Trans Mountain Pipeline could drop in value with tougher climate laws: PBO

Editor’s note: A previous version of this story said Canada intends to meet its net-zero emissions goal by 2030. The goal is in fact set for 2050.

Canada’s decision to acquire the Trans Mountain Pipeline is still a profitable one — but that hinges on the government’s future climate policy not becoming more stringent.

“The Government’s decision to acquire, expand, operate, and eventually divest of the Trans Mountain Pipeline System continues to be profitable,” Yves Giroux, Canada’s budget watchdog said, in a new report on Tuesday.

“However, the profitability of the assets is highly contingent on the climate policy stance of the federal government and on the future utilization rate of the pipeline.”

Giroux found that the net present value of the pipeline, which the government purchased in 2018 for $4.4 billion, has jumped $600 million to $5 billion.

In his valuation, Giroux explained that he took into account Canada’s current climate change policies, court decisions made about the project, the level of construction progress and new energy production forecasts, as well as several other financial developments. These factors helped him paint the financial picture of the government’s decision to take on the project, and he found it continues to be a good move, financially speaking.

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But Giroux warned that could all change with future climate policy changes.

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“The profitability of the Trans Mountain assets is highly contingent on the climate policy stance of the federal government,” the report explains.

“If policy action on climate change continues to become more stringent, it is possible for the Trans Mountain assets to have a negative net present value.”

While the PBO’s calculations took into account existing climate policy, the Liberal government has pledged to attain a net-zero emissions economy by 2050. The policy changes required to reduce emissions to that extent would likely take the form, in part, of stronger climate policy — which could bring with it a potential sucker-punch to the Trans Mountain Pipeline’s valuation.

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When Global News reached out to Finance Minister Chrystia Freeland’s office to seek comment on how the feds plan to reconcile this issue, her spokesperson reiterated that the government “does not intend to be the long-term owner of Trans Mountain Corporation.”

“It intends to launch a divestment process after the expansion project is further de-risked and after engagement with Indigenous groups has concluded,” wrote Kat Cuplinskas in an emailed statement.

“The government is confident that the Trans Mountain project is a responsible investment for Canadians. The government is committed to investing every dollar earned in clean energy projects.”

Giroux also said that he made certain key assumptions to underpin the presently-promising financial modelling, including the level of pipeline utilization and the contracts with shippers. Should the pipeline’s use decline or contracts with shippers not be renewed, these factors could “negatively impact the financial value of the Trans Mountain assets,” the budget watchdog wrote.

If the pipeline sees a five per cent reduction in its use, the net present value of the asset would drop to -$400 million. If the government also reverts to a cost-of-tolling framework in the 2040s, the pipeline’s value would drop to -$1.1 billion, the PBO found.

When it comes to the Trans Mountain Expansion Project, its impacts on GDP and employment peak next year — with over 17,000 jobs added and a 0.18 per cent boost to GDP. However, any delays to this construction or changes to its final cost could change those numbers.

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Canada bought the Trans Mountain Pipeline and its related expansion project in late August 2018, for $4.4 billion. The government said it does not plan to be the long-term owner of the project, intending instead to eventually divest the asset.

The decision to purchase the project came as the CEO of Kinder Morgan threatened to pull the expansion project amid B.C.’s opposition to the planned twinning of the pipeline. Canada purchased the pipeline and the expansion project, guaranteeing the work would continue — but also assuming all the risk.

In a July report, the PBO found the pipeline had turned a $29-million profit in the 19 months since it had been purchased.