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B.C.’s LNG con job PDF Print E-mail
Justice News
Posted by Joan Russow
Saturday, 01 August 2015 05:58

Martyn Brown: 

Inventing facts for fiction

http://www.straight.com/news/500321/martyn-brown-bcs-lng-con-job

by Martyn Brown on July 31st, 2015 at 2:40 PM

 

News flash! The B.C. Liberal government wasn’t being entirely truthful when it said thatLNG will create 100,000 jobs in British Columbia!

Shocker, I know.

Turns out, the actual number of jobs that might be created if LNG ever gets off the ground is only a fraction of what the B.C. Liberal government has promised.

At best, the industry will only generate 2,000 to 3,000 construction jobs over three years per plant, which will each support 200 to 300 permanent workers in annual operations.

You can read all about it in Marc Lee’s killer critique, LNG and Employment in BC. It is another excellent addition to theClimate Justice Project, courtesy of the Canadian Centre for Policy Alternatives and UBC.

OK, so you may not be surprised to learn that the Gas Minister’s LNG jobs claims are full of hot air. I doubt that even Rich Coleman believes his own boastful bloviations on the subject.

Still, you would be wise to review Lee’s analysis, for at least three reasons.

First, because the government hopes you won’t. Second, because it explains why the province’s LNG job numbers are so dishonest. And third, because it can teach us a lot about the fiction in the “facts” that all governments invent to sell us on the merits of their initiatives.

If nothing else, it should lead us to demand better from any future government and to ask of John Horgan: what exactly, would you do differently?

The LNG jobs sham

Lee’s examination centers on a report that Coleman’s ministry commissioned in 2013. The government hired Grant Thornton LLP to estimate the employment impacts of an assumed five proposed LNG projects during and after construction.

Given that we will be “lucky” to land even a couple of those behemoths, the premise was as hyperbolic as its intended conclusions.

If pigs could fly, their output would also be enormous and widespread.

It would result in no end of direct, indirect, and induced impacts that professional services companies would readily quantify for the right price to make us all dream for that day. Our noses might not be so easily fooled.

Trust your senses.

The stuff that the government has been peddling about its LNG pipe dreams is all that your gut tells you it is—mostly b.s.—from its overblown economic and fiscal benefits, to its understated environmental and social impacts.

You are right to think it stinks. As do the assumptions and economic model that the government fed to Grant Thornton to produce its “independent” statistical dump. Garbage in, garbage out.

But don’t take my word for it. Read between the following lines from the LNG Employment Impact Review:

“Grant Thornton reviewed information provided by the Province and its advisors with regard to project size, capacity, development cost and operating costs … Grant Thornton used this information, and the BC Statistics Input-Output Model, to prepare an independent estimate of employment impacts under a set of assumptions.”

“The employment estimates contained in this report reflect the potential impact created under a given set of assumptions for a particular sector. The estimates are not forecasts and this report is not intended to attribute any probability that those impacts will occur or not occur in the future … The estimates do not reflect the actual or expected total impact on the overall BC employment outlook, as changes in other sectors will also affect that outlook.”

“We are not guarantors of the information upon which we have relied in preparing our report, and except as stated, we have not audited or otherwise attempted to verify any of the underlying information or data contained in this report.”

In other words, by its own admission, the government’s LNG employment impact study is effectively not worth the paper it is written upon.

It was fundamentally compromised by its design and by the government-provided inputs that made its dubious outputs little more than a math exercise.

It’s a little like giving someone a problem to solve that includes a set of given values and constant terms, and also the equation to solve it, with one unknown variable—in this case, jobs. Plug in the numbers, conditions and data, apply the formula, and voila! You can quantify the unknown variable and prove your own “true” predetermined result.

It doesn’t mean the given values or assumptions were ever “true.” It only means that they can be used to find an answer that is latent in the logic of the problem as it has been presented and defined.

Using the government’s model, Grant Thornton could tell us all how many beggars would ride, if wishes were horses.

It’s simple to figure out, if we assume that there are five of those horses that will each carry three theoretical riders on its magical wind for every real one that we should further assume will actually sit on its imaginary saddle.

In essence, the government virtually guaranteed the results it was looking to have Grant Thornton “prove”.

First it set the assumed conditions and parameters for its formula-dependent LNG employment impacts. Then it told the firm how to deploy that info in a linear fashion, to arrive at its own “independent” answers. And to complete its sleight of hand, it left out all of the vexing variables that really matter.

Add those variables back into the mix and the problem to solve becomes much more difficult, especially in respect of determining indirect and induced employment impacts. 

Anyone who has ever worked in government knows that reputable firms can be useful shills in the politicians’ public confidence games to provide the air of independence needed to help validate their preposterous propositions.

