Andrew Coyne Off the Rails

Although I generally disagree with Andrew Coyne’s take on economic issues, I enjoy his commentary because it is almost always articulate and well-informed. Last Saturday’s column, which may be his second-last at the National Post before moving to Maclean’s, was a glaring exception.  In particular, it contradicted Coyne’s own previous contentions.

When the Government of Newfoundland and Labrador took an equity stake in Hebron a couple of months ago, he wrote, “there’s something bizarre about the government paying for the right to participate in the extraction of a resource it already owns.” (In fact, offshore resources are technically owned by the federal government.) Now that the Government of Alberta is starting to behave more like a resource owner, Coyne has bought into Terry Corcoran’s philosophical musings about how “there is no divine right that decrees the province’s oil and gas reserves should belong to the state.”

Corcoran and Coyne seem to think that, since natural resources do not theoretically need to be provincial property, Alberta should be content to continue giving away these resources for less than they are worth.  I suppose that this argument might have merit in some parallel universe, in which Canada’s legal and constitutional history had been completely different.

The Post printed the following letter from yours truly on Tuesday, but edited out the second sentence, which I thought was critical to the letter’s flow:

Re What is Alberta’s Fair Share?, Andrew Coyne, October 27.

Regarding resource revenue, Mr. Coyne asks, “why is it ‘fairer’ that the government should have it than the oil companies?” Last year, he derided low stumpage fees as a costly subsidy to the lumber industry. He should recognize low oil and gas royalties as a far costlier subsidy to a far more profitable industry.

Mr. Coyne then asks, “why don’t they just auction it off?” Of course, provincial governments do auction off exploration and development rights. However, like virtually all other oil-producing jurisdictions around the world, they understand that this process does not capture the full value of fossil fuels. There are not enough potential bidders (i.e. oil companies) for genuinely competitive auctions. Also, bids are severely discounted because the resource’s value is unknown prior to exploration and development. 

Auctions would be particularly impractical in Alberta’s oil sands, almost all of which have already been leased to a handful of companies. Clearly, royalties must be charged. Mr. Coyne should applaud Alberta for moving these royalties modestly closer to the true value of its oil and gas.

Erin Weir, economist, Canadian Labour Congress, Ottawa

UPDATE (Nov. 18): In writing that Coyne’s strange column on resource royalties might be his second-last at the Post, I incorrectly anticipated that he might have some sort of final “farewell column” there. Although no such column has appeared, I note that his debut column in Maclean’s returns to his usual high standard.