Wealth Denial by Environmental Regulation

I just finished watching a report on the future of nuclear power plants’ safety design on the Wall Street Journal’s website. The short report got me thinking about the regulatory processes for large energy infrastructure projects building in the western world. Here are a quick few facts I looked up while thinking about this issue. No new building of nuclear power plants since 1974 in the US (although two new permits emitted recently), no major oil refineries built since 1976 in the US and recently the permit refusal of the Keystone XL pipeline from Alberta to Texas. In Canada the public backlash against Enbridge’s Northern Gateway pipeline from Alberta to the Pacific Coast, the permit refusal of the Prosperity copper and gold mine in British Columbia’s North  and talk of shutting down Quebec’s only nuclear power plant are symptomatic of the pernicious decease that is “Not in my Backyard Syndrome”. In Germany and Japan plans to scrap nuclear energy altogether are further signs of NIMB syndrome’s widespread contagion. Such thinking isn’t exactly illegitimate, I mean  who wants an oil spill in their backyard, a stinky refinery next door or a Fukushima disaster anywhere? Are these knee jerk reflex reactions to energy projects really the way we should be approaching the issue of energy production and distribution?

In the case of Alberta the current discount between a barrel of Edmonton Ligh oil to a barrel of NYMEX traded West Texas Intermediate is approximately 9 dollars which itself trades at a 19 dollar discount to ICE traded Brent Crude. So because of a lack of cheap oil distribution infrastructure Alberta oil is on average being sold at a 15% discount to world oil prices. At a production clip of 1.6 million barrels of oil a day, off the top of my head, that comes out to a loss of exports of 11 billion dollars a year* at current prices. That means that those opposed to building Northern Gateway aren’t shy about about reducing Canadian GDP by almost one percent every year. In other words Canadians are on average close to 1% poorer because of environmental concerns over one single project! This is just one example of the cost of overzealous environmentalism.

What is worrying isn’t the current state of affairs of environmental regulation. It is its unambiguous radicalization. While many believe regulation serves the goal of expertly minimizing environmental risk while minimizing lost economic gain, this is no longer so. The political and regulatory processes of environmental protection have definitely taken a drastic left turn. Increasingly, the politics of environmentalism and the regulation of the environment are no longer the purview of experts and professional civil servants. The main actors are now politicians, green lobbyists and special interest groups. Prudent regulation has given way to public and populist regulation. While studies tend to prove that environmental damages due to the energy sector are on a secular downtrend (here is just one somewhat dated study http://bit.ly/xGE2Yw), opposition seems to be growing daily. While recent NASA images (http://natpo.st/xjCIbN, http://1.usa.gov/azQJcY) have shown that the Alberta Oil Sands aren’t an environmental “game-over” by a long shot, the environmental polemic has been ferocious over Keystone XL.

Public concern over nuclear safety has pushed two of the worlds greatest energy consumers (Japan & Germany) to shy away from nuclear. No research, no inquiries, no commissions just decisions. Everyone understands the casual observers reticence with pursuing nuclear energy in Japan following the Fukushima crises, however one still expects rational voices to emerge to remind the Japanese that nuclear is environmentally clean (not around Fukushima of course), statistically safe and that the real culprit is not the energy source itself but its criminally lackadaisical handlers. Germany which produced 22% of its power in 2010 from nuclear now wants to shut down all facilities by the next decade and replace them with wind and solar power. Simply laughable. As nuclear production went down in Germany, energy imports from France’s nuclear energy sector jumped. So much for reducing nuclear dependence eh! Japan itself is now importing record amounts of fossil fuels to power its economy, registering its first structural trade deficit in a long time. When Osaka’s air looks like Beijing’s and people start dying from smog related diseases, I wonder if nuclear will seem so bad?

Turning back to Canada it is worth noting where environmentalism gets its grassroots. Sure all big cities have their Occupy Wall Street semi anarchic enviro-fanatics, but it is a particular faction of opportunistic greenos that are of interest to me. First Nations are the cream of the crop in terms of pesky regulatory sabotage of energy projects. In Quebec their grievances (real and fictitious) serve only  the purpose of extracting further economic gain from the feeble hearted politician. Countless hydroelectric projects have been stalled, reassessed given up or simply passed over because of the threat that is the local band council. In British Columbia, First Nations people along the cost pay some convincing lip service to environmentalism. However the slew of LNG plans, aluminum smelting plants and pre-existing pipelines indicate that their real concern is getting the right price. Such overt and unapologetic environmental regulation blackmail should be unacceptable in a social democracy. Delaying and depriving an entire country of significant wealth just to get a fatter piece of the cake is simply put selfishly immoral. It is a pity the expression social parasite was already invented, as Canadian first nations and opportunistic environmentalist the World over epitomize the term.

Here’s hoping someday energy production and distribution can return to a place of civil and rational thinking and debating, so that we may actually do some real environmental good and not kiss so much wealth à dieu

 * CIBC has just come out with its own estimate for yearly Oil Sands discount loss. While I pegged the number at 11 Billion yearly CIBC’s estimate is for a 18 Billion yearly loss. While I used up to date historical figures for my estimate CIBC’s analysts used forward looking data. Just wanted to let readers know about the discrepancy (not that big either)