Companies like Grant Thornton, KPMG, Deloitte, PricewaterhouseCoopers, and Intervistas make a killing in quantifying economic benefits for governments that they know will be held up as “facts” and “evidence” in winning public support for the politicians’ risky and costly ventures.

If you know how that really works, you probably agree that the whole exercise is typically a colossal waste, however earnest and honest the hired guns are in doing the government’s bidding.

For the people who use taxpayers’ money to produce those voluminous reports, however, it is worth its weight in gold.

For the politicians, their real value is the illusion of hard evidence that is sure to be dutifully repeated ad nauseam, including by the mainstream media that promote those projects, too often in bed with the oil and gas industry.

In short, the ones who commission the work always get what they pay for.

To be clear, I do not fault Grant Thornton or its honest efforts to apply the information in the model it was given to arrive at its conclusions. Its findings are amply and appropriately qualified, as in this statement:

“The scope of work for this assignment has been limited to information provided by the Province and its advisors. Grant Thornton did not review feasibility studies and/or business plans for LNG project development and operation. Accordingly, there may be pertinent information in any feasibility studies and/or business plans for the LNG projects which could have a material impact on Grant Thornton’s analysis.”

You think?

Indeed, its conclusions are irreparably skewed by their flawed assumptions and by the methodology that was used to produce exactly the results that the government had surely anticipated.

In completing its review, Grant Thornton relied upon all sorts of documents and information provided by the province and its advisors. All of this government-given info was accepted at face value:

  • Capacity estimates measured in million tonnes per annum;
  • Total estimated capital expenditures required to build the LNG projects;
  • Estimated annual operating expenditures for the LNG projects;
  • Construction schedule for the LNG projects;
  • Direct estimates for annual employment related to operation of the LNG project; and
  • The B.C. Input-Output econometric model to estimate indirect and induced employment impacts related to construction and the annual operation of the LNG projects;

To be fair, not all of Grant Thornton’s information came from the Clark government. It also considered Economic Impact Studies pertaining to LNG projects in the U.S.A. and Australia, and a Workforce Planning Report for the Queensland Liquefied Natural Gas Industry.

How, or to what extent, it used that limited additional information is a mystery. But suffice it to say, the non-government sources that informed its findings were underwhelming at best. It was hardly what one might expect from such an august enterprise as Grant Thornton.

A closer look at the numbers

Lee is right when he says that the LNG job numbers are a sham.

The inflated benefits that the government now holds out as shiny bobbles to promote its LNG “dream scheme” would have been enough to make Murray Pezim blush in his stock-promoting prime.

If Grant Thornton’s estimated job creation impacts sound too good to be true, it is because they are, for everyone but the government and the big oil companies.

They hope you will believe Grant Thornton’s “independent” assessment that the construction of five LNG projects in B.C. could generate 354,200 full time equivalent (FTE) jobs over a nine-year construction period.

If that job total is not crazy high enough to whet your interest, take note.

Grant Thornton stresses that the actual number of jobs will be even higher than its FTE jobs estimates, which are comprised of a combination of full time jobs, part time jobs and seasonal jobs, expressed as full time equivalent jobs. Yippee.

Yet even if one accepts that risible number at face value, it is still a joke.

The calculated benefits are largely predicated on assumed average annual compensation levels for direct, indirect and induced jobs during construction.

Those assumed average salary levels for each those three job classes were either estimates provided to Grant Thornton by the government and its “advisors,” or they were based on BC Statistics averages for select types of work across the economy.

According to Grant Thornton’s own analysis, 198,700 of those supposed new FTE jobs would flow from the indirect effects of businesses that supply goods and services used in the construction.

How it supports that figure is anyone’s guess, based on assumptions that defy common sense and that were mostly provided by the Clark government.

Another 53,000 of those largely mythical new jobs would flow from the “induced” impacts of the added household income that LNG construction activities would create.

As Grant Thornton put it, “when employees from the projects use their wages to purchase housing, food, clothing, gas, entertainment and other items and services, jobs are created/supported in these other industries.”

All of that supposed incremental household income generated by its mythical LNG construction scenario is assumed to be spent in B.C.’s communities. Not saved. Not diverted to other provinces or countries. Not taxed away by governments.

Right.

Given the unstated impacts of LNG on housing prices, labour costs, infrastructure costs and the overall cost of living in places like Australia that are now coping with the hidden impacts of their LNG building booms, perhaps it is not a stretch to think that not a penny will be left in anyone’s pockets.

Those indirect and induced jobs numbers are not remotely credible. But they do add up to 71 per cent of all the new jobs that Grant Thornton claims might be created in the government’s pie-in-the-sky LNG construction scenario.

