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Future of Alberta energy sector depends on Notley’s policy direction
Tuesday, 11 August 2015 - 12:15pm
Western Canadian energy producers were already bleeding cash as a result of the collapse of oil and gas prices before Alberta’s May 5 election. The New Democrats’ surprise victory has compounded the industry’s financial problems by introducing policy uncertainty. What is certain are increases in royalties, corporate income taxes, personal income taxes and some form of new carbon levy. The only question is how much.
The industry’s cozy, 44-year relationship with Progressive Conservative premiers and resource ministers is emphatically over. In its place are rookie ministers with no experience with or connections to oil and gas. They’re advised and shepherded by seasoned NDP operatives from other parts of Canada, several of whom are climate-change activists with documented anti-oil sands and anti-pipeline pasts. Publicly, Alberta energy executives are making reassuring comments about their new premier and government. But privately, the fear is “death by a thousand cuts.”
There are 13 specific policy risks posed by the new NDP government to the Alberta energy sector, representing additional costs and/or loss of revenues. I have rated each in the accompanying chart for the potential severity of its impact and the probability of it occurring.
None of these risks by itself is likely to threaten the economic viability of an energy company, but when taken together, their cumulative impact might.
The sheer number of these risks explains the industry’s concerns. With the exception of the corporate and personal income-tax hikes, decisions on the other policies are yet to come. It is still within Premier Rachel Notley’s discretion to temper the impact of royalty increases, additional carbon levies and fresh-water restrictions for fracking. The same goes for the position she will take on new export pipelines.
There are good reasons to expect her to be more pragmatic than ideological. Alberta did not undergo a Jekyll and Hyde transformation from Tory blue to NDP orange on May 5. The government changed significantly, but the province did not. The majority of Albertans, 60 per cent, voted against the NDP. The NDP received 40 per cent of votes, but 61 per cent of seats. Their majority is a product of vote-splitting on the right between the PC and Wildrose parties. Post-election surveying by Abacus Data indicates that the result was more about the desire for change (93 per cent of respondents) rather than for the NDP’s platform (7 per cent), and that a large majority want the government to support the oil industry and the oil sands. It would be a real stretch to say Ms. Notley has a mandate to transform Alberta.
Also, the Premier has a grasp of the importance of foreign capital for oil sands development and the mobility of that capital. Two of Ms. Notley’s recent appointments inspire greater confidence. With Dave Mowat heading up the royalty review and Andrew Leach leading the climate-change panel, industry has been reassured that these two key policy files will be handled with an informed and balanced perspective.
The only way the NDP can generously fund its favoured social programs without raising taxes or running huge deficits is to increase resource revenues. Getting Canadian oil and gas to new export markets and eliminating their current price discounts would generate much more revenue than corporate tax or royalty increases. For all these reasons, Ms. Notley may decide it’s in her own political interest to work with the energy sector, not against it.
But there is also a more negative scenario. Ms. Notley could conclude that her victory was an accident – the result of the convergence of a weird mix of issues that is unlikely to ever occur again: a new and unelected PC premier, a “secret” merger of right-leaning parties, unhappiness with the incumbent’s “pay more, receive less” budget, an early election call, voter fatigue after 44 PC years and five different leaders in less than a decade.
If so, Ms. Notley might not worry about re-election and pursue more ideological policies – including more aggressive increases in corporate income taxes, carbon taxes and royalties. She might try to build a legacy as the “Green Queen of the West” and hope that history will vindicate her down the road. There will be many environmentalists urging her to do just this.
Time will tell which scenario is closer to the truth. But one thing is certain: Ms. Notley will be the captain not just of her own destiny, but of the Alberta energy sector’s.
Ted Morton is a senior fellow at the School of Public Policy at the University of Calgary and the Manning Foundation for Building Democracy and formerAlberta Progressive Conservative cabinet minister.
This column was published by the Globe and Mail on August 11, 2015