May 9, 2015

Economic Development and the Environment


The biggest challenge facing the new NDP government in Alberta, and an NDP government in British Columbia should one be elected in 2017, is finding the right balance between economic development and environmental objectives.

There are some who suggest that there is no conflict — there can be jobs and environmental policies effectively prohibiting certain types of developments. No doubt there can, but the jobs often cited are in green industries and other initiatives that are not in themselves sustainable, surviving only with government funding or other financial support.

There are trade-offs, and their resolution will not come from pretending they don’t exist, but rather by changing the way we think about what new developments and industries will do and what we are trying to achieve.

One of the worst aspects of the resource development policy we have seen in British Columbia, and with the previous Alberta government as well, is a fixation on economic impacts — the billions of dollars  of economic activity and hundreds of thousands of jobs a project or new industrial development is estimated to generate.

Aside from the estimates typically being wildly inaccurate in terms of the net effect on the economy (they almost universally ignore adverse impacts on other industries), the impact estimates focus on the wrong concern. The objective isn’t more growth; rather it should be better, more beneficial growth.

Growth in one sector will divert labour, capital and other resources from other industries. You don’t have to fully accept the perils of the so-called Dutch Disease to recognize that the rapid growth will put pressure on local labour markets and wages as well as have broader interest and exchange rate effects diminishing activity elsewhere.

In resource extraction industries with their large energy requirements and greenhouse gas emissions, there will be additional costs borne by everyone else. If a province is committed to greenhouse gas reductions, an increase in emissions in one sector will diminish or increase the cost of what others can do. And in a province like British Columbia, where industrial electricity rates still average less than half the cost of new supply, a major increase in power requirements supplied by BC Hydro will be paid for in large part through increased bills on other customers.

None of this means that there should be no new or expanded resource activity. Rather, it means that developments should be designed and established within a taxation and regulatory framework that serves to optimize not maximize the rate of growth.

In Alberta, there clearly is the need for a more attenuated rate of development than has occurred in the past. There will be greater employment net benefits when there is more time for the training and placement of Albertans in the skilled trade, higher paid positions. There will be greater net benefits for taxpayers and shareholders alike when costs are not driven up by excessive competition for workers and materials, and prices are not diminished by production growing faster than pipeline capacity can be developed in a socially and environmentally acceptable manner.

Net benefits will also be optimized when the local environment and major greenhouse gas issues are fully addressed. Alberta will not only serve its own interests, but also, as others have eloquently argued, will enhance the marketing of its product and the pipeline and other infrastructure it needs, if its development is undertaken within an aggressive cap and trade or other set of emission reduction policies setting Alberta apart in a positive way from the other suppliers of oil with which it competes.

The new Alberta government goal should be to replace, not restore the growth they had in the recent past

As for British Columbia, the same principles apply. There was never any chance of the rapid growth of LNG activity that Premier Clark promised in her successful bid to win the last election, but nor should there be any desire to do so. Net benefits will be maximized by much more modest development, better matching the availability of labour and other resources needed for construction, and accompanied by taxation, electricity rate and greenhouse gas policies that ensure British Columbians realize significant net benefits from whatever takes place.

More jobs that divert activity from other sectors, in large part simply serve to attract more people to the province, fail to generate the optimum amount of  net revenues from the resource extraction, and generate unacceptable levels of greenhouse gas emissions without offset measures or strategies, will not make us better off.

It is balance, not bombast that British Columbia will need.





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