Lessons from Energy East’s demise
Not so long ago there was much to like about TransCanada’s now-dead Energy East pipeline project, which would have shipped 1.1 million barrels a day of western crude oil to eastern refineries and ports. As we argued in 2014 amid mounting central-Canadian opposition to the project, Energy East would have created thousands of jobs and boosted Canada’s economic output by an estimated $35 billion. The pipeline, which would have carried oil from Alberta and Saskatchewan to refineries in Quebec and New Brunswick, would have provided a safer way to ship oil than by rail or other means. And the bulk of the pipeline was already in place.
TransCanada’s proposal promised to improve the lives of a good number of people, particularly those living in struggling parts of New Brunswick. Its demise should not be glibly celebrated. But nor is it reason to declare, as some critics have done, that Ottawa’s new energy regulations are disastrously over-stringent.
Rather, the termination of Energy East is an important wake-up call that the economics of energy are rapidly changing and government and industry must change along with them. The Trudeau Liberals did not kill this project; an evolving world did.
It doesn’t take an economist to see that the business case for Energy East has badly deteriorated for reasons well beyond the federal government’s control. When the project was first proposed, for instance, oil was trading at $120 per barrel and the Keystone XL pipeline, from the Alberta oilsands to Texas, seemed all but doomed. By the time we wrote about Energy East’s merits in 2014, the price of oil had dropped to $85 per barrel. Now it’s hovering below $50 – and Donald Trump has put Keystone back on the table.
Nevertheless, critics, particularly in the prairies, are claiming that new regulations put in place by Ottawa are primarily responsible for TransCanada’s retreat.
In particular, these new rules required that both upstream and downstream emissions be considered as part of the approval process. And, for the first time, they allowed discussion at hearings of the impact of Ottawa’s climate targets on the financial viability of the project.
As Charles Hatt, a lawyer with Ecojustice, told the Star in August, “Surely it is now self-evident that a pipeline review must consider all potential greenhouse gas emissions and the risk that the pipeline will become a stranded asset in tomorrow’s economy.”
While some have characterized these rules as an attack on Alberta, it’s hard to see how Ottawa could responsibly approve an energy project without understanding its full environmental impact, never mind meet our national climate targets or manage the economic consequences of doing so.
Canada has been slower than other countries to see that climate change is changing the calculus of national interest.
China, choked by air pollution, has aggressively invested in renewable energy, driving the price of wind and solar power precipitously down. Last year, renewables matched fossil fuels for the first time both in price and power capacity.
As countries seek to meet their climate targets, demand for the sort of energy that depends on pipelines seems bound, even if slowly, to decline.
Justin Trudeau made few friends in Alberta and Saskatchewan when he said earlier this year that the oilsands would eventually – that is, probably, over the very long term – have to be phased out. But his point was not just a moral one; it was also simply descriptive. “We need to manage the transition off of our dependence on fossil fuels,” he said. Clearly oil continues to be a large part of Canada’s economy and will be for a significant period of time. And we need to continue to be worried about the safest and most efficient ways of getting that oil to market. But our long-term competitiveness, including but not only in the $5-trillion global energy business, depends on our ability to look beyond fossil fuels and foster clean-tech and alternative-energy innovations and industry.
Many of the proponents of Energy East are ready to blame regional conflicts, overregulation and environmental extremism for its collapse. But more than anything the project was killed by markets adjusting to a changing world. Looking backwards can’t be the basis for Canada’s energy future.
— Toronto Star
It doesn’t take an economist to see that the business case for Energy East has badly deteriorated for reasons well beyond the federal government’s control.