Sustainability lesson

April 16, 2018
Canada is teaching a lesson on sustainability. It’s not the lesson fringy environmentalism, which has preempted the word, wants to convey.

Canada is teaching a lesson on sustainability. It’s not the lesson fringy environmentalism, which has preempted the word, wants to convey.

The country has a fast-developing political crisis atop an exodus of capital—especially from the oil and gas industry. Capital flight is easy to explain. Regulation and taxation are intensifying at federal and provincial levels in Canada while relaxing in the US. Liberal Premier Justin Trudeau is pushing provincial governments into aggressive and costly precautions against global warming, while President Donald Trump heads the opposite way. Meanwhile, the political crisis forces investors to accommodate the risk of provincial stonewalling of federally approved projects.

Trans Mountain suspension

That problem escalated this month when Kinder Morgan Canada Ltd. suspended all nonessential work and spending on its planned expansion of the Trans Mountain Pipeline. The tripled capacity between Alberta and the southern British Columbia coast would give diluted and upgraded bitumen a crucial connection to world markets. With production now straining pipeline takeaway capacity, price discounts for Alberta oil against international markers are widening rapidly—and, for the province’s producers and government, distressfully.

Kinder Morgan suspended work after spending more than $1 million on the $7.4-billion Trans Mountain expansion because, it says, “A company cannot resolve difference between governments.” British Columbia Premier John Horgan, whose party rules in coalition with the Greens, promises to oppose the pipeline expansion every way possible. Yet Kinder Morgan has approval from the National Energy Board, the permitting authority for interprovincial transportation, as well as from BC itself under a former government.

Alberta Premier Rachel Notley—like Horgan, a New Democrat—is furious. She has retaliated with trade sanctions against the neighboring province and threatens to do more. After Kinder Morgan announced its suspension, she said her government was prepared to become a project shareholder and repeated her appeals for federal intervention. She calls Horgan’s blocking of a federally approved pipeline project a challenge to Canadian federalism.

Horgan isn’t chastened. His response to Kinder Morgan’s announcement: “The interests of Texas boardrooms are not the interests of British Columbia.” Citing protesters arrested at a pipeline terminal in Westbridge, he said, “Investors at Kinder Morgan have to be moved by the passion of British Columbians that are emerging in many dozens to be arrested on a daily basis.” British Columbia’s population is 4.8 million.

Trudeau, heretofore keeping his distance from the dispute, finally seems to feel squeezed. He responded to the Kinder Morgan announcement by declaring, “Canada is a country of the rule of law, and the federal government will act in the national interest. Access to world markets for Canadian resources is a core national interest. The Trans Mountain expansion will be built.” This language is stronger than any he had applied earlier to the issue. It recognizes the economic importance of resource development to all of Canada and the damage BC’s recalcitrance does to investment allure.

Trudeau also must see that the showdown threatens his climate program. Notley implemented a carbon tax and limits on carbon emissions in exchange for federal approval of the Trans Mountain expansion. Her main political opponent promises to rescind those measures if elected, which might happen if Notley can’t unjam pipeline construction. Other provinces stung by the costs of climate mitigation might follow.

Other dimensions

The lesson here is that sustainability relates to more than the environment. It has inescapable economic dimensions. Environmental regulations impose costs, which arouse political opposition in proportion to their severity. Much opposition to pipelines nowadays originates on those outer frontiers of environmentalism where costs somehow don’t matter. That position, temporarily successful, will prove to be economically and politically unsustainable.

Trudeau thus finds himself supporting a project deplored by kindred interests because it promises to boost supply of hydrocarbon energy. Circumstances force him to reconcile the environmental side of sustainability with inseparable, politically potent practicalities. This is a learning moment for him and for Canada. No one elsewhere should ignore the lesson.