Just days after Alberta Premier Rachel Notley refused to back away from fast-tracking a royalty review and corporate tax hike her government has done an about face.
After meeting with more than 1,000 industry leaders since it was elected four months ago, Notley’s left-wing New Democratic Party administration decided to hold off making royalty changes until the end of 2016.
It also announced that any royalty increases it might introduce would be deposited in Alberta’s Heritage Fund and not disappear into general revenues.
In what many observers described as a “minor” concession, Energy Minister Marg McCuaig-Boyd said companies and investors can “operate with certainty” for 16 months now that the government has delivered a “clear signal (that it wants to be) a reliable partner in supporting the success of our oil and gas industry.”
Tim McMillan, president of the Canadian Association of Petroleum Producers, whose member companies account for about 90 percent of Alberta’s oil and gas production, said he appreciates the promise to delay changes until 2017.
But he urged the government to waste no time in conducting a “timely, open and transparent” review by the end of 2015.
McMillan called for the royalty review panel to move quickly and focus on “how to re-establish Alberta as a province that is competitive with other jurisdictions” by attracting investment, creating jobs and generating government revenues.
He said the panel should take into account the Notley government’s decision to raise corporate taxes to 12 percent from 10 percent and its commitment to double the province’s carbon levy over two years.
Mark Scholz, president of the Canadian Association of Oilwell Drilling Contractors, said delaying the royalty decision was a “good olive branch to calm some uncertainty,” but argued that so long as commodity prices remain where they are, industry activity could decline further in 2016.
Dave Mowat, the panel chairman, said this is a “great time” to do a review.
“One of the things we want (is a royalty regime) that works as well at $30 a barrel as it does at $100 a barrel,” he said.
Current royalties vary
Alberta’s current royalties vary from 5 percent to 40 percent, depending on factors such as the type of development, oil prices, crude volumes, well depths and the time needed to extract the resources.
In a recent speech, Notley insisted Alberta “still has by far the most competitive tax regime (in Canada) and so when times get tough those who are profitable should be paying just a little bit more.”
Even more tellingly a Climate Leadership Discussion Document, designed to inform citizens about climate change and prepare them for a public opinion survey, suggests that Notley sees a reduced role for the oil sands in Alberta’s future.
The document says Alberta “has much more to offer Canada and the world than its energy products” and that the province can “transition to a knowledge-based, lower-carbon economy.”
Continuing on that theme, the government said its vision for Alberta is one of “sustained” economic growth and “steady” job creation - a far cry from the province’s recent pride in leading Canada’s economic growth.
In fact, an entire section on “Alberta’s Vision” makes no mention of the oil sands, although the document insists that reducing greenhouse gas emissions “does not mean halting all economic activity.”
Achieving this idealistic state could require “much higher” carbon pricing, technology initiatives and subsidies for green technology.
Alberta could also introduce feed-in tariffs to help finance wind and solar power, tax credits and subsidies to producers of “green” energy; government-backed loan guarantees and power purchase agreements - a strategy that has widely been scorned in Ontario.
Transportation sector
To tackle the transportation sector, rated as the leading source of GHGs, the Notley government would target an increased use of public transit, car-pooling, fuel taxes, clean vehicle technology and minimize use of private vehicles.
The document also tells Albertans that gains in energy efficiency “can be one of the most cost-effective ways to improve the affordability and reduce the environmental impact of energy consumption.”
Kenneth Green, senior director, natural resource studies, at the conservative Fraser Institute, said the document overlooked a recent U.S. study of a residential energy efficiency program on 30,000 households that found up-front costs “came out twice as high as predicted and the energy savings were 2.5 times smaller than predicted.”
He said that despite Notley’s talk about continued development of the oil sands “the plans offered in the document call for a wrenching change in Alberta’s economy, away from energy development.”
Green suggested Notley should be more honest about “where she plans to take Alberta so that, at the very least, Alberta’s energy sector can start checking the rents in Saskatchewan and British Columbia.”
Clash with CERI report
The document release clashes with a Canadian Energy Research Institute report that GHGs generated by the oil sands can be curbed without affecting the sector’s growth.
Allan Fogwill, president of the Calgary-based independent organization, said it is possible to “have greater economic activity in hydrocarbons” while at the same time meeting GHG targets.
The CERI report based its conclusions on GHG emissions associated with energy use by the oil sands industry, including fuel used to generate electricity to meet production needs.
It estimated that whether production doubles to 4.9 million barrels per day over the next 35 years, or virtually flattens at 2.9 million bpd, the sector will generate a consistent 1.3 gigajoules per barrel of emissions, but projects that increasing energy efficiency through technology could reduce the industry’s carbon footprint to 0.9 gigajoules.
A climate-change panel has been appointed by the government to address the issues of energy efficiency, the price on carbon, sustainable electricity policies and strategies to grow the renewable energy sector.
Oil sands operators have already launched their own efforts to reduce their environmental footprint, notably through an alliance that allows rival companies to share environmentally friendly technologies that have cost C$1 billion to develop.
But Simon Dyer, associate director of Pembina Institute, an advocacy organization, said the industry’s record of lowering its energy intensity levels based on the CERI report has not been good since 2007.
However, the Canadian Association of Petroleum Producers, said last year that intensity levels have risen due to increased oil sands production and depleting conventional oil and gas reservoirs as the industry seeks to maximize the extraction of oil and gas.
