After years of missteps on energy issues, the federal government approved the long-stalled Trans Mountain pipeline expansion last week, citing the national importance of the project for Canadians. But while encouraging, the approval is far from a cure-all for Canada’s embattled energy sector.
First, let’s consider how we got here.
Unfortunately, building new pipelines in Canada has proven to be nearly impossible in recent years, mainly due to political opposition and regulatory and environmental impediments.
The Trans Mountain pipeline expansion, which will run between Edmonton and Burnaby, was first approved by the federal cabinet in 2016 after a five-year approval process that included environmental assessments and Indigenous consultations. But of course, the expansion has yet to be built.
And remember, the Trudeau government was forced to nationalize the project (that is, buy it with taxpayer dollars) in a last-ditch effort to save it, after political opposition to the expansion left Kinder Morgan, one of the largest energy infrastructure companies in North America, reluctant to proceed.
And this is not the first time a pipeline project in Canada faced excessive delays or cancellation. The Trudeau government cancelled the previously approved $7.9 billion Northern Gateway pipeline in 2016 and imposed new regulatory hurdles on TransCanada’s proposed Energy East project, including consideration of “downstream emissions” (those emissions generated by consumers), which were never part of prior assessments. Consequently, TransCanada deemed the pipeline economically unwise and scuttled the project.
Which takes us back to the Trans Mountain expansion. Assuming the project can overcome ongoing political opposition from the B.C. government, the project will help alleviate—but not solve—Canada’s costly pipeline shortage. This is welcome news given that insufficient pipeline capacity cost the energy sector $20.6 billion (or one per cent of the country’s economy) in 2018.
Indeed, other serious issues plague the energy sector, which is still dealing with onerous and uncompetitive policies stifling investment.
Ottawa and several provinces—including Alberta—have increased taxes and regulatory requirements such as a provincial cap on greenhouse gas emissions, new regulations on methane emissions, stricter ethanol regulations, a mandated coal-phase out and of course, the federal carbon tax.
Finally, Canada’s anti-energy policies have been particularly damaging given that deregulation and sweeping tax reduction in the United States has improved the business environment south of the border.
Clearly, the cumulative effects of Canada’s policy changes and changes in the U.S. have damaged the investment climate for Canada’s energy sector, with many investment analysts and industry executives now warning that investment for the energysector is increasingly moving from Canada to the U.S.
Not surprisingly, recent investment data underscores the deteriorating investment climate in Canada. Between 2016 and 2018, the U.S. enjoyed a more than two-and-a-half times increase in investment in its upstream oil and gas sector (essentially, exploration and production) compared to Canada.
In sum, various compounding issues weigh heavy on Canada’s energy sector. With Trans Mountain’s approval, one weight has lifted after years of missteps by Ottawa and several provincial governments.
While a positive move, it alone is not enough to restore investor confidence in our energy sector.
Elmira Aliakbari is associate director of natural resource studies for the Fraser Institute, and Ashley Stedman is a senior policy analyst for the Fraser Institute.