A proposal for a 210th Northern Gateway Condition
By Andre Carrel
The early response by First Nations and environmental organizations to the federal government’s “subject to” approval of the Northern Gateway Pipeline Project did not come as a surprise. What does surprise me is the absence of critical commentary about the project’s economic merits which are championed by governments and industry.
I decided to take a look at the economics of the project after reading Thomas Piketty’s “Capital in the Twenty-First Century”, a meticulously researched, documented, and analyzed history of capital over the past four centuries. His work highlights the role capital has played in North American and European societies over the long term.
Notwithstanding the American and French Revolutions, two World Wars, the many depressions, recessions and bubbles, return on capital has averaged 4 to 5 percent per year; far more than the average annual 1 to 1.5 percent expansion of national economies over that period. Norway’s Government Pension Fund, created in 1990, in which Norway invests its oil royalties, provides an example of how capital grows. After just a generation that fund’s balance today exceeds $800 billion! Norway adheres to cautious and strict ethical investment policies, producing modest returns at about half the long-term annual average of 10 percent reported by the leading US university endowment funds (Harvard, Yale, and Princeton).
Enbridge projects a 30-year economic benefit of $300 billion in additional GDP for Canada, including $4.3 billion in labour income and $1.2 billion in tax revenues for British Columbia. The average annual values for Canada are a GDP increase of $10 billion, and for British Columbia added labour income and tax revenues of $143 million and $1.3 million respectively. Enbridge’s total 30-year projected economic benefit for Canada will equal what Norway’s sovereign wealth fund will earn in under a decade without risk or harm to its environment!
Canada has two government-owned sovereign wealth funds: the Alberta Heritage Savings Trust Fund ($16 billion) and Quebec’s Generations Fund ($4.3 billion). Alberta ended contributions to its fund in 1987. The combined value of these two funds is a little over half of the value of Harvard’s university endowment fund. Worldwide there are 35 sovereign wealth funds richer than Alberta’s Heritage Trust Fund (among them Kazakhstan and Malaysia). The top three funds have a combined value of $2.4 trillion.
Our Constitution puts non-renewable resources under provincial jurisdiction, but navigation, shipping, and the regulation of trade and commerce are under Parliament’s jurisdiction. Furthermore, art. 92A.(3) of the Constitution provides that, in the event of a conflict between provinces and Parliament, “the law of Parliament prevails to the extent of the conflict.”
Why does Canada not have a sovereign wealth fund? Parliament could subject all trade and commerce involving non-renewable resources – oil, gas, coal, potash, etc. – to a condition that half the royalty revenues levied by the originating province be contributed to a Canadian Futures Wealth Fund. The fund’s objective could be to reinvest half its earnings and distribute the other half to the provinces to help finance their most expensive services: health and education.
We would have to tighten our belts and cope with higher taxes for a few years to maintain the services we now enjoy while resource royalty revenues are diverted to our national wealth fund. This belt-tightening would be short-term pain until the returns from the fund match the contributions paid into it. By maintaining contributions consistently and indefinitely, by not abandoning the practice as Alberta did, we would in effect be converting non-renewable resources into renewable ones. And as the fund grows, we could afford to forgo high risk resource extractions without suffering a financial loss.
Why risk our environment and fritter away our non-renewable endowment? Why not bite the bullet now and take steps now to secure affordable and accessible health and education services for Canada’s future generations?
Andre Carrel is a retired city administrator and full-time grandpal.
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