Whenever I hear someone defending the building of the oil pipeline, she always appeals to “jobs” and “the economy,” as if it were a given that building the pipeline would create endless wealth and perpetual employment for all. This sort of thinking is short-sighted at best, and fails to take into account some of the more subtle details that make up economies in real life.
I am not an economist myself, and I am not claiming that the following is an exhaustive account of everything that needs to be considered. This piece is meant only to question the “oil is good for the economy” orthodoxy.
In economics, an “externality” is a consequence of some activity that affects parties not involved in the activity, without being reflected in the cost of activity in question.
If you build an oil pipeline, that pipeline will have a negative impact on the environment. There may not be a massive oil spill or explosion that kills humans and wildlife, but speaking honestly, that’s a very real possibility and one that we should be prepared to think through seriously. Trains aren’t the only things that can explode, after all. And the burden of mitigating future disasters will not be borne primarily by those who are profiting from the pipeline. It will be something that the taxpayer has to pay for.
To give you an idea of the scale of what an oil disaster looks like, the cleanup in Lac-Mégantic will cost close to $1 B. This is a sum greater than what the railway has in insurance, and various levels of government will have to pick up the remainder of the bill. This is to say nothing of the cost of human lives that were lost. And in case you’re thinking that this is a problem that doesn’t happen often, or that happens with trains only, there have already been multiple major oil spills from pipelines in North America in 2013.
This is not the only way that oil companies externalise the costs of their industry into the public sector.
Our economy runs on oil / fossil fuels / petroleum products. The use of these products is a major factor in causing climate change. Despite the protestations of fringe climate change deniers everywhere, the temperature increases and extreme weather events that we have experienced (e.g. recent severe flooding in Calgary and Toronto) are also externalities that come as a result of the oil industry.
The cost of the cleanup in the wake of the flooding in Toronto this summer will likely be over $600 M. The cleanup in Calgary will cost the city $256 M. There is every reason to think that extreme weather events are now a common occurrence, and that they will happen even more frequently.
The oil industry is also benefiting from the use of public resources in that they seem to have bought and paid for the Prime Minister of Canada and the entire Harper government. For years, the Harper government has been bending over backward to loosen environmental regulations, destroy policy-informing science and generally whore the government of Canada out as the oil industry’s biggest advocate and advertising department.
(My apologies for the use of the word “whore.” I do not wish to demean sex workers by comparing them to the Harper Government and I do not condone any sort of “slut-shaming” or the use of derogatory language to enforce sexual mores among women generally. I use the term because I felt the analogy was apt and that it was offensive enough to most to get my point across.)
Balancing the pros and cons
The most recent estimates put the upside to building an oil pipeline at 50 permanent jobs. That is not a typo. Fifty jobs only. This number is negligible. In terms of doing anything for the job market in Canada, it is a rounding error.
Let’s do some “back of an envelope” math. First, let’s generously assume that each of these 50 jobs will be very well compensated. $100 k per annum.
50 jobs x $100 k per annum x 30% income tax rate = $1.5 M tax revenue per year
Now, let’s put that in perspective. The Plains Midstream oil spill in 2011 cost $70 M to clean up. That same company has had three oil spills in the past three consecutive years (2011 to 2013). The first one was $70 M. The second had a $53 M price-tag and the most recent one just happened in June, so I believe cleanup is still underway.
And the company responsible for the mess doesn’t always clean it up. Recall that the railway company responsible for the devastation in Lac-Mégantic does not have enough insurance to pay for the cleanup, leaving the remainder of the bill in the hands of Jean Q Taxpayer.
Unless there is some revolution or miracle, I can’t imagine how investing more in the oil industry would be anything but economic suicide.
Why don’t we do this instead?
Tax the oil industry. Tax them like they’re selling cigarettes. Tax them until it is only marginally profitable for them to exist. Use that money to subsidise solar panel installations, wind farms and research into new green technologies, instead of lobbying for Big Oil.
Here’s the usual objection against highly taxing an industry: “If we tax this industry too much, they’ll just move their operation to a cheaper country.” This argument doesn’t work for oil in Canada. You can’t outsource the production of oil from Canada to another country. You see, the oil is in Canada. Checkmate.
But what if nobody develops the oil sands?
I can live with that.
But that will raise oil prices! We’ll be more dependent on other countries for oil!
Yes. It is true that there will then be incentives for us to pursue more sustainable technologies. It is part of the job of a properly-functioning government to provide incentives and regulations that bring about positive results for its citizens that otherwise wouldn’t be possible in a totally free market.
But that’s unreasonable! Weaning ourselves off oil would take a long time and a lot of work!
No one is suggesting that we go cold turkey on petroleum products. But I am saying that using the machinery of the state to smooth out all the bumps in the market, making a profitable enterprise even more so, and filling the pockets of already-wealthy oil barons at the expense of an already-hurting economy is an irresponsible and immoral way to use a government.