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Trevor Tombe: The Trans Mountain pipeline was worth every penny of its $34 billion price tag


The Trans Mountain pipeline is now shipping oil. Finally. 

Canada’s west coast has not seen a new pipeline in over 70 years. But it comes 11 years after the initial application to the National Energy Board, more than six years behind schedule, and with staggering cost overruns—rising from an estimate of roughly $5 billion in 2013 to $34 billion today

Was it worth the high price?

Whoever or whatever is to blame for the delays and cost overruns, the answer to that question is clear: Yes! And it’s not even close.

I say this for two main reasons. First, taxpayers are not on the hook in the way that most people think. Indeed, we may not lose any money on the purchase at all. Second, and more importantly, the pipeline’s economic benefits to Canada far surpass its cost.

Let’s start with taxpayers.

Understanding the Trans Mountain pipeline’s finances

Many worry that taxpayers will face large losses from owning the pipeline. 

Recent financial filings paint a very different picture.

Oil producers cover some cost overruns with roughly $11 per barrel in tolls, which could cover just over $9 billion in costs (or about 30 percent of the total). That’s high—more than double the project’s initial estimate—but far better than the alternative of hauling crude by rail.

The cost overruns were also largely covered by debt, which is relevant for at least two reasons. First, any future buyer of the pipeline does not need to pay $34 billion for taxpayers to avert a loss. The buyers would assume these debt obligations instead. Second, and perhaps more importantly, interest on that debt pales in comparison to projected future revenues.

Trans Mountain anticipates revenues will soon reach $3 billion and expenses of less than $500 million. Interest on the project’s large debt will exceed $1.6 billion, but this still leaves considerable cash available to start repaying debt. 

Even better, interest costs will gradually fall while revenues and profits rise. The pipeline will be highly profitable for many years.

Graphic credit: Janice Nelson.

To value the pipeline today, one shouldn’t just add up two decades worth of revenues minus expenses. A dollar tomorrow is worth less than a dollar today. If each year “discounts” the value of money, by say 8 percent, then I estimate the value of projected earnings (before depreciation and interest) over the next twenty years is between $26 billion and $38 billion, depending on the scenario.

Some of that will go towards interest and debt repayment, but between $4.2 billion and $8.6 billion is left over.

Graphic credit: Janice Nelson.

Naturally, these projections have risks. But despite the cost increases, it’s not a stretch to see a scenario where this pipeline is worth more than the $4.5 billion that Canada bought it for back in 2018

Today, equity in the project is just under $8 billion and is expected to only grow from here. 

Broad gains for Canada’s economy

There are also broader economic benefits for Canada.

For oil producers, these benefits are obvious. The 890,000 barrel-per-day pipeline now has a capacity equivalent to over 1,300 railcars of crude oil per day. (That’s a lot!) It will mean lower-cost access to markets abroad, raising producer prices here. 

There are even benefits for producers who don’t directly ship through the new pipeline because the differential between Canada’s oil prices and those abroad will shrink. The Canada Energy Regulator (CER) estimated that having ample pipeline capacity adds about $9 per barrel to what Canadian oilsands producers receive.

This adds up quickly with millions of barrels produced daily.

Last month, the Bank of Canada predicted a 0.25 percentage point increase in second-quarter growth from the new pipeline. That is no small move for a nearly $3 trillion economy.

In this photograph taken with a drone, workers lay pipe during construction of the Trans Mountain pipeline expansion on farmland, in Abbotsford, B.C., on Wednesday, May 3, 2023. Darryl Dyck/The Canadian Press.

Looking ahead, the gains may be even larger. Over the 25 years between 2016 and 2040, for example, the CER estimated that building no new pipelines would cost Canada’s economy nearly $240 billion (in today’s dollars). Building pipelines avoids these costs.

These estimates suggest that the entire cost of the pipeline is more than compensated for by higher GDP after only a few years of operation. Not a bad return.

It’s not just Alberta that will see a boost. There are benefits throughout the Canadian economy. Research by my University of Calgary colleague Ken McKenzie and co-author Jared Carbone suggests a 10 percent boost in oil prices increases national economic output by 1 percent, with benefits for all provinces except New Brunswick. My own estimates confirm this.

Of course, updated analysis today may yield different results, but only at the margin. The scale of benefits would remain massive.

Worth every penny

None of this excuses the project’s jaw-dropping cost overruns. Nor should we avoid thorough investigations to ensure future large projects don’t suffer a similar fate.

There is likely plenty of blame to go around. Policy decisions by several premiers and prime ministers were certainly one factor. Site-C and Coastal Gas Link construction starting at around the same time is another—they unavoidably increased the pipeline’s costs by competing for scarce talent and materials. Conditions on the ground also turned out to differ significantly from initial estimates. And, of course, COVID-19 didn’t help.

