Mission Accomplished? Kinder Morgan Bailout Might Save Federal Climate Plan
Analysis & Special Reports
It doesn’t answer any of the multiple, fundamental objections to Kinder Morgan’s Trans Mountain pipeline expansion. But a University of Calgary economist says Finance Minister Bill Morneau’s offer of a bailout for the Houston-based descendant of the Enron empire might help protect the pan-Canadian climate plan from future political attacks.
The Trudeau government has always claimed that climate policy and new pipeline development could go hand in hand. Critics point out the obvious: that you can’t set a tough carbon reduction target, or claim international leadership by setting out to meet it, while ramping up production of a substance that warms the climate when used as directed.
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But the pan-Canadian plan—based on a Harper-era target, yet still well beyond the emission reductions the country is on track to achieve—depends on continuing support from most provincial and territorial governments. Alberta Premier Rachel Notley, a staunch supporter of the plan, faces a tough re-election campaign next year. Her would-be successor, Opposition leader Jason Kenney, is promising to scrap the province’s carbon levy if he takes office.
But now, Kent Fellows of the UC School of Public Policy is essentially arguing that that’ll be a lot tougher for Kenney with the prospect of a federal pipeline bailout on the table. Last week, he said Morneau’s over-generous offer “could ‘evaporate’ if Alberta’s carbon tax was removed from the equation,” CBC reports.
“I think if you are Justin Trudeau and you are at the federal level, you have a real hard time continuing to support the pipeline,” Fellows said.
“That could present a real problem for Kinder Morgan, since the project isn’t scheduled to be completed until 2020, a year after Alberta’s next provincial election,” CBC notes. “If it struck a deal with Kinder Morgan, the federal government would honour it, but that would just mean paying the company for any losses incurred because of political delays caused by B.C.’s opposition to the project. It wouldn’t mean the feds would continue pushing the project through the fraught political process.”
Which means “the pipeline has a better chance of being built with strong federal support, something [Fellows] believes will be greatly diminished if Alberta puts the brakes on carbon pricing.”
Mount Royal University political scientist Keith Brownsey agreed the Ottawa would no longer fight for the pipeline if it faced opposition from both provincial governments—B.C. on Trans Mountain, and Alberta on carbon pricing. “What incentive would there be for the federal Liberals to support the TMX at that point? Absolutely none,” Brownsey said. “It would end the Kinder Morgan expansion. I don’t think there is any question about that.”
While Fellows’ and Brownsey’s assessments help explain Morneau’s negotiating strategy, the CBC story still proceeds from an assumption that is likely out of date—that Kinder Morgan still wants to build the pipeline, or failing that, that other investors (who would also be eligible for the bailout) would want to take it over. A growing wave of news coverage suggests otherwise.
Since Kinder announced its now-infamous ultimatum April 8, The Mix, National Observer, The Narwhal (formerly DeSmog Canada), The Tyee, The Georgia Straight, and others have run exhaustive coverage of the fundamental but largely unacknowledged gaps in Kinder Morgan’s plan for the pipeline. In the last couple of weeks, news coverage has cast the ultimatum as an excuse for the Kinder parent company in Houston to walk away from a project for which it has already offloaded financial responsibility. On Friday, Bloomberg reported that Enbridge, North America’s biggest crude pipeline operator, isn’t interested in the project. TransCanada Corporation and Pembina Pipeline Corporation declined to comment, but at least one analyst was willing to fill that gap.
“I can’t imagine some other company stepping in and taking those same risks without a financial backstop,” said David Galison of Canaccord Genuity. “Enbridge shareholders would be in revolt if they took on a project with that much risk.” Morneau made the bizarre suggestion last week that Canadian pension funds might want to step in and fill the gap. But Reuters cited an unnamed fossil industry source who found the whole idea puzzling.
“It doesn’t matter who the owner is; even if it’s the federal government, you’re not getting the grandma off the picket line in Burnaby,” the source said.
So let’s review. If/when Kinder Morgan walks away from Trans Mountain on May 31, Notley and Kenney will be less than a year away from facing an electorate that still wants a new pipeline built. Even with two-thirds of Canadians opposed to throwing government money at the project, the federal bailout will still be one of the last visible sources of support for the project.
If Notley wins the provincial election, she’ll continue to defend her own climate policy, but for Kenney, the picture would be more complicated. To the extent that he promises to bring new pipelines to Alberta, or the province’s voters expect him to, it’ll be tough for him to do anything that puts the dream farther out of reach, however flawed and unrealistic that dream might be.
None of this stops Bill Morneau’s pipeline bailout from being a travesty of public policy. But it just might also be a Machiavellian delight. And if it keeps the Alberta government at the climate action table, collecting carbon levy revenues that it can cycle into energy efficiency, renewable energy, climate resilience, and farm stabilization measures the province wouldn’t otherwise see, it might help diversify a fossil-based economy in dire need of post-carbon solutions.