The reports "present an illusion of economic well-being" created from rapid oil sands growth by omitting key trends such as oil price shocks and by using inappropriate economic models, adds Allan, a retired financial economist and former CEO of the Insurance Corporation of British Columbia.
The 56 year-old economist describes the reports "as quantitative billy clubs to beat back public inquiry," designed to discourage real debate about costs and benefits.
"No corporate executive or corporate board would make a decision to expand a project based on the sort of flimsy and one-sided information presented in these studies," adds Allan, once rated by the National Post as one of Canada's top 200 CEOs.
"Why are politicians passing off reports as a business case for a pipeline when no one in business would rely on data based on only one scenario and with no sensitivity analysis over a 30-year time period?" asks Allan.
Flawed analyses ignore key factors: Allan
Allan's 33-page analysis, which will be posted on her website later today, critically examines the assumptions employed by Enbridge's Application to the National Energy Board; several studies by the Canadian Energy Research Institute (an organization funded by industry and government); a pro-Gateway study by the University of Calgary School of Public Policy (an institution largely funded by Imperial Oil) and a Wood Mackenzie Report prepared for the Government of Alberta.
Both Finance Minister Jim Flaherty and Natural Resources Minister Joe Oliver have cited CERI studies that allege that trillions of dollars of benefits and hundreds of thousands of job years will pour from rapid oil sands growth, while Premier Alison Redford has championed both CERI and Wood Mackenzie studies.
The Wood Mackenzie report claims that Canada would add $78 billion to corporate coffers with an approved Gateway pipeline between 2017 and 2025.
Yet these optimistic studies are seriously flawed and misrepresent key economic facts because they don't account for the negative impact of rising oil prices on the Canadian economy or manufacturing sector. In addition, almost all the reports base their inflated benefits on artificially low Canadian exchange rates.
More than 80 per cent of Enbridge's alleged $270 billion boost to GDP growth, for example, disappears when fair and reasonable exchange rates are accounted for, says Allan. Both the Enbridge and Wood Mackenzie reports assume that the Canadian dollar will remain at 85 cents in value to the U.S. dollar for 30 years in the Enbridge case and 10 years for Wood Mackenzie. Allan calls that assumption "a ridiculous" scenario that even confounds Bank of Canada forecasts.
"If the dollar is at par and oil sells for US$100 per barrel, gross revenue is CDN$100 per barrel," explains Allan. But if the dollar rises to $1.05 that same barrel is worth $95.24 Canadian, a decline in gross revenue of 4.76 per cent."
The appreciation of the Canadian dollar, now driven by oil and commodity exports, not only squeezes the oil industry and reduces royalties. It also increases the cost of exports and leads to slower growth and job losses for the entire economy, a phenomenon known as the Dutch Disease.
Rising dollar will distort predictions: Allan
Three of the four studies also use an Input Output economic model (IO) that even economists agree is inappropriate for the measurement of overall economic health.
"IO models have severe limitations, exaggerate benefits and ignore economic costs," says Allan. Because the model doesn't incorporate the costs of rising oil prices on the economy, its conclusions on rapid resource extraction are inaccurate and misleading.
An Input Output model, which has no feedback mechanisms, would conclude that a $1.5 billion fire at Suncor was good for the economy and that the Vancouver Canuck riot was a "growth generating event," says Allan.
Dynamic models used by the Bank of Canada, for example, have concluded that rise in oil prices directly impacts monetary policy and result in permanent decline in real wealth flows in the country.
Last week Mark Carney, the Governor of the Bank of Canada, called for the sustainable development of natural resources that recognized and ended Atlantic Canada's heavy dependence on foreign oil.
Several studies by the Canadian Energy Research Institute acknowledge the negative impact of a raising petro dollar on the economy but don't apply these findings consistently.
The government and industry-funded think tank predicts in its most recent report that the Canadian dollar could rise to $2.08 by 2030 with rapid oil sands development but then assumes in its studies that the dollar remains fixed on par with the U.S. currency.
Using a "false exchange rate reality" guarantees happy forecasts that ignore the sort of extreme variability and volatility that rising oil prices will actually bring, says Allan.
Reports' funding linked to oil industry
A report by the University of Calgary School of Public Policy titled "Catching the Brass Ring" predicted that the building of Keystone XL and Northern Gateway pipelines would reap price increases between $7.20 and $13.60 per barrel of oil.
Yet Allan found that the report offers no clear discussion of how the calculations were developed.
Moreover, Natural Resource Minister Joe Oliver in a January speech to the B.C. Chamber of Commerce cited the report as evidence that Asian markets would bring $132 billion to Canada's GDP between 2016 and 2030. Yet the authors of the report believe that Northern Gateway would only deliver a paltry return of $5.2 billion.
Original Article
Source: the tyee
Author: Andrew Nikiforuk
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