Despite the sticker shock, the pipeline remains incredibly valuable, both as an individual asset and as a key piece of infrastructure for Canada’s economy.

The pipeline may have been late and (far!) over budget, but it was worth every penny.

Abdi Aidid and Benjamin Alarie: AI is about to fundamentally transform our legal system—for the better


As part of a paid partnership, this month The Hub will feature excerpts from this year’s five shortlisted books for the Donner Prize, awarded to the best public policy book in Canada. Our podcast Hub Dialogues will also feature interviews with the authors. The winning title will be awarded $60,000 by The Donner Canadian Foundation on May 8th.

The following is an excerpt from The Legal Singularity: How Artificial Intelligence Can Make Law Radically Better, by Abdi Aidid and Benjamin Alarie (University of Toronto Press, 2023).

We are on the path to the legal singularity. Advances in technology, especially the improvement and widespread proliferation of artificial intelligence (AI), are driving us relentlessly down this path. By legal singularity, we mean a stable and complete legal order, capable of addressing and resolving practically all types of legal uncertainty in real time and on demand. Over the coming decades, the emergence of this legal singularity will fundamentally transform our existing legal systems and, with them, our societies.

The stakes are high. Navigating the path to the legal singularity safely is necessary for humanity to flourish during the rest of the twenty-first century and beyond. For society to evolve and leverage these new technologies effectively, we will need to develop an ever deeper and more responsive legal infrastructure.

The good news is that the very technologies that are upending our existing practices will also enable us to construct the deeper and more responsive legal infrastructure that is sorely needed. The stability and resilience of the legal singularity will require more adaptability in our legal systems than they exhibit today. Fortunately, if we can get things right, the technology for a profoundly beneficial legal singularity will be in place just as we need it most.

This book is the first step towards articulating a vision of a legal singularity and motivating a discussion about its pathways and consequences. The legal singularity is the idea that law will reach functional completeness, in the sense that practically any legal question will have an instantaneous and just resolution. In the legal singularity, the law will be knowable with a high degree of certainty—perhaps not perfect certainty, but practical certainty—for much of human activity.

The legal singularity will evolve and be able to absorb and accommodate changes to our social, economic, and technological contexts. If it is successful, it will not be dogmatic. Indeed, the nature of the legal singularity will be to provide quiet confidence that justice will prevail. Disputes will be resolved justly and in the best interests of society. Powerful actors will be held accountable to a greater extent than they are even in today’s most advanced legal systems. Weaker parties will have their positions bolstered.

The legal singularity will require deliberation, experimentation, wisdom, knowledge, and the cumulative efforts of governments, academia, and industry over the coming years. There will be problems. There will be dead ends. There will be experimentation, failures, and more experimentation. Ultimately, there will be significant progress. The good news is that many efforts are being undertaken even as we write. With this book, we aspire to echo and amplify those who seek to leverage technology as a means of improving law. To this, we add our own vision of how technology, ambitious problem-solving, and responsible stewardship will guide law towards the legal singularity.

Our goals with this book are threefold. The first is to firmly root the legal singularity in the popular imagination as an idea that we collectively must address to ensure that the world’s legal systems undergo changes that are in alignment with humanity’s interests as artificial intelligence and machine learning continue to improve. If managed deftly, these technological developments in artificial intelligence and machine learning can and will lead to astounding improvements in social justice and distributive justice, and will contribute to widespread human flourishing. This is, of course, an optimistic and ambitious vision. Others have pointed out less rosy possible scenarios; our view is that those scenarios are avoidable if efforts are undertaken now to help to navigate towards positive outcomes.

Our second aim is to press the point that technology-based changes to our legal systems are not simply a possibility to be discussed on a theoretical level by the intellectually curious. It is tempting for many in the legal profession to want to assume that we could simply press “pause” on technological progress and the concomitant evolution of our legal systems until a sufficiently widespread level of practical confidence and psychological comfort is reached. Many would prefer to defer serious consideration of the uncomfortable topics that are explored in this book until they are first convinced that (1) the status quo is unsustainable; (2) the kinds of changes that are being driven by technological advances have been thoroughly tested and designed with normative and conceptual coherence; and (3) an implementation plan has been devised to accommodate these changes in a manner that will be minimally disruptive to the existing legal order. These instincts are understandable. Unfortunately, the context in which law functions and operates is changing too quickly. 

Our third and final aim with this book is to join the emerging international movement in academia, government, the judiciary, and civil society, and among actors in the legal system more generally, to secure the safest, wisest, and most effective path to the legal singularity. The forces driving us towards legal singularity are persistent and powerful: there is no “off” switch to the internet; computing power looks to continue its exponential growth. 

The shape of an eventual legal singularity can undoubtedly be influenced for the better by careful monitoring, concerted action, and thoughtfulness (or, for the worse, by the abuse of technology to oppress or suppress populations). It is in our collective interest to work to forge and secure the best-possible path to legal singularity.