ENERGY ROYALTIES: “THINK LIKE AN OWNER” by ALVIN FINKEL

Nothing about the new NDP government frightens the oil company lobbyists and their supporters in the corporate media and corporate-funded research institutes more than the promise to review energy royalties.

 

So they are trying to steer the process. The Globe and Mail, the newspaper whose primary owner, David Thomson, is Canada’s richest person, commented grumpily on May 14: “An independent commission, staffed by experts in the economics of the industry, would almost certainly find that measures to force or incent greater processing of crude in Alberta would carry greater costs than benefits. As for the question of where royalty rates should be set, that is trickier. But any honest accounting of the hoped-for windfall from higher rates would also weigh the quantifiable downsides in terms of investment, employment and wages. There’s no gusher of free money.”

 

Well, there is. But that money has been going into the bank vaults of Big Oil. Jim Roy, the senior advisor for Royalty Policy for Alberta Energy from 1985 to 1993, noted recently in a Parkland Institute Research Fact Sheet, that energy royalties collected by the people of Alberta through their government fell from $48.4 billion for the period from 2005 to 2009 to $35 billion for the period from 2010 to 2014. Average annual production for the former period was $83 billion a year, and $82 billion a year for the latter period. So declining production explains almost nothing about the falling revenues for Albertans for their oil and gas.

 

Ironically it was during the earlier of these two periods that the Alberta Auditor-General questioned whether Albertans were getting sufficient revenue from their energy resources. They were only receiving 11.6 percent of the annual revenue generated from exploitation of energy resources in the province; in the late 1970s with Premier Peter Lougheed in charge, the parallel figure was 33.1 percent. Premier Ed Stelmach appointed a Royalty Review Panel to investigate the AG’s concerns. Despite the conservative orientation of the appointees, they concluded, “Albertans do not receive their fair share from energy development. The royalty rates and formulas have not kept pace with changes in the resource base and world energy markets. Albertans own the resources. The onus is on their government to re-balance the royalty and tax systems so that a fair share is collected.” In the view of the panel, an increase of $2 billion a year in the total take of government from oil revenues would provide that rebalancing.

 

The powerful oil companies denounced the panel’s conclusions. But after the provincial Liberal opposition announced that if elected they would implement the panel’s recommendation and the NDP proclaimed that an NDP government would raise annual royalties by 7 billion dollars, Stelmach agreed to raise oil and gas royalties by a billion a year. He won re-election but within months, the energy companies had moved their fund-raising from the Progressive Conservatives to a new social conservative party, the Wildrose Alliance, which had failed to win a single seat in the 2008 election. They bankrolled a dynamic leader for that party, Danielle Smith, and their threats of a capital strike (moving their capital outside the province) scared many energy industry workers. Stelmach buckled and produced a royalty formula that resulted in Alberta receiving  23 billion dollars less in five years than it would have had the royalty panel’s financial goals been met. That was on average $4.6 billion a year lost, enough to have avoided all the budget cuts of the Stelmach, Redford, and Prentice periods. Albertans’ revenues from the energy resources that they owned had fallen to 8.5 percent of total product, almost a third less than it had been at the end of the Social Credit period when Alberta had the lowest share of energy revenues of any owner in the world.

 

But even the 2007 royalty panel’s recommendations would not have restored a full restoration to Albertans of their share of their resources. When he was premier and again late in his life as he watched the firesale of Alberta energy by his successors, Peter Lougheed had encouraged Albertans to “think like an owner.” The energy resources belonged to all of them, not to individual capitalists or to vertically integrated multi-national energy corporations looking to make a quick buck. But only people well to the left of Lougheed’s  old party, which had become completely captive by energy interests, heeded his advice.

