This week, Press Progress and the Vancouver Sun’s Peter O’Neil reported that Kinder Morgan had quantified the economic benefits of oil spills in its application to expand the Trans-Mountain Pipeline from Edmonton, Alta. to Burnaby, B.C. Yes, the benefits of oil spills—they create jobs in the communities where the spills occur. Beyond being a public relations disaster for the company, this should lead us to re-examine what we accept as proof of the economic benefits of projects in general.
Companies facing regulatory hearings like Kinder Morgan, groups promoting events like the Vancouver Olympics, or politicians justifying public expenditures like the new hockey arena in Edmonton generally talk about the benefits of their projects using a tool called economic impact analysis. This technique takes spending, runs it through a statistical model, and predicts impacts of that spending on both GDP and employment.
There are, basically, two issues with this method, and both are wonderfully illustrated by the oil spill example. First, the method is agnostic as to what the money is spent on, so money spent cleaning up an oil spill looks remarkably similar to money spent building a new hospital or school in terms of economic impact. Second, the technique generally does not account for where the money comes from, or how it would otherwise have been spent. Money spent on a hockey arena in Edmonton might otherwise have been spent on light rail or tax reductions, both of which would also have economic impacts. In the case of an oil spill cleanup, the costs are likely to be directly incurred by an insurance company, but the premiums paid for that insurance come at the expense of the value of the oil transportation service—the higher the expected clean-up costs from oil spills, the higher insurance premiums will be, and this will mean higher pipeline tolls, which in turn implies lower profits, taxes, and royalties on the products shipped. Simply-put, there’s no free lunch.
Read more at Maclean’s Magazine.
One response to “Do Oil Spills Boost the Economy?”
I attended the CHOA talk you gave last night March 31, 2015. Re your comments on Alberta GHG reduction targets. I think the gov’t and others focusing on the 50 by 2020 or 200MT by 2050 from BAU are all being foolish. The only firm target in the plan was 14% below 2005 emissions by 2050. I can’t find the basis for the BAU projection which I think was a CAPP 2008 projection, but since then 13 upgraders and a lot of other projects have been cancelled and gas production (a major source of estimated methane emissions) is almost 1/2 of what it was in 2005/8. But the main point is emissions in 2005 were ~205MT/yr so dropping 200MT from that point would mean Alberta would be down to 5Mt per year which is even crazier than saying you’ve reduce emissions by not having them go up as much as you forecast they would! To achieve 200MT reduction no matter what is just idiotic. A 14% reduction (28-30MT/yr)is doable just by the Canadian oil and gas industry cutting back due to low prices for commodities and slower growth or decline in Alberta’s conventional oil and gas industries due to the shale boom in the U.S.