No matter. That still leaves an annual average of 11,400 full time equivalent new direct jobs over that nine-year construction period, if the government’s wildest LNG construction dreams ever were to come true.

If you believe any of that, you must be a B.C. Liberal. And a very gullible one at that.

At least 38 per cent of those people will be foreign workers, not Canadians, as even companies like Petronas admit. And that’s assuming the other 62 per cent can even be trained with the specialized skills that the B.C. government is still trying to figure out how to deliver, whether they are ever needed or not.

That’s also assuming that anyone so trained in B.C. will not be lured away by other jurisdictions and other industries that are also competing to attract those skilled workers. As if.

Or that the LNG companies will not simply look to China and other ready-made sources of cheaper skilled labour to build their plants, which will be largely prefabricated in Asian countries and then assembled in British Columbia.

What about the ongoing job impacts, after the five imagined LNG plants are built?

Grant Thornton’s estimated employment impacts from annual operations are even more ludicrous its construction-related estimates, and they are subject to the same assumptive flaws.

Of the 75,200 full time equivalent new jobs that it imagines will be permanently created, fully 61,700 are from indirect impacts relating to supplier industries.

Another 11,100 of those FTEs are attributed to the induced impacts of industries that might benefit from LNG workers’ spending.

Which leaves only 2,400 FTEs to be gained from new jobs that are even ostensiblydirectly attributable to LNG exports.

And that is under a five-plant scenario, which is itself a laughable fantasy, given current global LNG prices and the industry’s long-term oversupply problems.

All of those estimated job impacts ignore the many issues that Lee rightly points out would drastically reduce the real employment impacts of any LNG plants, however few of them there might be.

Economies of scale, “fly-in, fly-out” workers and pre-built modules manufactured in other countries would dramatically reduce the real numbers of B.C. workers required for any new LNG projects.

The government’s LNG job numbers are padded by unsupportable multipliers that are wilfully ignorant of reality and that only pay lip service to the real world experiences in other jurisdictions. They also assume that all of the Canadian workers that would be hired for any LNG projects are somehow otherwise unemployed, and that they would not be working elsewhere in our economy.

These are only some of the myriad problems inherent in the faulty methodology that makes a mockery of the government’s fictional LNG job claims.

Learning from the LNG jobs boondoggle

Yet this example points to a much larger problem that really begs to be addressed.

I should know. It is a problem that I also aggravated and perpetuated during my time in politics and government.

In my many roles in B.C. politics over nearly a quarter of a century, I learned a thing or two about how governments abuse “facts” and statistics as “evidence” to portray distorted “truth” for partisan advantage.

I also know why that happens and how easy it is for partisans like I was to dismiss anyone they deem to be ideological “opponents.”

Like my counterparts in governments of all political stripes over the decades, I readily discounted those criticisms, disparaged those critics’ opinions, and ignored all that they stood to offer.

To say that I was no fan of publications like the Georgia Straight or the Tyee during my time as premier Gordon Campbell’s chief of staff is an understatement. I saw them as “the enemy”, pure and simple, whose only real mission was to erode public confidence in the Campbell government and to help elect the NDP.

Ditto for the likes of the Canadian Centre for Policy Alternatives (CCPA), which I regarded as irrelevant and ideological to the core, to the point that nothing useful could be learned by almost anything it had to say.

In any case, virtually everything that the various left-wing “think tanks” ventured to offer was completely discounted by government decision-makers in most policy-making processes. I doubt that the NDP governments were much different in how they viewed most of the work produced by their perceived ideological antagonists.

That is not an excuse for my failings, but it is a reality we need to change, as I have come to realize, viewing the partisan world of government for what it is, far removed from its twisted rationality.

Narrow-mindedness tends to reinforce its own worst behaviours that, in turn, undermine smart decision-making. Insular thinking always sells the public interest short, however much it might reward its political adherents.

That is the problem with subscribing to the politics-as-war approach that I long maintained in deciding who to listen to in government and in determining what “expert” advice really mattered.

It casts all actors in parties’ broader political worlds as either supporters, accomplices or villains. It views all they say in zero sum terms that are ultimately deemed to be either helpful in winning political support, or hell bent on frustrating each party’s vision, agenda and re-election efforts.

So wrong. So small-minded. So dumb.

Addressing that problem was a central theme of the ebook I wrote a few years ago. It is a problem that is also highlighted by Rich Coleman’s summary dismissal of the CCPA’s analysis of its LNG job claims.

“I get that they are sort of a left-wing think tank and they actually haven’t been really supportive of the oil and gas industry,” Coleman said. “I think the narrow view that’s there bothers me because it doesn’t actually in fairness tell people what’s going on.”

