Derailing Economic Growth on Cape Breton Island

In a quote that could be easily mistaken for a passage from Ayn Rand’s Atlas Shrugged, Cape Breton Regional Municipality (CBRM) Mayor Cecil Clarke said of the St. Peter’s-Sydney line closure, that “The wider economics of Nova Scotia and Cape Breton Island are larger than those of the shareholding interests right now of Genesee & Wyoming.” Politicizing economic development, as has been done in Cape Breton, is a slippery slope and the millions in financial support from federal, provincial, and municipal governments to keep the Sydney Steel Plant afloat is evidence.

Genesee & Wyoming, a short-line railroad holding company based in Connecticut, decided to close the St. Peter’s-Sydney portion of the Truro-Sydney rail line, which moves more than 22,000 cars annually, transporting paper, coal, lumber, petroleum products, and chemicals. Since 2003, business has declined threefold, despite that company receiving a $20.6 million subsidy to provide services to customers on the Island. The latest rate hike increased prices by more than 300 per cent and left the company with only three customers. Michel Huart, Genesee & Wyoming’s legal counsel, has told the Nova Scotia Utility and Review Board that prices were likely to increase again in 2015 if the company operates that line.

CBRM, the Cape Breton Student’s Union, Sydney and Area Chamber of Commerce, and Cape Breton Partnership are lobbying for the railway to continue operations, arguing that it is crucial to existing customers and necessary to develop the Sydney port.

In a market economy, businesses respond to incentives and invest where there is an opportunity for growth. The companies responsible for operating the St. Peter’s-Sydney section of the rail line, however, have received $20.3 million for offering their services to local companies. Yet, despite this subsidy, Genesee & Wyoming would rather shut down the line east of St. Peter’s junction. If a company literally refused to take free money to continue operating that line, the benefits of doing so must be very small, if there are any.  Elected officials in Cape Breton, in addition to the business community there, would like the line to remain ere it is because it provides jobs, easy access to raw materials, and the three remaining customers would have logistical challenges receiving cargo via transport truck. They also argue that it is vital to the development of Cape Breton, particularly because of the Sydney port.

CBRM received government funding to dredge the harbour in 2012 and ostensibly, all that is left is building a container terminal in the Sydney port. The federal and provincial governments, in addition to private investors, have not been eager about the project, however, and the lack of potential customers has some people very concerned about the future of it. According to city councillors and business owners, the problem is that Genesee & Wyoming are shutting down a rail line that operates roughly one train per day and is in need of upwards of hundreds of millions to meet the capacity of larger container ships: without this line, the port will never be developed and Cape Breton will miss out on a great opportunity–or so they say.

This situation is the same we face every few years, but with different actors. Fundamentally, the community has the cause and effect backwards: economic growth comes before economic development, not the other way around. Time, and time again, we call for the government to dredge our harbour, save our railway, build a container terminal, subsidize the steel plant, and the list goes on.

It is nearly impossible to place economic development before growth, particularly because of the risk involved with investing in a community without medium or long-term prospects for growth. There is a reason why the only “big jobs” in Cape Breton are government jobs: private companies do not want to invest in a hostile climate suffocated by government regulation. Imagine the reaction of high-level managers from companies around the world when a company decides to stop operating a rail line that has three customers, even though they received $20.3 million in subsidies.

Nova Scotia, and more broadly, Atlantic Canada, must begin promoting growth before development. Approving the Donkin mine project, fracking operations, and other natural resource extraction is a step in that direction and creating a policy framework that encourages manufacturers to build plants on Cape Breton Island is another. In fact, the CBRM could have approved the operations of an iron pellet plant, creating roughly 500 jobs, but opted, instead, to create Open Hearth Park.

