If you follow politics in Alberta then you'll have heard of Rachel Notley's NDP government's plans on implementing a carbon tax in that province.
The past few weeks, the broadscale media, from left to the right, has manufactured consent for the carbon tax in Alberta to address its financial woes. Trevor Tombe has written a piece in MacLeans on how "Alberta needs to get off the resource rollercoaster", the carbon tax being just the ticket off the rollercoaster. Tombe displays a number of charts, graphs and figures about how and why the province is slipping further and further behind.
Tombe's counterpart, Andrew Leach from the University of Alberta, jumps into the conversation with his own sets of charts, figures and graphs about how resource revenue is falling over time (he doesn't actually mention why though). He links a number of studies that show how the carbon tax is a pretty good way of reducing greenhouse gas emissions. It's all very interesting, so many charts and data, and none of it relevant.
(I personally like the IDEA of a carbon tax; if implemented PROPERLY, can provide an incentive to change habits, though is easily co-opted by corrupt governments, see BC for an example of how to fuck up a carbon tax)
At the "grand-scale", Alberta seems to have difficulty raising revenue to pay for its provincial financial obligations, such as education, public service, childcare, you name it. The general media seems to agree on this fact; Alberta's short on cash. How to solve the issue is another matter. It seems to be broken down into two camps. On the "conservative" (aka free marketeers) it's time to cut public service wages 10%, cut spending and dive into austerity, full speed ahead. On the left, the CCPA's determined that the design of the carbon tax in Alberta was well thought, though that the implementation of the tax might be less than optimal (to put it nicely)
But none of this matters. Both sides miss the obvious solution to Alberta's revenue issues.
Surprisingly, or not, neither Leach, Mintz, nor Tombe showed this figure. They've shown plenty of figures, but not this one. This figure shows the total amount of oil and gas sold in Alberta over the past 30 years, the total amount of royalties and land sales collected, and the amount of pre-tax profit industry pocketed. A few things jump out to me in this figure. What shouts at me from that figure is the staggering amount of money that was made by private industry. From 2000 to 2014, industry made over 35B$ per year of pre-tax profits; in a decade and a half they made over 400B$. This is offset by the meager pittance the owners of the resource received in royalties and rents. Another tidbit in that figure which jumps out is that the ratio of private profits to public royalties and rents was fairly equal through the 1985-1998 period. Then 1999 happens and the whole thing goes to shit.
This post isn't about the "optimal" distribution of private profits derived from a public resource, but one could argue that a ratio of 1, where private industry makes as much as the public, off of the sale of the public's resource is a pretty good deal for industry. At any rate industry has been making an ever increasing share of the profits off the sale of resources while Alberta has been collecting less and less; regardless of price. Last time I checked Wal-Mart didn't sell Rolex's.
There's a good reason why the province's share of profits are dwindling, beyond the fact that industry has some magic hold of government. Conventional oil sales are more or less flat, natural gas prices have gone in the toilet and the majority of the oil Alberta sells is from oil sands. Herein lies the problem.
The amount of resource sold from sands projects in the "pre-payout" phase of development has increased dramatically since 1997 to now account for 34% of total sales. Any sands project in the "pre-payout" phase currently (and probably for the foreseeable future, if WTI stays < 50$/ bbl) pays 1% royalty rates. This represents corporate welfare at the highest level. Alberta is handing its resources over, for nothing, to an industry that has pocketed nearly half a trillion dollars in the past 15 years.
If you follow the news you'll have no doubt heard also about the beleaguered oil and gas industry in Alberta. You might think that they've shuttered the doors and pulled up stakes. Not so, production is soaring as the figure below shows. A reader might also be inclined to ask as to the destination of Alberta's resources. Most of the resources are piped cross-border where it is refined with all the value-additives going United States. A relatively stable amount, and decreasing proportion of the total production from Alberta, of all oil and gas, make it to Canadian refineries.
Surprising that none of these charts made it into any of the "regular media's" articles. One look at these figures and it's clear that implementing a carbon tax is austerity wrapped in a green blanket. Changing the profit ratio back from the abyss to a more equitable stake for the owners would provide billions of dollars to Albertans, for the foreseeable future (next 20 years).
Notley's government had a chance to get rid of the ridiculous pre-payout royalty rate scheme a few months ago. She balked. There's no justifiable reason to keep royalty rates at pre-payout levels, none. The government caved to industry and each and every citizen of Alberta gets to pay for it; I'm sure that will go over well whenever the next election rolls around.
One has to wonder the thought patterns of the governing NDP, who were elected on a mandate of increased royalties and a "fairer share" of resource revenues. Were they really "afraid" of the oil companies... as if they'll just ... leave? Getting rid of the pre-payout royalty would easily cover any revenue downfall, and then some. Flat-rate the royaties at 25% this year and crank them up to 40% in 4 years, why not? The goal of the carbon tax is to cut greenhouse gases, isn't it? If Notley was serious about cutting emissions, then raising the royalty rates is one of the few mechanisms she has to address it.
If you've ever played poker, generally the hardest calls to make are the ones where you're holding a winning hand yet your opponent has pushed a mountain of chips into the pot.
