When the tab comes due

In the age of the climate crisis, sinking money into oil and gas is a gamble. As rivers dry up, floods wash away whole towns and powerful storms batter our coast, the stakes for investing in more planet-warming pollution — the kind that will drive up the loss of human lives, health-care costs and insurance damages — are climbing ever higher.

Even for the strictly money-minded, fossil fuels are a bad investment. There is no question we will take a financial hit for the damage we’ve already done: Canadians stand to lose more than $100 billion in the world’s transition away from oil, coal and gas. But the more money governments, banks and everyday people sink into fossil fuels, the worse our losses will be.

Look no further than Trans Mountain, for example. A new analysis, produced by independent economist Robyn Allan and published by West Coast Environmental Law, found taxpayers are likely to eat a staggering $17 billion in debt from the government-owned pipeline expansion project (TMX). Ottawa is obscuring the true cost of TMX through a confusing corporate structure and “accounting wizardry,” Allan argues.

Even without hidden debt, TMX carries a hefty price tag. Its estimated cost currently stands at $21.4 billion. And the issue of mounting interest is nothing new: back in 2018, Canada’s National Observer reported on interest costs exceeding the amount of money the pipeline was actually bringing in. Analysts were questioning whether the government was giving a full picture of the expansion project’s financing back then, too.

But as the climate crisis deepens, the pressure is growing. Finance Minister Chrystia Freeland has insisted TMX is “commercially viable” by pointing to two financial reports her department refuses to share with the public, one from TD and one from the Bank of Montreal. Even the parliamentary budget officer (PBO) — whose own assessment finds Canada is “very unlikely” to get money back on its TMX investment — was unable to get his hands on them.

But the PBO may have uncovered at least one of the reasons for Canada’s confidence: those reports assume the Trans Mountain pipeline will operate for 100 years. That’s at least double the lifespan of most oilsands projects, according to a financial analyst with the U.S.-based Institute for Energy Economic and Financial Analysis (IEEFA) — meaning the government would need to greenlight new development in the oilsands to keep the pipeline viable.

“Because of the various commitments to net-zero or to reduce reliance on fossil fuels, we didn't think that using a 100-year time horizon was appropriate,” Parliamentary Budget Officer Yves Giroux told Canada’s National Observer in June.

Then there’s the $10-billion loan guarantee. Earlier this year, Canada’s six biggest banks financed a loan for the beleaguered project, but only after the federal government guaranteed taxpayers would pick up the tab if Trans Mountain couldn’t. The move drew swift criticism in the House and raised more questions than it answered — namely around Canada’s promise that no more public money will go into the project.

For its part, Finance Canada won’t say whether it will consider forgiving TMX’s massive public debts at the expense of taxpayers. The project is “in the national interest and will make the Canadian economy more resilient,” the department says. But by Allan’s analysis, there’s no way Trans Mountain can make enough money to survive without a hefty bailout.

Which is why it’s hard to see a way forward for the pipeline that doesn’t involve taxpayers taking a financial hit. Even if you set aside the climate case for ditching fossil fuels, experts say the numbers don’t add up. Trans Mountain would have to raise the tolls it collects from oil producers to cover the pipeline expansion’s ever-rising price tag and still turn a profit for investors. Doing that would also make it more expensive for producers to ship their oil abroad. If their oil can’t be sold at a competitive price in overseas markets, then the business case for the pipeline starts to fall apart. But if Trans Mountain doesn’t raise the pipeline’s tolls, the pipeline would be operating at a loss, according to an IEEFA report from March, which also upends its business case.

The federal government may dispute that assessment, but plenty of others don’t. Several insurers have already cut ties with Trans Mountain, and activists are putting enough pressure on its other backers to bow out that the pipeline company was given permission to keep the names of its remaining insurers a secret.

Whether it’s a multibillion-dollar hit to Canadian taxpayers now or the much heftier sum the climate crisis will extract from us later, at some point, the bill will come due.

Reads of the week

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Credit card surcharges are coming for your wallet. Thanks to a class-action lawsuit, businesses across Canada can pass on processing fees to Visa and MasterCard customers if they choose, Nairah Ahmed reports.

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