Morgan: ‘Keep your dirty oil, just send us the cheques’

New Brunswick’s recent election campaign featured starkly different visions of how to lift that province’s moribund economy.

The governing Progressive Conservatives saw unlocking shale gas resources as a job-and wealth-creating opportunity while the Liberals, playing on fears instilled by anti-fracking protesters, promised increased infrastructure spending.

In a choice between building wealth and building debt, frack-fearing voters chose debt.

Just days after newly-elected Liberal Premier Brian Gallant vowed to institute a moratorium on natural gas well hydraulic fracturing, neighbouring Nova Scotia introduced legislation prohibiting fracking, despite a report by a government-appointed commission that acknowledged unlocking shale gas resources could bring billions of dollars into the province’s economy and recommended establishment of baseline monitoring with effective and enforceable regulations.

The two Atlantic Provinces have joined Quebec in shunning a technology that has one of the most impressive industrial safety records ever compiled.

In the U.S., where 1.2 million wells have been hydraulically fractured over the past 60 years, the Bureau of Land Management and the Environmental Protection Agency have found no supportable evidence of fracture-induced water contamination.

Here in Canada, more than 200,000 wells have been fractured in Alberta, British Columbia and Saskatchewan with a similarly sterling record.

News that the three eastern provinces are shunning technology that helps generate the very funds they receive through Canada’s equalization program is stirring an undercurrent of resentment in the West. Letters on editorial pages echo an “OK in our back yard, but not in yours” sentiment while a “no fracking-no cheque” quip went viral on the Internet.

Adding fuel to these sentiments is opposition to Trans Canada’s critically needed Energy East Pipeline that would move oil sands production through Quebec and New Brunswick to international export markets.

Led by environmental NGOs, the same groundless apocalyptic rhetoric used to foment opposition against hydraulic fracturing is being adopted against Energy East.

Matthew Abbott of the Conservation Council of New Brunswick alleges, “The Energy East pipeline would put thousands of fishery jobs a risk”.

Greenpeace campaigner Patrick Bonan pronounces “Quebec should not have to assume the risks … which only serve the interests of oil companies.”

Here again, the message westerners hear is “Keep your dirty oil, just send us the cheques”.

Of course, Canada’s equalization system doesn’t actually involve “have provinces” sending cheques to “have-not” provinces. But in practice that’s what happens, through the federal treasury.

The system ties equalization grants to per-capita “fiscal capacity”.

Unlocking shale gas and oil sands resources results in a higher fiscal capacity for B.C., Alberta and Saskatchewan. That higher per-capita fiscal capacity means higher tax payments to the federal treasury, which are redistributed to lower fiscal capacity provinces including Quebec, Nova Scotia and New Brunswick.

Without natural gas and oil sands revenues, those funds simply wouldn’t be available for redistribution. What would that mean to the three anti-fracking, anti-oil sands provinces?

Quebec’s fiscal plan for 2014-15 projects a deficit of $2.4 billion. This is after a $9.3 billion equalization payment. Without that payment, the provincial deficit would mushroom to a whopping $11.7 billion.

New Brunswick projects a deficit of $400 million (before Gallant’s new infrastructure spending program) while its equalization payment is expected to be $1.7 billion. Without that payment, its deficit would jump to $2.1 billion.

That means one-quarter of all spending would have to be borrowed. Nova Scotia projects a deficit of $300 million and an equalization payment of $1.6 billion, so without the payment the deficit would jump to $1.9 billion. One fifth of all spending would need to be borrowed.

Without those gas-and oil-funded equalization payments, the fiscal position of these three provinces would clearly be disastrous, leaving no choice but to make dramatic cuts to health care, education and social programs. Perhaps, then, gas well fracturing and the oil sands might not seem so awful any more.

Gwyn Morgan is a retired Canadian business leader who has been a director of five global corporations. This column is distributed by Troy Media (www.troymedia.com).

via Morgan: ‘Keep your dirty oil, just send us the cheques’.