Northern Gateway Pipeline Royalties Fuel War Of Words Between Alberta, British Columbia

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NORTHERN GATEWAY PIPELINE ROYALTIES
B.C. Premier Christy Clark is in a war of words with Alberta Premier Alison Redford over royalties from the proposed Northern Gateway pipeline. (CP) | CP

VANCOUVER - The war of words between the premiers of British Columbia and Alberta notched up in volume Tuesday over B.C.'s demand for a greater slice of the economic benefits from the proposed Northern Gateway pipeline, but one expert says B.C. is eyeing the wrong pie.

B.C. Premier Christy Clark was unmoved Tuesday in pledging to block the project should her Alberta counterpart refuse to discuss distributing taxation revenues more equitably, while Alison Redford flatly rejected sharing royalties accrued from her province's natural resource.

"If Alberta doesn't sit down and talk about it, the project can't go ahead," Clark told The Canadian Press. "It's as simple as that."

Enbridge's (TSX:ENB) proposed 1,177-kilometre twin line would carry heavy oil from Alberta across a vast swath of pristine B.C. wilderness and First Nations territory to a port at Kitimat, B.C., for shipment to Asia.

Risks that the line could rupture on land or that oil could spill off tankers into the Pacific Ocean have prompted Clark's government to set out five conditions that would make the project worthwhile for B.C.

But trying to collect cash from another government in exchange for the movement of goods appears to have no precedent in Canada.

That's why Clark should be taking aim at another target, said Warren Mabee, policy director at the Institute for Energy and Environmental Policy at Queens University.

"This is a case where the pipeline will be built and the stuff that's inside the pipeline belongs to the companies, not to the province," said Mabee from Kingston, Ont.

Fiscal benefits can be derived without sharing royalties, he added.

"That's kind of a red herring," he said. "What B.C. needs to be concerning itself with now is what mechanism makes the most sense and what's the appropriate rate and how would they do that?"

But officials in Clark's government said on background Tuesday that B.C. is not proposing to introduce a "new tax" on Enbridge.

The rhetoric on both sides heightened a day before provincial and territorial leaders were to gather in Halifax for the annual Council of the Federation meeting, where they will discuss a national energy strategy.

"We will not share royalties and I've seen nothing else proposed and would not be prepared to consider anything else at this time," Redford told reporters in Edmonton. "We'll continue to protect the jurisdiction that we have over our energy resources."

Clark contends B.C. deserves compensation, saying the passage of crude is nothing like trucking grain or even piping natural gas through Alberta.

But Redford argued heeding Clark's request would "fundamentally change confederation."

"That means every single time that you have an economic project or a commercial project there has to be a new negotiation of the balance sheet," she said. "It's not how Canada has worked, it's not how Canada has succeeded and I'm disappointed to hear the comments."

Clark's response is that Alberta must either work with her to rebalance the equation or B.C. won't buy in.

B.C. is currently not slated to gain any royalty revenue because the extracted resource originates in Alberta.

"I am going to fight for this," Clark said, noting many difficult conversations have unfolded across the country and eventually led to an agreement. "They don't involve opening up the constitution."

Mabee said talk of royalty sharing confuses the issue, and Clark's government would be better off examining possibilities such as a targeted tax.

He said a carefully calculated export or port tax could be levied from the oil company, for example by asking a fee per barrel being moved through the terminal in Kitimat, B.C.

"They could tax different grades at different rates, they could provide tax breaks depending on the safety of the ships," he said, noting there's a number of options. "That's the type of tax that could be applied without any big issue."

He added that B.C. could potentially extract other economic benefits from the project. Developers may see the pipeline's path through the northeastern part of the province as a way to open new oil fields in that region, with royalties flowing back to the government.

Seeking more money from Enbridge is significant, Mabee said, because while some would be used as general revenue, savings would also accrue to pay for potential cleanup efforts.

Only 8.2 per cent of the Northern Gateway's projected $81 billion tax revenue would flow to B.C. over a 30-year period, according to research commissioned by the B.C. government.

That equates to $6.7 billion for B.C., while Ottawa is expected to receive $36 billion and Alberta would earn $32 billion.

Saskatchewan is expected to top the remainder of the provinces in terms of tax benefit, receiving about $4 billion.

The analysis was conducted by Wright Mansell Research Ltd., and accounts for a period between 2016 and 2046.

British Columbia's gross domestic product would get a boost of 17 per cent of $270 billion over that period, while the total employment benefit would be 25 per cent of the project, but mainly consist of short-term construction jobs.

Attempts at gaining a greater share have been almost exclusively aimed at the provincial and federal governments, B.C. bureaucrats told reporters at a technical briefing when conditions for going ahead with the project were unveiled Monday.

Assistant Deputy Minister Jim Standen, with the environmental protection division, noted there have been some preliminary contacts with the shipping and petroleum industries to "test" the concept of a user-pay model.

The government also said an ongoing collaboration with other Western provinces called the New West Partnership "could provide the basis for any substantive discussions" with Alberta about distribution of the fiscal benefits. However, the partnership is not currently involved.

Environmental assessment hearings are currently underway for the project that the federal government has championed for its potential to boost the economy.

Environmental advocates and First Nations have long argued leaks from tankers transporting the oil could tarnish B.C.'s land, while a spill along the coast could be devastating. Enbridge has already had to conduct major oil cleanups in Alberta and Michigan after pipeline breaches.

Last week, the company announced it will shore up another $500 million in safety improvements.

Activists, however, have said no amount of money will satisfy them. They want the $5.5-billion project stopped.

Note to readers: This is a corrected story. A previous version incorrectly reported that B.C.'s gross domestic product would get a boost of 17 per cent of $270 million

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