Ottawa needs to step up, make the case for Energy East

Françoise Bertrand is chief executive officer of the Fédération des chambres de commerce du Québec.

The recent squabble between Saskatchewan Premier Brad Wall and Montreal Mayor Denis Coderre over the Energy East pipeline proposal provides an opportunity to make fiscal federalism work for all regions of the country.

There are few industrial projects, especially in the energy sector, where the distribution of benefits across regions exactly matches that of costs. The benefit-cost ratio is often asymmetrical. Pipeline projects provide a clear example of this asymmetry: The benefits are obvious for the provinces at each end – Alberta and New Brunswick, in the case of Energy East – while the provinces in between, such as Ontario and Quebec, can expect some, though fewer, advantages.

This is a common situation in any country. There is obviously no obligation to ensure that every city, region and province benefits equally from any given project. Neither does any city, region or province hold a right of veto over projects of a national scope. If such a veto existed, we would have a hard time building highways, electrical transmission lines and railways.

However, governments do have a political responsibility to try to reduce regional differences in wealth resulting from the asymmetrical sharing of a project's benefits and costs. In this way, the federal government can obtain approval for wealth-building projects from all regions. Nevertheless, projects have to respect best environmental practices.

When the Montreal Metropolitan Community (Greater Montreal) took a stance against Energy East, it was simply expressing its opinion that the project is not profitable enough for that region. This should not cause surprise: Montreal is looking at the project from a regional perspective. There isn't a mayor in Canada who would place the interests of another region ahead of those of his or her constituents. However, those interests should not include the ability to stop the project. Rather, it is up to the promoter and the federal government to act transparently to ensure the benefits of the project are distributed in order to rally sufficient support in every region.

The purchase of equipment, as in the case of a contract awarded to Montreal-based ABB Canada for the manufacturing of Energy East electrical substations in the Montreal area, is one such means for the promoter to achieve this.

Ottawa could better explain the relationship between wealth creation in a given region and its sharing across Canada. There is no direct link, as Mr. Wall suggested, between Montreal's position on Energy East and equalization payments to Quebec. Nor was there a link between Saskatchewan's position on various national issues and the massive transportation subsidies enjoyed by its grain farmers over the better part of the 20th century, paid for essentially by Central Canada.

Still, blocking Alberta from exporting its oil is tantamount to undermining the growth of a province that has provided significant revenues for the federal government. If federal revenues stagnate, transfer payments to the provinces, including equalization payments, will inevitably be affected over time. On the other hand, if these revenues grow, the federal government will have more money to spend in every region, including to fund infrastructure projects in the Greater Montreal area.

Every region is responsible for supporting the creation of national wealth – if only by not thwarting projects that are liable to create wealth for all.