On the contrary, it is the government’s “narrow view” and Coleman’s hopelessly skewed LNG employment impacts assessment that “doesn’t actually in fairness tell people what’s going on.”

Just because he is contemptuous of the criticisms identified in Lee’s work does not invalidate their legitimacy or veracity.

Reading the CCPA’s latest offering, I had to smile. It reminded me of another critique on the Olympic Costs and Benefits that that organization produced back in early 2003.

The government also dismissed that report at the time, citing its own numbers, commissioned through InterVistas, which pegged the Olympic benefits at much higher levels.

It was not until the PricewaterhouseCoopers study in 2011 that the public learned the CCPA’s numbers were much closer to the actual benefits realized. InterVista’s figure were subsequently proved to be utterly out to lunch.

In hindsight, the CCPA’s analysis was packed with information and insights that should have informed the government’s own assessments and policy decisions.

It was a report that attempted to provide an assessment of the Olympic’s net benefits and costs – an enterprise that the government never dared to broach, for fear of what it might learn along the way.

How screwed up is that?

And yet, that is exactly what is happening today in respect of the LNG initiative.

No such net cost-benefit analysis has been done, using different investment scenarios and more inclusive assumptions that aim to quantify the broader impacts in respect of the five so-called “evaluation accounts” that are so relevant in this case.

We should be assessing LNG’s net cost-benefit impact on government finances, on our environment and on economic development. We should assess its likely net impacts on British Columbians, as consumers of all that that new industry might provide, and in terms of its predictable social and community impacts.

None of that has been properly done. The CCPA’s 2003 Olympic assessment shows us why it is necessary to tackle that task in responsibly assessing the Mother of all major infrastructure initiatives—the premier’s LNG pipe dream.

The CCPA’s Olympic assessment came out just before the invasion of Iraq.

You might remember how that country’s Information Minister, dubbed “Comical Ali,” gave the world a chuckle with his crazy claims that Saddam’s victory was at hand – while the U.S. troops were literally at his doorstep.

One report later noted, “He refused to retract his wartime claims that Iraqi forces were 'burning the Americans in their tanks', saying only that his reports came from ‘authentic sources - many authentic sources’.”

Listening to Rich Coleman defend his phony LNG job numbers, I am tempted to say that he is sounding more like Comical Ali each day.

His “authentic sources – many authentic sources” are more material, but no less absurd. And he doesn’t seem to realize that it is his credibility that has taken the biggest hit by his own refusal to admit the obvious flaws in his government’s propaganda.

Clearly, the Clark government is not about to come to its senses on this issue any time soon. It will stick to its farcical claims and wait for history to prove it a liar.

In search of a better process

But what of the NDP? How might John Horgan be any different?

First, he should commit to ensuring that any such major projects will be subject to a full and truly independent net cost-benefit analysis.

Second, he should commit to achieve that by actively engaging the experts across the ideological spectrum, including the think tanks that he might otherwise shun.

And third, he should commit to institutionalizing a process aimed at maximizing the credibility of any such net impact analyses, rather than perpetuating the same stupid shell games that all governments have played for so long.

In B.C.’s budget process, we have long had an Economic Forecast Council, comprised of 14 prominent economists who render their advice in helping the province to produce its budget forecasts.

The consensus information that body produces is widely respected as genuine expert advise.

Why not do the same thing with respect to the LNG initiative and for all major capital investment projects? Why not create an independent, broad-based Major Projects Assessments Council?

That Council would be appointed by and answerable to the Minister Responsible for the Major Project Office, currently situated in the Ministry of Forests, Lands and Natural Resource Operations.

It would be responsible for commissioning and overseeing widely credible net cost-benefits assessments of all major initiatives above a certain threshold, say, over a billion dollars.

It would engage entities like the CCPA and others that comprise its membership, to develop more fulsome models for quantifying the costs and benefits of major projects.

The province’s Input-Output econometric models was developed way back in 1974 and is fundamentally as flawed today as it was then. It is as reliable as a Ford Pinto and equally dangerous, if we are not too keen on getting burned.

The Council would develop a range of scenarios for each project and it would identify the most important variables and realistic assumptions that should be considered in each instance.

The results of those efforts would be used to inform other public approval processes, such as environmental assessments, which also should be far more concerned with the net and cumulative environmental, fiscal and socioeconomic impacts of major projects.

The point is, we should learn from this LNG jobs sham and from our own experience with such government propaganda efforts, to devise a better process for preventing and outing governments’ public confidence games.

We should really want to know what the hell we are inviting by the major initiatives that our elected leaders would have us believe are in our collective interest. And we should insist on quantifying those net costs and benefits to the best of our ability—openly, honestly, and responsibly.

Your move, Mr. Horgan.

 
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