Keep your dirty oil, just send the cheque

New Brunswick’s recent election campaign featured starkly different visions of how to lift the 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 protestors, 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 hydraulic fracturing for natural gas, Nova Scotia introduced legislation prohibiting fracking. Yet 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 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 US, where some 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. In Canada, more than 200,000 wells have been fractured in Alberta, BC and Saskatchewan with a similarly sterling record.

News that these eastern provinces are shunning technology that helps generate the 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 TransCanada’s critically needed Energy East Pipeline, which would move oil sands production – so called “dirty oil” – through Quebec and New Brunswick to international export markets. Led by environmental NGO’s, the same groundless apocalyptic rhetoric used to foment opposition against hydraulic fracturing is being adopted against Energy East.

Jobs at risk
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 that 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 BC, Alberta and Saskatchewan, which means higher tax payments to the federal treasury. The money is 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.

Quebec’s fiscal plan for 2014-15 would project a deficit of $11.7 billion without a $9.3 billion equalization payment. New Brunswick’s deficit would jump to $2.1 billion from $400 million without an equalization payment of $1.7 billion. Nova Scotia’s deficit minus an equalization payment of $1.6 billion would jump to $1.9 billion.

Without gas and oil funded equalization payments, the three provinces would have little choice but to make dramatic cuts to healthcare, education and social programs. Perhaps then, gas well fracturing and “dirty oil” might not seem so awful anymore.

Gwyn Morgan is the retired founding CEO of EnCana Corp. This column is distributed by Calgary-based Troy Media.