The closure of the St. Peter’s Junction is not about developing the port or the loss of easy transportation, it is a symbol of Cape Breton’s mentality: build it, have the government fund it, and the economic benefits will follow. It is time that our politicians and business owners rethink their relationship with economic development as something that is earned, not bought. Smart decisions will almost always ensure economic development–it is when smart decisions are not working when, perhaps, the government should take a larger role in economic development. But it must stop considering economic development as the end goal: while it is unequivocally beneficial, having a railroad for the sake of having a railroad, particularly because “Halifax has a railroad,” is not conducive to building a productive economy. CBRM’s end goal should be to increase material wealth and wellbeing.

Until the CBRM can better understand the cause and effect relationship between economic growth and economic development, it will remain trapped in a vicious cycle of economic decline.

Corey Schruder is an AIMS on Campus Student Fellow who is pursuing an undergraduate degree in history at Cape Breton University. The views expressed are the opinion of the author and not necessarily that of the Atlantic Institute for Market Studies

Pipeline vs. Rail: Debating the Transportation of Crude

The transportation of crude oil from Alberta’s oil sands to other parts of the country, in addition to the United States and overseas markets, is an issue of contention for many Canadians. Due to Alberta’s geographical constraints, its oil and gas industry faces issues selling their product to international markets and must ship it through other provinces in order to access the ocean for transportation to Asia. Since Canadian pipeline infrastructure is limited, companies typically rely on railways to ship oil to refineries on Canada’s eastern coast, such as Saint John, New Brunswick’s Irving Oil Refinery and Sarnia, Ontario’s Chemical Valley.

Canada’s rail infrastructure is the most economical option, in terms of both shipping capacity and geographical scope as several refineries and shipping ports connect to the railway lines. Rail, however, has proven to be a more dangerous option than pipelines.

The tragedy in Lac-Mégantic, Quebec demonstrates how dangerous crude oil transportation by rail can be. There were also accidents considered less severe, such as earlier this month when a train derailed while transporting four cars of crude oil near Plaster Rock, New Brunswick, threatening the environment and those living in the surrounding area.

These accidents have compelled Canadians to question if transporting oil is safe at all, which has some pondering whether barring its transportation is the right solution. That, however, is not a sound policy option for two primary reasons.

First, some studies have shown that pipelines are a much safe alternative to rail, such as Intermodal Safety in the Transportation of Oil recently released by the Fraser Institute. This report examined pipeline safety in the United States and found that per billion tonne-miles of petroleum transported by rail, there was an average incident rate of 2.08 between 2005 and 2009.  Contrasting these figures with pipeline incidents, of which the average incident rate was only 0.58 per tonne-mile during the same period, the Fraser Institute numbers show that shipping crude via pipeline is 3.6 times safer than railway transportation. It is also important to note that, between 2005 and 2009, there were 23.9 billion tonne-miles of oil transported via rail, compared to 584.1 billion tonne-miles via pipeline.

While these findings are well founded, other studies have different conclusions. The Association of American Railroads, for example, claims that between 2002-2012 rail had a spill rate of only 0.38  per million barrel miles compared to 0.88 for pipelines. Depending on the numbers, though, there are different outcomes. Nevertheless, these contradictions show more that there is a need for this debate as the issue is in many ways still unresolved.

The second reason for not barring the transportation of crude is that the oil sector serves a major role in Canada’s economy. Energy projects contribute significantly to the livelihood of Canadians and restricting those developments would have a negative effect. They also create massive amounts of economic activity. For example, in October 2013, roughly 8 per cent of Canada’s GDP came from mining, oil, and gas extraction. Atlantic Canada can also benefit from increased pipeline infrastructure, which I touched upon in an earlier article on the Energy-East Pipeline.

In conclusion, pipelines transport a majority of crude, but we must be mindful of the fact that pipelines could be much safer than rail for transporting crude when considering newer and larger projects such as Energy-East and Northern-Gateway in the future. There are strong arguments from both sides showing the need for a rigorous debate on this issue.

Randy Kaye is a 2013-2014 Atlantic Institute for Market Studies’ Student Fellow. The views expressed are the opinion of the author and not necessarily the Institute