that that's fair enough. Do you, however, accept the political view that pipelines are necessary and that the Government of Canada, in its wisdom, determined that some breathing space was going to be required — I think it's four months in terms of Energy East and seven months for Trans Mountain, but perhaps it's the reverse — and this specific analysis of GHG emissions from pipelines is something that is needed to be answered to give the Government of Canada the freedom necessary to approve both pipelines? Would you accept that political point of view?
Mr. Dachis: Absolutely. This is one of those instances where passive language can be interesting. If you look at the language of the original announcement, they said that upstream greenhouse gas emissions will be assessed. That doesn't necessarily mean they're going to use them to rule against the pipelines.
If it comes down to the federal government putting out a report that says: Yes, this will have an incremental greenhouse gas effect, but we're not going to rule against it because of this effect; we're going to deal with it more directly through a pipeline, or along with a greenhouse gas pricing policy, to make sure that this pipeline doesn't have any incremental effect on emissions, then this might, to your point, give the government some breathing space. I take that point fully.
Senator Runciman: Welcome, gentlemen. Mr. Green, in the material I read, I believe you talked about 2012 numbers that showed Canada lost $17 billion a year because of the price differential. I think that's the number you used. That's a pretty scary number when you consider the benefits that could have provided for Canadians. You were talking about a $36 differential in 2012, and I was looking yesterday, when, I think, the differential was $12. I'm curious what you, and perhaps both witnesses, think the impacts of $25 per barrel oil will be on Canadian producers if it remains at that price for the next little while. What do you see happening?
Mr. Green: There are two questions there. The research you are referencing is not one of the two studies I submitted for the record. It was done in 2013 by me and a colleague, Gerry Angevine, at the Fraser Institute, pointing out the differential, and, in fact, we're in the process of updating that research now.
To the second question, on the long-term consequence for Canadian producers of oil at $25 or $35 per barrel, for the oil sands producers — and again, this is not based on empirical research; this is based on what I've read and studied in the media — that price point is too low for profitability certainly for new developments, and even presses the profitability of ongoing production from existing facilities in the oil sands and the unconventional oil sector. The conventional oil sector may still be competitive even at those prices, although conventional oil and gas is depleting in Canada.
As for the prospects for oil staying at that price, I don't have a crystal ball any more than anyone else. The history of predicting oil prices is perfect in the sense that everybody gets it wrong all the time. All of the world's international agencies expect the markets to absorb the glut and prices to stabilize at a somewhat higher point. I believe that to a certain extent, but on the other hand it is true that the post-World War II average price for a barrel of oil, with only two excursions, was about $30 to $40 a barrel, so reversion to the mean for an extended period is a possibility.
Senator Runciman: The National Energy Board Act considers if a project is in the public interest:
. . . any public interest that in the Board's opinion may be affected by the issuance of the certificate or the dismissal of the application.
That draws me back to the figure of $17 billion lost to the Canadian treasury. I would think, theoretically anyway, that a reduction in revenue of that magnitude could impact the government's ability to maintain or increase funding in other areas of federal jurisdiction, including those directly linked to the location of the proposed pipeline. You're nodding, so that's an agreement?
Mr. Green: Canadians are clearly losing income, government revenues, retirement fund proceeds and other forms of wealth generation because we are receiving a discounted price for our oil exports to the United States, which is where we now export virtually all of our oil. That highlights our inability to receive the world price by moving our oil to the markets where demand is highest. It's very important for people to understand that the choices we make have consequences, and that's one of the consequences.
Senator Runciman: We had witnesses here last week, and at least one of them seemed pretty pessimistic about Energy East, primarily because of the example he cited, which was opposition within First Nations in New Brunswick.
I'm wondering if either one of you have taken a look at the influence of foreign money in terms of opposition to pipeline development across the country and what impact that's having, if any.
I think it is having an impact. I was looking at some research done by Vivian Krause, and she says that between 2009 and 2013 at least $75 million of U.S. monies have flowed into Canada to fight pipeline development. I saw an article last week where a British gas company was funding opposition to LNG development in British Columbia.
What impact do you see that having? Do you have any suggestions or see any way that could or should be addressed?
Mr. Dachis: I would actually want to tie that question to something you said before about defining the public interest for the National Energy Board. This is what it all comes down to, and it is by far the hardest question: How do you define public interest? There are many private interests in this: on the one hand, there is the potential for foreign money — I'm not going to address that — but there are private interests on the other side, too. Those, to a large extent, can be segmented or separated, and the National Energy Board should be focused on what's in the broader public interest. But how do you define it? That's the really tough question.
I would argue that it's about economic efficiency and that the National Energy Board needs to address the things that it can directly control. The National Energy Board is not the regulator of greenhouse gas emissions in this country. That is the role of federal and provincial governments. The National Energy Board should only be tasked with addressing the things that it has direct control over. Otherwise, put yourself in the shoes of the poor NEB, which is being told all the time that it's got to deal with greenhouse gases, but it is saying it doesn't have the power to address these things directly.
Senator Runciman: Does anyone want to comment on the foreign monies? Mr. Green?
Mr. Green: We have not looked at that. I've seen Vivian's research. I do think it accentuates the importance of arm's-length regulatory bodies that are semi-autonomous, like the model of the NEB where they are insulated, to a certain extent, from political pressures, whether those be monetary or non-monetary.
One of the reasons that societies create those kind of arm's-length regulators is to insulate them so that they can focus on the scientific, economic, engineering and concrete empirical risks and benefits and not be influenced by political forces and political winds, whether they are monetary or non-monetary.
Senator Runciman: So you think the appointment process has no impact on objectivity?
