Oil: Can we give it back?

Every now and then you see a sad story on TV about someone who won the lottery, and then their life went to shit (they gave it all away or lost it gambling, became an alcoholic, etc.).  They invariably say at the end, “I wish I’d never won the lottery.”

I kind of feel the same way about oil.  I am starting to wish Canada didn’t have any.  The oil boom (driven mostly by world prices and Alberta’s oil sands) is wreaking havoc with our fiscal federation, our environment, our geopolitical space in the world (we supply more oil to the U.S. than Saudi Arabia, Kuwait, and Iraq combined — something that doesn’t exactly make me feel comfortable), our macroeconomy (the sky-high dollar and Bank of Canada attitude on interest rates are both attributable to the boom).

Here’s my take on just two of the “problems with oil” — fiscal and environmental — in this week’s Globe.  I think calling for a deliberate slowdown on new developments is a demand that could have real resonance — even in Alberta.  People there are really questioning the value of this boom.  I should know, I was born there (ha ha).  Here’s the column…

Fiscal and Environmental Federalismby
Jim Stanford
 

            Federal Environment Minister Rona Ambrose released her new “green” plan last week, to a chorus of boos from pretty well everyone the plan was intended to impress.  (Big business loved it, but they were already firmly in the Tory camp.)  The Clean Air Act does not mention the word “
Kyoto” once.  Instead, it aims to reduce the pollution “intensity” of industry, pledging to cut greenhouse gas emissions in half by far-off 2050 (by which time any surviving members of Harper’s cabinet will be safely ensconced in air-conditioned old folks’ homes).

            Pundits have suggested the Harper government’s sudden discovery of the environment is political salve for its decision to postpone (probably forever) its equally high-profile promise to fix the “fiscal imbalance.”  Indeed, there’s a common thread linking these two issues: the government’s continuing political allegiance to the West, and to the oil industry in particular, means that neither of these promises is remotely feasible.

            Here’s why Ottawa wants to forget the fiscal imbalance as quickly as possible.  Sky-high prices and booming oil exports have completely redrawn Canada’s fiscal map.  This year, for the first time in Canadian history, Ontario’s GDP per capita will be lower than the Canadian average (in 2005, it was just 1 percent higher, and Ontario’s manufacturing has been shrinking steadily all year).

            On the other side of the ledger, there are now three provinces with above-average GDP.  They have one thing in common: oil.  The size of Alberta’s economic advantage has become shocking (ballooning from 25 percent a decade ago to 60 percent today).   Saskatchewan’s GDP per capita slightly exceeded the national average last year, and will rise further this year.  The third “have” province, amazingly, is Newfoundland and Labrador.  Its GDP per capita was one-third below the Canadian average in 1996; this year it will be higher.  (The fact that wages in Saskatchewan and Newfoundland are still well below average, and Alberta’s only 5 percent higher, is testimony to how little of this oil-fueled GDP ever finds its way into workers’ pockets.)

            Any sensible vision of fiscal equalization must involve redistributing money from oil-producing provinces (or at least from super-profitable oil companies) to the rest of the country.  Is this going to happen?  Stephen Harper’s former Reform Party was born in Alberta and Saskatchewan, and he holds 40 of the two provinces’ 42 seats.  Harper’s Saskatchewan members were worried enough to write him earlier this year, urging the continuing exclusion of oil from Saskatchewan’s equalization formula (something that makes as much sense as excluding potatoes from PEI’s calculation).  They needn’t have worried: the issue is dead and buried.

            Regional differences in greenhouse gas pollution, if anything, are even more shocking than our increasingly unbalanced economic federation.  And they have the same ultimate source: oil, or more particularly oil sands.  (Here we can move Newfoundland back into the “rest of Canada”, since its conventional oil fields pollute much less than oil sands.)

            In 2003 (the latest year for which data is available) Alberta and Saskatchewan produced 70 tons of carbon dioxide equivalent per capita.  The rest of Canada produced 16 tons per capita – barely one-fifth as much.  And Alberta and Saskatchewan’s booming oil sands emissions are the dominant reason why Canada is busting through its Kyoto targets.   Ottawa’s own studies estimate that oil sands production (which the industry wants to quadruple) will add close to 90 megatonnes of new emissions by 2020 – accounting for about 60 percent of Canada’s total emissions growth over that period.

            To put this in perspective, think back to Rick Mercer’s TV ads extolling each and every Canadian to reduce their personal emissions by one tonne (the program was cancelled shortly after Harper took office).  Even if we all met our “one tonne challenge”, the resulting savings will be wiped out three times over by new oil sands-related emissions by 2020.

            A “green plan with gonads” (to borrow Garth Turner’s memorable phrase) absolutely must include measures to slow down the oil sands juggernaut – something we should do for economic and fiscal reasons, too, not just environmental.  Yet the Conservatives won’t contemplate this, any more than they would contemplate fiscal arrangements which might similarly discomfort their controlling Western base.

            On both fiscal and environmental affairs, therefore, the Tories can only pretend to be a national party.  I suppose this explains why their dreams of a quick majority government are slipping away so quickly.

Believe it or not, Jim Stanford was born and raised in Alberta.

