B.C. Premier Christy Clark’s demand for payments in return for permission to ship oil across B.C. lands is ill advised. Regardless whether these payments are to take the form of a claim on Alberta’s royalties or based on the amount of oil flowing through the pipe, they are equivalent to taxes on trade which, like tariffs on imports from abroad, raise consumer prices and lower living standards of all Canadians. Such domestic tariffs are rightly prohibited by federal legislation.

One way to extract money from the proposed pipeline that current federal legislation cannot prevent involves the use of provincial regulatory powers to delay indefinitely the construction of the pipeline until payments are agreed to. If the B.C. government were to adopt this policy, it would almost certainly invite retaliation from other provinces on the same grounds used by B.C. All shipments using roads, rail and air, like pipelines, carry the risk of accidental environmental damage, justifying the issuance of use permits in return for fees.

However, the most important objection to the B.C. demands is that it would do nothing to address the public’s real concerns over the potentially high costs of oil spills on the environment and taxpayers. Tolls would not create incentives that induce pipeline operators to adopt optimal techniques to reduce the frequency and severity of accidental spills from their presently feared levels.

It has to be remembered that the operators of pipelines are already legally required to pay for all cleanup operations according to standards set by provincial authorities. To reassure British Columbians that such cleanup costs will be met, the government has the right to insist on setting minimum levels of insurance coverage, much as it does for private automobile insurance. It could also insist on the establishment of a trust fund that would be available in the case of cleanup costs in excess of what is covered by the insurance.

For some vocal British Columbians, the cleanup of the environment and coverage of economic costs is not enough. They also experience a psychological loss from the knowledge that after an oil spill, it always takes some — possibly a long — time for nature to return to its original state. To compensate the public for these psychological costs, the B.C. government could impose on the pipeline operator a fine equal to a specific percentage of the cleanup costs for each spill.

All of these provincial policies would raise the costs of pipeline operators, but they are fair since they reflect society’s real economic and social costs. Importantly, they create incentives that lead to the adoption of costly and presently unprofitable measures to reduce the likely number and severity of oil spills. There will be the use of thicker or double-walled pipes, the instalment of pressure gauges with automatic shut-off valves at closer intervals, the maintenance of facilities to allow quicker and easier access to accident sites and repair tools and materials.

The incidence and severity of oil spills along the coast could be reduced similarly by the mandated use of several powerful tugboats to push the tankers through treacherous waters at low and safe maximum speeds only under favourable weather conditions. Eventually, other measures will be developed and applied to the prevention of oil spills on land and sea.

No measures, however expensive, can prevent all oil spills, as the small minority of self-appointed guardians of the environment and their allies in the media are fond of pointing out. Only the outright prohibition of all oil transports will end all risks.

However, the majority of British Columbians are sensible on this issue, realizing that stopping all future and possibly the existing systems for the delivery of oil products would be disastrous for the economy and the well-being of all Canadians. This majority will surely vote for politicians who support policies ensuring they will continue to be able to keep their homes warm, their cars running and shelves in their stores stocked while they enact and enforce policies that induce pipeline operators to adopt the best methods for minimizing oil spills and maximizing the protection of the environment.

Herbert Grubel is professor of economics (emeritus) at Simon Fraser University and senior fellow at The Fraser Institute.