Analysis regarding Canada’s proposed policy of oil pipeline project and its relation to the general principles in GATT 1994
A highly controversial and debated topic in Canada has been the proposed project of expanding pipeline capacities in order to move Western Canada’s crude oil. Groups such as the indigenous and First Nations communities, as well as the Green Party of Canada, have strongly opposed such expansions, arguing it is environmentally destructive. However, big Canadian oil giants such as the Canadian Natural Resources Ltd, Cenovus Energy, and Suncor have emphasized that these actions are necessary to put an end to the current government curtailment in the province of Alberta.
Current Pipeline Projects
Enbridge Inc leads this project, which will allow the replacement of an ageing pipeline that moves oil from Alberta to Superior, Wisconsin, and at the same time double the capacity to 760,000 barrels per day (bpd). This project has passed key obstacles this February with the state’s Public Utilities Commission, which deemed the revised environmental impact statement is adequate, allowing the commission to issue a new certificate of need.
Perhaps the most heated and messy battle has been over this 67-year old pipeline running from Alberta to the province of British Columbia, which gives Canadian oil access to U.S. refiners (on the West Coast) and Asia, through the Pacific Ocean. Kinder Morgan Inc, the owner of the pipeline, faced so many hurdles in a plan to triple the capacity to 890,000 bpd sold it to the Canadian government. Construction is already underway with the Supreme Court removing a key hurdle this January, which involved rejecting a British Columbia bid to regulate hazardous substances’ (such as oil) shipments. Prime Minister Justin Trudeau and the Liberal government has been spearheading the expansion of this mountain oil pipeline.
This project involves opening a new line connecting Alberta with Nebraska. However, TC Energy’s plan has been seen as a watershed from the various environmental movements targeting the pipeline, especially targeting oil production growth. Formerly known as TransCanada, the company put forth an aggressive construction schedule this year and have since then received a right-of-way to build the portion crossing federal land from the United States. At the current moment, possible court challenges have led TC Energy to not make the final investment decision in building KXL yet.
The GATT 1994
The General Agreement on Tariffs and Trade 1994 is a legal agreement made between many countries with the overarching purpose of promoting international trade and eliminating trade barriers and restrictions such as tariffs and quotas. The agreement provides a list of legal instruments on protocols and certifications concerning tariff concessions. The central principles of this agreement are for the reduction and binding of national tariffs, national treatment, and the prohibition of protective measures other than tariffs (subject to defined exceptions). A further value reiterated is the need for transparency, particularly promoting multilateral review. This agreement is a key segway into the issues faced in the North American Free Trade Agreement (NAFTA), a trade deal between Canada, the United States, and Mexico.
What does this mean for oil production?
The GATT and North American Free Trade Agreement (NAFTA) has significant implications on the trade of agricultural goods and automobiles, this suggests that it has a high-profile sticking point for the energy sector. These trade deals have been paramount for the continuity of free trade access and cross-border flow for many international oil and gas companies in Canada. The trade-in energy between the United States and Canada had rapidly expanded over recent years, with the United States’ oil imports from Canada surging to over 3.3 million barrels per day (Mbd). In fact, the flows have resulted in steep discounts for Canadian oil and the scramble to construct new cross-border pipelines. Canada’s economy for the last two years has been driven by exports, which benefited from the strong demand from the United States, both under GATT 1994 (WTO) and NAFTA.
Particularly, bilateral tariff reductions under these agreements have intensified the North American market integration, with the gradual overall process of gradual economic and trade liberalization. If these big oil pipeline projects survive the legal hurdles, it could lead to strong export growth for Canada, especially with the oil-rich province Alberta having the ability to move oil through to the United States and countries across the Pacific Ocean.
Climate and GATT 1994
There have been some climate change-related policies set by WTO disciplines, this can include certain climate change conditions put in place for market access as regulated by these agreements. Some specific agreements include Custom Valuation Agreement and the Antidumping Agreement. The General Agreement on trade in Services (GATS) can also impact the contexts of national and regional carbon trading schemes. Although some efforts have been made to regulate carbon emissions and set out requirements of sustainable trade, whether these measures could be justified remain in question today.
Pipelines in the Age of Covid-19
Over much of the past decade, Western Canadian oil producers have struggled due to the shortage of export capacity, in part due to the increasingly active environmental movements and campaigns in the region at the forefront of opposing Alberta’s oil sands industry, ultimately staggering the oil pipeline project. In addition, with the Covid-19 pandemic, regional production has since shut due to decrease in demand and low prices for refined products, such as jet fuel and gasoline, which leaves the project with an uncertain future.
However, Bill McKibben from The Guardian argued that the oil industry took advantage of the pandemic to push through projects such as the Keystone XL pipeline project. With the government’s stay-at-home orders and enforcement on social distancing for most people, Alberta’s premier Jason Kenney has now seen an opening to finish “critical infrastructure” for pipelines without the interference of environmental activists and indigenous groups. Currently, TC Energy has $1.1bn set aside of taxpayers’ money and a $1.25bn bond issue from JP Morgan Chase.
Although many have vocalized the clear advantage for oil giants and banks to build the pipeline by using the cover of the pandemic, others believe the path of oil pipeline expansions in near future remains uncertain. Democratic challenger Joe Biden has emphasized that he supports the establishment of processes required for any significant infrastructure projects, especially that there needs to be a full review and account for the impact on climate, environmental health and climate justice before it can proceed. The American November elections will no doubt result in changes to Transatlantic ties, with likely impacts on oil pipeline expansion and the renegotiation of Canada-U.S. trade deals.