We pay two to five times more to build major infrastructure than other countries, reducing investment returns and driving private capital away

Canada has a nation-building problem that no new investment fund can fix: major infrastructure projects simply cost too much to build.

The Trans Mountain expansion is a striking example. The cost of adding pipeline capacity ended up nearly five times higher than originally estimated. When infrastructure costs escalate that dramatically, investment returns disappear and private capital goes elsewhere.

The Carney government believes a debt-financed Sovereign Wealth Fund can help attract foreign sovereign wealth funds, global investment giants like BlackRock and Brookfield, and major pension funds. But throwing more money at increasingly expensive projects does not solve the underlying problem.

Capital costs matter the way wages matter: if you pay twice as much per hour for the same work, your business fails. If a country pays two to five times more per unit of infrastructure than its peers, its prosperity falters. Today, Canada is paying that premium for pipes, wires, turbines and reactors.

Take British Columbia’s flagship clean-energy investments. The combined cost of BC Hydro’s Site C hydroelectric dam and the yet-to-be-constructed Northwest Transmission Line will likely exceed $22 billion. On a specific capital basis, that is $20,000 per kilowatt, a staggering figure by any global standard.

B.C.’s Net Zero strategy hinged on powering the Kitimat LNG industry with hydroelectricity. Had B.C. Hydro built modern combined-cycle gas turbine (CCGT) plants near the LNG facilities in the Kitimat region instead, British Columbian taxpayers would have faced a far smaller financial burden.

New CCGT facilities routinely come in at $1,500 to $2,000 per kilowatt, roughly one-tenth the cost of the Site C and transmission package. In the name of Net Zero, British Columbia built one of the costliest generation and transmission packages in history.

Ontario made a costlier choice still. World Nuclear News, which covers the global nuclear energy industry, reports that the Darlington small modular reactor (SMR) project, based on the GE Hitachi BWRX-300 design, carries a specific capital cost of $13,900 to $17,400 per kilowatt.

Yet Ontario Power Generation (OPG) already had permits to build a new Canadian CANDU reactor at Darlington. Had OPG chosen the latest CANDU design, I estimate the specific capital cost would have been $8,000 to $9,000 per kilowatt, based on inflation-adjusted costs from the Darlington Unit 4 CANDU reactor built at the same site in 1993. Instead, Ontario opted for a foreign technology at a capital cost premium of 50 to 100 per cent.

Pipeline economics tell the same story.

Kinder Morgan applied in 2013 to expand the Trans Mountain pipeline (TMX) by 590,000 barrels per day. By 2017, the specific capital cost was estimated at $12,500 per barrel per day, or $7.4 billion for the added capacity. After the federal government purchased the project and completed construction, the final cost reached $35 billion, or $60,000 per barrel per day.

Canada did not get five times as much pipeline capacity for the money. It paid nearly five times as much for essentially the same planned expansion.

Now Ottawa and Alberta are advancing a new one-million-barrel-per-day line to the West Coast that is expected to follow the existing TMX right-of-way. Early estimates place the specific capital cost at $35,000 to $44,000 per barrel per day. That is below TMX’s final cost but it is still three to five times what comparable U.S. projects cost.

The U.S. Dakota Access Pipeline (DAPL), built between 2014 and 2017, delivered 570,000 barrels per day over 1,900 km at a specific capital cost of C$9,000 per barrel per day. All figures here are in Canadian dollars.

Natural gas infrastructure is no better. TC Energy’s 670-km Coastal GasLink pipeline, feeding LNG Canada near Kitimat, was originally estimated at $3 per standard cubic foot per day (SCF/d) of transport capacity. Its final cost landed near $7 per SCF/d. Comparable U.S. pipelines built over the past decade come in at half that cost.

Why are public dollars increasingly required to advance projects of national interest? Because private investors no longer see acceptable returns in Canada.

When capital costs explode, rates of return collapse. When rates of return collapse, private capital flees. And when private capital flees, governments step in with taxpayer dollars, not because the projects are inherently unviable, but because the investment climate has become inhospitable.

Foreign sovereign wealth funds, global asset managers and pension funds do not invest in jurisdictions where capital costs spiral unpredictably. They invest where projects are delivered on time, on budget and at globally competitive cost.

Canadians deserve a full accounting of why TMX’s specific capital cost exploded after the Crown purchased it from Kinder Morgan.

More broadly, judicial reform is required to limit litigation of major projects after proponents receive regulatory approval to proceed. Unless we address the root causes—legislative, regulatory, judicial and procedural—Canada’s new debt-financed Sovereign Wealth Fund will simply borrow to pay the premium.

A sovereign wealth fund cannot solve Canada’s capital efficiency problem. If Canada continues to pay two, three, or five times as much for comparable infrastructure as other countries, public financing will simply shift that premium onto taxpayers.

Canada needs to understand why its infrastructure costs so much in the first place and fix the causes. Only then will nation-building be more than a slogan.

Dr. Joseph Fournier is a senior fellow at the Frontier Centre for Public Policy. An expert in economic analysis and structural policy, his research focuses on productivity, regional migration and sustainable economic renewal in Canada.