Table 1: GDP Per Capita, 1996-2006, % of Cda.Avg.
                                   1996                2005                2006                                   

                                  Actual             Actual             Jim’s Estimate
Ontario                       110%               101%               99%
Alberta                        126%               156%               160%+
Saskatchewan           100%               101%               102%

Nfld.& Lab.                 66%                 98%                 100%+

Table 2. Greenhouse Gas Emissions Per Capita, 2003

                                    Emissions      Pop’n             Emissions per Cap.

                                   (Mt)                 (000)                (tonnes)
Canada                       740                  31,669             23.4
Alberta                        224                  3,160              70.9
Saskatchewan           65                       995              65.3

Alta.&Sask.                289                  4,155              69.6

Rest of Canada         451                  27,514             16.4

8 comments

  • Jim may have been born and raised in Alberta, but I was born and raised in Saskatchewan and will thus begin with a couple of points specific to this province. First, it is important to clarify that there is currently no oil-sands extraction in Saskatchewan. However, oil-industry activity in Saskatchewan entails substantial greenhouse-gas emissions as does the burning of lignite coal to generate electricity.

    Second, Jim describes politicians “urging the continuing exclusion of oil from Saskatchewan’s equalization formula.” My only objection is to the word “continuing” since Saskatchewan’s oil and gas are currently included in the calculation. By contrast, the Atlantic Accords fully compensate Newfoundland and Nova Scotia for Equalization lost due to offshore oil and gas output. As Andrew Jackson wrote on page 18 of the following paper, “only Saskatchewan loses significant equalization revenue because of its resource revenues.”
    http://canadianlabour.ca/updir/Labour_Perspective_on_Fiscal_Imbalance.pdf

    I agree with Jim’s overarching point that the pace of oil-sands development should be moderated. The best way of doing so would be to increase the extraordinarily low provincial royalties and federal taxes on fossil-fuel extraction. This approach would allow the most profitable development to proceed, while making some marginal development uneconomic. The standard tradeoff in resource taxation is that, up to a point, higher taxes raise more revenue but slow the pace of development. However, if slowing development is a positive goal in its own right, then there is no major argument against raising resource taxes.

    Links to a couple of papers that I wrote advocating higher oil and gas royalties in Saskatchewan follow:
    http://www.uregina.ca/sipp/stud_pub_pol_papers.html
    http://www.policyalternatives.ca/documents/Saskatchewan_Pubs/sk_taxcuts.pdf

    Finally, I could not access the tables at the bottom of Jim’s post.

    Erin

  • There is a precedent for sector specific profit taxes. The Canadian Banks were subject to a super profits tax a while back.

  • Just to note that the Alberta Federation of Labour is indeed ueging a slower and more sane pace of energy development. How to raise this as an issue at the national level in a way which would allow for rational discussion is problematic.

  • Other Alberta voices calling for slower oil-sands development include the Regional Municipality of Wood Buffalo, which encompasses Fort McMurray; the Parkland Institute, University of Alberta; and former Premier, Peter Lougheed. Such voices could help address the issue at the provincial level and/or credibly raise it at the national level.

    The Government of Canada could help without applying any sector-specific measures to the energy industry. According to the following document, far lower effective corporate tax rates face oil and gas companies than companies in other industries: http://www.cdhowe.org/pdf/ebrief_14.pdf Simply taxing the oil and gas industry to the same extent as other industries would be a significant step in the right direction. Similarly, an economy-wide carbon tax would moderate oil-sands development.

    Another important point is that, since 2003, provincial resource royalties have been deductible from federal corporate taxes. An increase in federal taxes could no longer be viewed as confiscating provincial resources since provincial governments can capture the additional revenues from the Government of Canada simply by raising their royalties. In fact, higher federal taxes in conjunction with deductibility would allow any provincial government to raise royalties without greatly reducing its “competitiveness” in relation to other resource-producing provinces.

  • Someone needs to fix those tables or delete them. WordPress does not like tables. It reads each row as a single table. Hence why you have the first row of each table and not three tables. If you send the tables to me in word or open office format I will adjust them so they can be cut and paste in. Please get rid of them as is they look amateurish.

  • Hi Everyone
    Thanks for the feedback.

    Sorry for the problem with the tables. “Canadianobserver” is right about WordPress not dealing well with tables. I have redone them in a manual format.

    Re Saskatchewan and oil sands: It is not quite right to say that the province has no oil sands extraction. There are no oil sands MINES in Saskatchewan, but there are “in situ” facilities (which extract bitumen by heating it underground). Also, the province has heavy oil upgraders which process oil sands bitumen from Alberta; a large portion of the GHG emissions related to oil sands extraction results at this stage of the process. Saskatchewan’s large oil sands are mainly undeveloped so far, but the provincial government is trying to catch Alberta’s oil sands coattails by changing the royalty and regulatory regime for its own oil sands. On the other hand, there is no doubt that Alberta is the main “culprit” as far as this rampant, unplanned, and ultimately temporary boom.

  • I was at the Ontario Federation of Labour conference on the manufacturing crisis this week. People are starting to make the links between our lack of a sane national energy policy, and the growing industrial crisis in central Canada. Keith Newman and CEP have been documenting the absurd downsizing of our petro chemical and plastics industry as feedstocks and supply are being cut off. The absurdities of Alberta feeding new US refining capacity are being noted in Alberta, and Informetrica calculates that most of the jobs from building a new Alberta refinery would go to central Canada. All of which is to say that Jim and others are opening up what could and should be a really important national debate.

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