corporate welfare northern style

No sooner had the National Energy Board (NEB) conditionally approved the Mackenzie Valley Pipeline last week than the big oil companies behind the project reminded us they expect taxpayer handouts for the project to go forward.

No sooner had the National Energy Board (NEB) conditionally approved the Mackenzie Valley Pipeline last week than the big oil companies behind the project reminded us they expect taxpayer handouts for the project to go forward.

Imperial Oil’s spokesperson said meeting the energy board’s demand the pipeline file its proposed prices by 2011 would be “challenging for us. And it’ll be dependent on how long it takes to reach agreement with the federal government on fiscal terms.”

“Fiscal terms” being code for taxpayer cash, whether direct or, more subtly, in various forms of loan guarantees, “infrastructure” investments, tax breaks and other kinds of government largesse.

It’s hard not to have some sympathy for the oil companies. They’ve put a decade of time and money – all these studies cost millions – into the Mackenzie project. In return, they’ve been subjected to an almost farcical regulatory process. The Mackenzie Joint Review Panel (JRP), just one stage in the process, was appointed in 2004 and didn’t report until December 2009.

Five years of meetings. In the end they approved the pipeline subject to 176 conditions. To give an example, the Joint Review Panel believes the pipeline should not go ahead unless Ottawa restores literacy funding to the Yukon and NWT. Another condition was that within six months of a decision to construct the pipeline, the government of the NWT should give the RCMP and the NWT Liquor Board sufficient money to enforce the liquor act.

If the cops aren’t enforcing the liquor act then they should probably start, with or without the pipeline.

The process has gone on for so long that Imperial Oil has built entire other projects, even massive multi-phase oilsands complexes. The Mackenzie project’s website has a “What’s New” section that peters out almost three years ago.

Now the NEB has reviewed the application and the review panel’s work and has approved it. With 264 conditions.

Now it goes to the federal cabinet. If you have any suggestions for more conditions, you might as well e-mail them in now. After that, the pipeline companies will have to start on the hundreds, perhaps thousands, of individual permits they require to build it.

But all this regulatory silliness does not mean governments should subsidize the project. That would turn farce into waste.

Pipeline proponents note handouts are common with this kind of project. If you think Gazprom didn’t get any help from the Kremlin with its big new Sakhalin-1 gas export project, think again. Even an anti-government Tea Party-type like Sarah Palin wrote $500 million in subsidies into her flagship Alaska Gasline Inducement Act.

She was so proud of the bill she named her new dog Agia in its honour (so far, no one has named their dog JRP).

Proponents also point out how many other big corporations are getting handouts. Just last week, the Conservative government in Ottawa announced a $300-million “repayable investment” in Pratt and Whitney’s new airplane engine project. Pratt and Whitney is part of United Technologies, the 37th largest company in the US with revenues in 2009 of $53 billion. Its Canadian locations are in politically important ridings in Longueuil and Mississauga.

“Repayable investment” is also code for taxpayer cash, since loads of studies over the years have shown the repayment rates for this kind of government investment are sadly low.

Undoubtedly proponents are also asking Ottawa for money to make up for the extra expenses they will incur as part of the lengthy regulatory process, as well as for the various community projects and First Nations’ benefits agreements they will sign.

They will argue the project will create jobs and tax revenues and, like Pratt and Whitney’s engine, is worth public “investment.” It is the kind of argument that leads to well-connected companies getting special breaks, paid for by the rest of us (who also invest, create jobs and pay taxes).

The justification for government help essentially comes down to whether there is what economists call a “public good” involved. The classic test for these is whether (a) your consumption of the good doesn’t affect my enjoyment of it, and (b) whether the owner can “exclude” people from enjoying it. Lighthouses are the classic example, since, if my boat sees the lighthouse and avoids the rock it doesn’t stop your boat from using the lighthouse too. Also, the lighthouse owner can’t exclude boats from using it.

This kind of situation quickly gets you “market failure,” where no one builds lighthouses because everyone would use them without paying.

A pipeline fits neither condition. Furthermore, why would the government subsidize someone to extract publicly owned resources such as natural gas? Especially when we are supposedly concerned about climate change, and many would recommend a carbon tax rather than pipeline subsidies.

Vote-hungry politicians generally ignore these kind of arguments. It’s more fun to pretend that you are the visionary leader bringing the big project to grateful voters.

But Yukonomist has this suggestion for Ottawa: If we do end up giving inducements to the Mackenzie pipeline, please publish them in a transparent way so we can tell how much we are paying the world’s biggest oil companies to transport our natural gas to the barbecues of Chicago.

It will be good to know those numbers as we read about the federal deficit and budget cuts to our lighthouses and other public services.

Keith Halliday is a Yukon economist and author of the Aurore of the Yukon series of historical children’s adventure novels.

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