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Is the federal government subsidizing these pipelines, though? My impression was that the NEB was just giving regulatory approval, which means that the risks of overconstruction are being borne by the private sector. Am I wrong here?

Alexis: You are correct as far as I know. I am not aware of any federal subsidizing of the companies proposing the pipelines. In this case, I think it would be the private sector bearing the risk which makes for a key difference between the transcontinental railway age and the pipeline age. However, am ready to stand corrected.

First, Energy East will not go ahead. Too much opposition along the way, especially in Quebec. And now with the opportunity to pursue KXL again, TransCanada will certainly not push too hard on E.East.

Second, even with Federal and BC approvals, Transmountain is far from certain to go ahead. I would peg it around 50% chance. Too much opposition from First Nations and local NIMBY issues.

That said, building TMX, KXL and Line 3 (but not E.East) would not result in over-capacity.

Whatever the financing, waste is waste. The US 2000's housing boom was privately financed. It ended up so well.

Livio: interesting post. Just one dumb question: "As a result of World War I, railway traffic declined..."
That surprised me. Why would WW1 have caused rail traffic to decline? I would have guessed the opposite.

Nick:
In the short term, before the war effort got fully underway, railway traffic plummeted as a main source of revenue was transporting settlers/migrants to the west. Immigration into Canada dried up during the war.

Livio: Ah. That makes sense.

Hallo Nick Rowe

in contrast to your Canadian prejudice about the superior Ordoliberalism and Autobahn at

http://marginalrevolution.com/marginalrevolution/2017/01/important-unsolved-problems-field.html#comment-159578746

The Real performance looks more like that

https://www.youtube.com/watch?v=20NkR3VU5uU

How is your buying power now for real US Dollars by now ?

Nick

Freie Fahrt für freie Bürger : - )

https://www.youtube.com/watch?v=vijRI4nA088

at a speed of 300 being passed on the left lane

https://www.youtube.com/watch?v=ORGu20C2-I4

The railway building boom of the 19th and early 20th centuries was a widespread phenonomenon that originated in Europe and spread rapidly throughout North and South America, as well as Asia as the "new technology" caught the imagination of investors, governments, communities, travellers and shippers, essentially superseding existing networks of intercity transport as the dominant transport mode for both goods and people. Overbuilding and subsequent railway contractions, government ownership and over-regulation were among the portmanteau of responses. New technology building booms and subsequent collapses are, historically normal and common following the introduction of new and transformative technologies, and we have seen them in the US and British automobile industries, the late 20th century communications "tech wreck", the rise and contraction cell phone manufacturers, and the explosion of entry into US telecommunications post "deregulation" in the US, just to cite a few. They are historically normal.

The oil pipeline industry is a little different. There is not much transformative technology going on here, just a garden variety resource industry restructuring and repricing that is normal with resource industries. Nothing to see here. We don't know where future petroleum sources and supplies will originate, but we know where they need to go. Private capital can deal with this stuff, and the NEP, is a gatekeeper not an investor. Investors will bear the risks, and hopefully, reap the rewards.

Grunton's reflections on over subsidization that may have occurred with the CPR are irrelevant because in the 1870's, neither the government nor investors could know the minimum subsidy to keep investors whole over an unforeseeable long term. The evidence of the later value of the railway to the CPR investors was not information that could be known to anyone at the time when the subsidies where negotiated. The Government of Canada had little choice but to raise the ante until sufficient capital could be raised to ensure the railway was built. Without a railway, Canada as a country would fail, the the individual colonies would fall under the influence of foreign and likely hostile powers.

As for the role in role of the NEB in promoting overcapacity, that is ridiculous. Regulatory bodies cannot and should not be expected to reliably forecast demand, and their record in doing so is poor. A permission to build relieves investors of no risks to their capital, nor does it guarantee overbuilding. Denying permits on the basis of anticipated demand is a guaranteed way to ensure that demand that do arise unforeseen by regulators cannot be met. And such is the situation of most regulated industries - chronic mismatches between capacity and demand, and economicly irrational pricing.

I'm not entirely sure I fully buy the premise of the analysis. Isn't part of the problem with oil sands output that it trades at a discount in Cushing, for want of easy access to export ports?

If my understanding is correct, half of the intent behind new pipeline development is to bypass and render obsolete much of the existing pipeline capacity. If the marginal barrel of bitumen is sold in BC rather than Cushing, from the oil producers' standpoint the pipelines have done their job.

Gunton's Article in the Globe was a bit of a stretch. He minimized demand (likely oil production) and maximized potential supply (pipelines) to make his numbers work. While irksome, his analysis is irrelevant because at the end of the day the private sector will make investment decisions with a clear head, and correct numbers, as they own all the risk. Let us all remember that the MacKenzie Pipeline was approved years ago, but never started. In regulatory approval, the Government's role is to be a fair referee, and to allow the consideration of issues not caught by the economics of the situation. We often get into trouble when the Government takes advice from authors like Gunton, and makes economic decisions independent of market forces either to the negative (as promoted here) or positive (as in the subsidized railway boom).

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