Author: Northern Gateway
Dated: 12 December 2012
Northern Gateway’s experts believe there are key aspects to the World Wildlife Fund study that are deeply flawed and Northern Gateway has a number of concerns about the assumptions and the methodology used in the report. The available documents do not permit testing the conclusions and assertions on a scientific basis at this stage.
The WWF-funded paper also does not challenge the fact that a spill of this scope is a 1 in 15,000 year event as determined by credible, world-renowned experts. Yet, the conclusions taken in the study do not account for the highly improbable nature of this event despite the fact this is standard practice in economic modeling exercises.
When you look at the initial conclusions from the report, they conclude that there will be a net benefit for BC even in the highly unlikely event of a spill. The report compares the economic benefits of the marine terminal—which are a certainty with this project—to unmitigated costs which are extremely unlikely to happen.
We question the logic of comparing certain benefits with highly improbable losses. Nevertheless, the report did so, and concluded that the benefits were twice the costs—that’s like trading a chance to win a $50 lottery prize for $100 cash.
As the Globe and Mail accurately noted in their story on the report, the costs to the commercial fishery are estimated to be up to a worst case around $300 million while Northern Gateway’s marine terminal benefits alone are over $620 million.
At the end of the report the approach took a sharp turn: Unrealistic factors and costs that will not be borne by the fishing industry are added into the calculation to conclude that costs are greater than the marine terminal benefits. The report rolled back into the analysis hypothetical spill response and cleanup costs to result in a hypothetical cost, for a 1 in 15,000 year event, of around $9 Billion.
To calculate cost estimates, the report took two of Northern Gateway’s own numbers provided as evidence to the JRP, a per barrel estimated clean-up cost of $15,000 and an estimated punitive damage cost of $22,500 per barrel, and simply added the two together and then multiplied them by the total barrel size of the spill scenarios.
These costs aren’t borne by the fishing industry either.
The cost calculations also use a scenario reflecting zero response—Northern Gateway does not believe it is credible to assume an event of this nature could occur without any emergency response whatsoever. The reality is simply that, because of the preparedness and mitigation efforts of the project, these impacts would not be of such a scale as represented in this report.
The report also notes that “An actual spill may also affect a smaller area than that projected by models, due to spill response activities and containment” but these factors aren’t included in the report’s calculations—this deviates considerably from the economic cost benefit analysis usually found in the published literature.
Northern Gateway has put in place the most comprehensive suite of marine safety and emergency response measures ever proposed in Canada. Even without Northern Gateway’s industry leading commitments, existing legislation governing maritime transportation is well established and clear responsibilities are outlined on this matter.
It’s important to understand, that despite over 20,000 oil tanker movements each year on Canada’s coasts, a spill of this magnitude has never occurred in Canadian waters; the Canadian marine oil transportation industry has a world-leading safety record, with zero spill incidents since 2000.
For a credible and methodologically sound analysis of project costs and benefits, and one that has been tested under cross-examination, people should refer to the Cost Benefit Analysis undertaken by Dr. Ruitenbeek. It was filed as part of the Reply Evidence by Northern Gateway in July 2012. Dr. Ruitenbeek's analysis clearly showed the enormous economic benefits of the Project even when potential spill costs are taken into account.