Sometimes you just have to call their bluff and know you have the winning hand.
The past few weeks, the broadscale media, from left to the right, has manufactured consent for the carbon tax in Alberta to address its financial woes. Trevor Tombe has written a piece in MacLeans on how "Alberta needs to get off the resource rollercoaster", the carbon tax being just the ticket off the rollercoaster. Tombe displays a number of charts, graphs and figures about how and why the province is slipping further and further behind.
Tombe's counterpart, Andrew Leach from the University of Alberta, jumps into the conversation with his own sets of charts, figures and graphs about how resource revenue is falling over time (he doesn't actually mention why though). He links a number of studies that show how the carbon tax is a pretty good way of reducing greenhouse gas emissions. It's all very interesting, so many charts and data, and none of it relevant.
(I personally like the IDEA of a carbon tax; if implemented PROPERLY, can provide an incentive to change habits, though is easily co-opted by corrupt governments, see BC for an example of how to fuck up a carbon tax)
At the "grand-scale", Alberta seems to have difficulty raising revenue to pay for its provincial financial obligations, such as education, public service, childcare, you name it. The general media seems to agree on this fact; Alberta's short on cash. How to solve the issue is another matter. It seems to be broken down into two camps. On the "conservative" (aka free marketeers) it's time to cut public service wages 10%, cut spending and dive into austerity, full speed ahead. On the left, the CCPA's determined that the design of the carbon tax in Alberta was well thought, though that the implementation of the tax might be less than optimal (to put it nicely)
But none of this matters. Both sides miss the obvious solution to Alberta's revenue issues.
Surprisingly, or not, neither Leach, Mintz, nor Tombe showed this figure. They've shown plenty of figures, but not this one. This figure shows the total amount of oil and gas sold in Alberta over the past 30 years, the total amount of royalties and land sales collected, and the amount of pre-tax profit industry pocketed. A few things jump out to me in this figure. What shouts at me from that figure is the staggering amount of money that was made by private industry. From 2000 to 2014, industry made over 35B$ per year of pre-tax profits; in a decade and a half they made over 400B$. This is offset by the meager pittance the owners of the resource received in royalties and rents. Another tidbit in that figure which jumps out is that the ratio of private profits to public royalties and rents was fairly equal through the 1985-1998 period. Then 1999 happens and the whole thing goes to shit.
This post isn't about the "optimal" distribution of private profits derived from a public resource, but one could argue that a ratio of 1, where private industry makes as much as the public, off of the sale of the public's resource is a pretty good deal for industry. At any rate industry has been making an ever increasing share of the profits off the sale of resources while Alberta has been collecting less and less; regardless of price. Last time I checked Wal-Mart didn't sell Rolex's.
There's a good reason why the province's share of profits are dwindling, beyond the fact that industry has some magic hold of government. Conventional oil sales are more or less flat, natural gas prices have gone in the toilet and the majority of the oil Alberta sells is from oil sands. Herein lies the problem.
The amount of resource sold from sands projects in the "pre-payout" phase of development has increased dramatically since 1997 to now account for 34% of total sales. Any sands project in the "pre-payout" phase currently (and probably for the foreseeable future, if WTI stays < 50$/ bbl) pays 1% royalty rates. This represents corporate welfare at the highest level. Alberta is handing its resources over, for nothing, to an industry that has pocketed nearly half a trillion dollars in the past 15 years.
If you follow the news you'll have no doubt heard also about the beleaguered oil and gas industry in Alberta. You might think that they've shuttered the doors and pulled up stakes. Not so, production is soaring as the figure below shows. A reader might also be inclined to ask as to the destination of Alberta's resources. Most of the resources are piped cross-border where it is refined with all the value-additives going United States. A relatively stable amount, and decreasing proportion of the total production from Alberta, of all oil and gas, make it to Canadian refineries.
Surprising that none of these charts made it into any of the "regular media's" articles. One look at these figures and it's clear that implementing a carbon tax is austerity wrapped in a green blanket. Changing the profit ratio back from the abyss to a more equitable stake for the owners would provide billions of dollars to Albertans, for the foreseeable future (next 20 years).
Notley's government had a chance to get rid of the ridiculous pre-payout royalty rate scheme a few months ago. She balked. There's no justifiable reason to keep royalty rates at pre-payout levels, none. The government caved to industry and each and every citizen of Alberta gets to pay for it; I'm sure that will go over well whenever the next election rolls around.
One has to wonder the thought patterns of the governing NDP, who were elected on a mandate of increased royalties and a "fairer share" of resource revenues. Were they really "afraid" of the oil companies... as if they'll just ... leave? Getting rid of the pre-payout royalty would easily cover any revenue downfall, and then some. Flat-rate the royaties at 25% this year and crank them up to 40% in 4 years, why not? The goal of the carbon tax is to cut greenhouse gases, isn't it? If Notley was serious about cutting emissions, then raising the royalty rates is one of the few mechanisms she has to address it.
If you've ever played poker, generally the hardest calls to make are the ones where you're holding a winning hand yet your opponent has pushed a mountain of chips into the pot.
Sometimes you just have to call their bluff and know you have the winning hand.
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