Mr. Green: I would not be so cynical about that. I would say everything we do is influenced to a certain extent by subjective desires and political influence. To get back to the previous senator's question, I'm still optimistic about humanity's capability of rationally directing public policy; if I weren't, I would have to find another field of endeavour.
Mr. Dachis: Your point goes back not only to what Senator Black said, but what some of your witnesses last week said. Geoffrey Hale and Yale Belanger are the authors of C.D. Howe's study on this topic. They said the regulator must not only be independent but it must be seen to be independent. That's critical.
When you have a political process at the federal level that, at the end of the day, is seen to be putting its thumb on the scale in one direction or the other on the way that the pipeline decision is going to come out, that skews the process and the perception of the process from the get-go.
Senator Runciman: I think one of the witnesses raised Oka, Caledonia and the spectre of facing that kind of opposition, and that governments tend to step back. I think that was the concern he expressed.
Senator Beyak: Thank you, gentlemen. I'm always gratified and happy to see how many Canadians watch Senate committees on television. Our reports are renowned internationally, as the chairman knows, for the work because by witnesses like you. I've been a member of the Fraser Institute since 1998; your founder, Michael Walker, often said, "If it matters, measure it,'' so I thank you for your very meticulous presentation of the measurements. I think that's very helpful to Canadians.
Mr. Dachis, your presentation was filled with legalese but also the common sense I hear at the door in the riding every day. About 6 million Canadians voted Conservative; about 7 million voted Liberal; and we're all together on wanting a clean environment, clean air and clean water. We're all concerned, of course, with safety and pipelines; but we know that pipelines and trains are safe. We have gallons of oil on the West Coast in B.C. and in Alberta; and people on the East Coast need it desperately, as do indigenous peoples in the North.
We're buying oil from Saudi Arabia, which makes no economic sense to the average Canadian. I appreciate your comments on how we somehow pull that together: Get the common sense of the majority of ordinary Canadians above the special interest groups and the loudest voices, which, of course, matter. We have to listen to them, but we have to do the best for all Canadians. If you have any other helpful hints, I would be very appreciative; but thank you very much for what you've said today.
Mr. Green: Thank you for your support of the Fraser Institute and for your comments. It's really a pleasure and honour to be part of this process. I feel deeply that it's vital to us and to future generations, in particular those living in energy poverty, that Canada live up to its role as a source of hydrocarbons in a place where its produced ethically and with environmental safeguards and health standards.
In our boardroom, and I'm not sure if you've been there, there is a big wooden plaque on the wall that says, "If it matters, measure it.'' It has engraved calipers and other measuring devices on the plaque. It's our informal motto and how we try to illuminate the impacts of public policy so that Canadians can make better decisions based on empirical data and call for better policy based on empirical data that we can all theoretically agree upon the reality of.
Senator Unger: Mr. Dachis, in February this year you released a brief in which you argue that it would be a mistake for the NEB to count upstream emissions against the pipeline. I'm wondering if you've had any response or reaction from the government.
Mr. Dachis: From the government, not that I'm aware of. Like a duck, it's kind of quiet on the surface, but I'm sure there's lots of pedaling underneath the water thinking about these sorts of things. I'll just leave it at that.
Senator Unger: I have one last question about defining "public interest.'' Alberta oil remains landlocked, yet Eastern Canada continues to import dirty oil from Saudi Arabia and Venezuela. We know how clean that oil is, and surely that's contrary to public interest.
Mr. Dachis: This goes back to the question about public interest versus private interest and what really should be within the scope of regulatory hearings. To the same extent, I would argue that upstream greenhouse gas emissions should not be counted against the pipeline. Things like dirty oil or the ethicalness of Canadian oil shouldn't be counted in favour of Canadian oil. We should have only the National Energy Board in defining "public interest'' addressing things that it actually has the power over.
Mr. Green: I didn't hear the last question — we lost our feed for a few moments — so I don't know what the senator's question was.
Senator Unger: With regard to defining "public interest,'' my comment is that Alberta oil remains landlocked and Eastern Canada imports dirty oil from Saudi Arabia and Venezuela. How is this in the public interest?
Mr. Green: It's difficult to see how it is in the public interest. Given that we have a surplus of oil in Canada that could easily service Canadian markets and retain the wealth of that production, consumption and processing in the country, it's difficult to see, in particular from a moral or ethical standpoint, how it makes sense to import oil from jurisdictions that may not share our values.
That is why it would seem obvious that the Energy East pipeline would be a net benefit for Canada; but those are moral considerations, which we don't measure. It is difficult to see how it makes sense to import oil when you're generating an oil surplus in a world market with an oil glut.
Senator Unger: Briefly, regarding GHG emissions, is it not correct that the federal government should not target specific industries or regions? It would appear that this is what they would be doing if they start interfering.
Mr. Dachis: Very fundamentally, we in Canada should have as broad a base of carbon pricing as possible. That is far and away the most efficient way of reducing greenhouse gas emissions in the country.
Mr. Green: We may differ a little in the sense that, for carbon pricing to work, there need to be many specific conditions in place to enable it to be an efficient means of controlling greenhouse gases. I certainly don't believe that we benefit by targeting specific regions, companies or sectors with regard to their upstream greenhouse gas emissions.
The Chair: I'd like to thank Mr. Green and Mr. Dachis for their participation. The committee appreciates the sharing of their findings with us.
Honourable senators, tomorrow evening we will hear from Mr. Alan Ross from the law firm Borden Ladner Gervais on the development of social licences for new pipeline developments.
The meeting is adjourned.
(The committee adjourned.)