 

Despised by Premier Klein, who had asked the University of Alberta to drive them off the campus for their constant criticism of his government’s policies, the Parkland Institute suggested that Lougheed’s target of a 35 percent royalty on conventional oil and 25 percent on the oilsands would have yielded $17 billion extra for the provincial treasury in 2012-13 and $19 billion in 2014-15. If we just use the 33.1 percent overall royalty figure from the 1970s, the five-year yield for 2010-14 would have been $25.42 billion per year or  $18.42 billion more than it actually was.

 

That much extra money may seem suspicious to some. But remember that since 1991, Norway, which produces less oil annually than Alberta, has accumulated $1.1 trillion Canadian in its sovereign wealth fund. The Norwegian government has been the developer of between 67 percent and 100 percent of the oil during that period. Alberta could have followed the Norwegian model as well and instead of having a Heritage Savings Trust Fund with only $17 billion—barely a penny has been added since 1987 and the interest earned on the fund has been mostly appropriated for general revenues–, it could have a fund as rich as the Norwegian fund. Or perhaps, as a compromise, we could be setting aside $5 billion on average a year to add to current programming, $5 billion to be set aside to fund ongoing programs when energy prices are low, and $10 billion a year plus to a combination of the Heritage Savings Trust Fund and a fund for the development of alternative energy. The latter would allow Alberta to contribute to a reduction in climate change over the long term, while diversifying the economy, and help to alleviate criticism of our having an economy that currently helps to feed the world’s appetite for a resource that it needs to reduce its dependency upon in order to save the planet.

 

As for the upgraders and refineries that The Globe and Mail believes no “independent” expert would support, independent engineering consultant Mike Priaro and a number of other engineers  have made clear their support of upgrading. Priaro wrote in the Calgary Herald on May 14 that partially upgraded unconventional crude “eliminates exports of economically and environmentally unacceptable raw bitumen as dilbit.” Partial upgrading “provides domestic jobs, improves economics of domestic refining, and reduces transport costs, greenhouse gas (GHG) emissions, and environmental risk and liability incurred by transporting dilbit diluent.”

 

And would all of this drive private investment away, as the lobbyists are already predicting in their fright-wing campaign? That’s not likely. In 2008, corporate profits in Alberta made up 22.8 percent of the provincial GDP compared with 12 percent in the rest of Canada, according to Kevin Taft in his book, Follow the Money. There’s lots of profit in the energy industry and the shaving off of about 18 billion a year from those profits in a good year and adding it to government coffers would still leave corporate profits over 17 percent of provincial GDP.  Adding almost 6 percent to the treasury would bump up the provincial government’s share of provincial GDP to 20 percent, which is three percent less than it was in 1989 and 2 percent less than the current average for Canadian provinces. The oil companies might cut some jobs to compensate for some of their losses but many of those jobs would be jobs that have been filled in the recent past by temporary foreign workers and fly-in workers from other provinces. The new jobs that the government can create as education, health, and social services all expand will more than make up for any lost jobs.

 

In short, what Big Oil will call a program of expropriation or a socialist revolution is really simply a turning back to the fiscal policies of the late 1970s before the PC party became a puppet of Big Oil and the revenues that should have been going to the people of Alberta went disproportionately instead to a small number of companies and their shareholders.

 

The problem for the new government will not be to persuade themselves or Albertans generally that we have been ripped off. It is what most people believe. Instead the challenge will be to counter the inevitable Big Oil campaign to scare Albertans into accepting a status quo in which the oil that we own collectively becomes a means for making excessive profits for the few. That will be a Herculean task and may result in the Notley government deciding to ask for less than fair value for the oil.

 

What can we as citizens do? Well, share this information with as many people as you can. Write your MLA, regardless of party, to let them know that the people of Alberta demand a just return for the oil that we collectively own and that the Lougheed period, not the Klein and after periods, provide the numbers that tell us what a just return looks like. Write to the media as well, both conventional and social media. And write to the oil companies as well, letting them know that you don’t appreciate their scare tactics or their pleas of poverty.

 

Alvin Finkel is chief editor for Change Alberta and professor emeritus of History at Athabasca University.

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