The case for blowing Alberta’s oil riches

For what future, exactly, should we save oil revenue?


The New Scarabeo 8 Ultra Deepwater Oil Rig

Listen to Colby Cosh read his column, or subscribe to Maclean’s Voices on iTunes or Stitcher for on-the-go listening:

The University of Alberta resource economist (and Maclean’s contributor) Andrew Leach calls it “Norwailing.” It has been a suffocatingly hot trend in print and electronic media for a while now. “Norwailing” describes a type of envious glance cast by columnists and editors at the sovereign wealth fund that Norway has built through the near-total sequestering of its oil revenues. The fund’s estimated value, as I write, is $6.94 trillion Norwegian kroner, the equivalent of $1.1 trillion Canadian. The fund is said to own about one per cent of the world’s financial equity.

Every year, the fund contributes a fraction of its value to the Norwegian public treasury. That fraction is set so that it equals the long-term expected return on investment from the fund. In short, Norway tries not to touch the principal. The idea is that the income from selling a non-renewable resource should be set aside as a permanent endowment.

There is a great deal of Norwailing inside and outside Alberta, a sheikhdom that briefly adopted a policy of setting aside oil royalties in the 1970s but abandoned it without accruing much value. The Norwailing inside Alberta is a form of self-abasement undertaken mostly, as far as one can tell, for social-signalling purposes. When oil prices drop and disorder strikes the Alberta economy, as it has this fiscal year, Albertans make a pious show of regret over “wasting” the good times.

Eventually, they return to electing the same PC governments that wasted the money—on garbage like education, medicine, welfare and roads—and resume spending their own share on consumer purchases they will later denounce. Is it the alleged waste that is foolish, or the remorse?

The Norwailing from outside Alberta is more mysterious still. Why do any of these people care what Alberta does with oil revenues? Perhaps they regret that, once spent, Alberta’s oil money cannot be creatively “shared” in some way with Confederation. Perhaps they worry that Alberta will become a have-not under interprovincial equalization—although, through booms and busts, Alberta hasn’t been that for half a century.

Perhaps outsiders just regret that Alberta has not used oil wealth to make government free to citizens, so they can retire here in tax-exempt comfort. Norway, you’ll notice, is the indigenous home of a nationality. Norwegians, even those without children, perceive their oil fund as a sacrifice for their collective posterity. Alberta has awkwardly open borders and little national consciousness. As an Albertan, I cannot see the point of saving for some invader’s dotage.

What we Albertans are really regretting when we Norwail is that prior generations did not create a welfare program for us, at their expense. (The universities, hospitals and lines of business created with the oil money were supposed to be that, but they do not seem to count.) We stand in the same relationship to the selfish past that future generations do to us; we wish the saving had begun before we were born. That would have been convenient, assuming the money was not invested unwisely, squandered for political ends or just stolen.

Some of us are saintly enough to say that the saving should begin now. Future generations, you see, are better and more deserving than we. Future generations are always invoked in Norwailing. One cannot Norwail properly without summoning the image of a marching file of adorable hypothetical future-babies extending to infinity.

Let ’em shift for themselves. Judging from recent centuries, they are likely to be richer, healthier and more knowledgeable than us. They’ll be taller and have higher IQs. They’ll be raised better, cherished more closely, exposed to less violence, as you probably were in contrast to your own parents. They will be equipped with ever more sophisticated automata and yet will be more productive. And, yes, the planet may be warmer, but not, on any sane estimate, too warm to be incompatible with life or civilization.

So why should lottery winners born in 2050 have the benefit of the oil our agents extract now? Because it’s “running out”? That’s why the abortive Alberta Heritage Fund was founded—because the province’s conventional oil was expected, according to all informed advice, to run out in the early ’80s. For a non-renewable resource, oil has this odd habit of renewing.

Coal was once the essential fuel of modern industry and was something Alberta had a lot of, and dug frantically for. Far-sighted visionaries probably feared it would run out. Instead, our species found better alternatives for most applications. And now, no one ever complains of the inexcusable, irresponsible past failure to create an Alberta Coal Fund.


The case for blowing Alberta’s oil riches

  1. I understand and agree with your broader counterpoint to the “non-renewable” rhetoric that underpins the posterity argument, but describing fossil fuels as “renewable” when what’s happening is they’re just finding more of it and figuring out better ways to extract it is disingenuous. No more, granted, than the adamancy of the Norwailing posteriorites whose ranks including large numbers of persons who prefer the future generations that so concern them obtain their legacy in the form of a resource left in the ground until such time as technical advances render it worthless.

  2. So, is that what status-quo Leach is harping about on twitter now? Has he finally moved on from lentils and bucket brigades?

    This issue is framed incorrectly. The real debate should be about pace of oilsands development.

    1) Firesale of leases and extremely low royalty rates. Maximizes development (not necessarily public good). This is the Ralph Klein approach. Results in inflation (rising wages and costs) and boom if resulting pace of development exceeds labour capacity. Bust if bottom falls out of price of resource, and leaves gov’t with high cost structure (public service) as pubic wages track (or exceed) rising private sector wages. And huge infrastructure costs that may or may not be fully funded by existing taxes (income) or royalties.

    2) A more controlled pace of development through either higher royalties, or limiting supply of projects to develop (bidding up purchase price). This might be described as the Peter Lougheed approach. Can still result in boom/bust , but not to the same extent.

    The Norway comparison is not really equivalent as developing offshore light sweet Brent crude not nearly the same.

  3. There is a pretty simple reason why other Provinces care about how Alberta spends its oil revenue, because we live in the same country and have to live with the consequences. As a British Columbian all I have heard for the last decade from our teachers and other civil servants is how much they could get if they lived in Alberta and demanding parity with their peers in Alberta. For professionals in demand (nurses and doctors) it has meant we have to spend more to keep them here. If Alberta wants to spend like a drunken sailor on roads and infrastructure then have at it, but their unsustainable spending on civil servant salaries has hurt the rest of the country by setting a benchmark that every union outside Alberta is seeking to match.

  4. This blustering op-ed hardly makes a “case” for blowing Alberta’s resource dollars. If anything, it just highlights how the author and the economist he cites (Leach) are still clinging onto outdated theories they picked up in ECON 101. Cosh cites current spending as a much better way to direct money from resource extraction, under the presumption that future generations will simply be so smart that they will be creating economies out of thin air by the time oil runs out. Cosh, however, ignores some extremely significant points in making his argument. One is price fluctuations, which are wreaking havoc on the Alberta economy right now, and the second is the very technology he cites as being Alberta’s future saving grace when oil runs out. Technology is currently freeing up oil resources in other jurisdictions that are cheaper and cleaner than Alberta’s tar sands. Technology is also very quickly moving towards making fossil fuels obsolete, or at least far less ubiquitous than they are now. This imaginary future that Cosh looks forward to may come much sooner than he is seeming to imply, and something tells me things won’t have changed nearly as much as he is counting on by then. Furthermore, even if everything he wrote in this article were correct, he still hasn’t made a good case for blowing the money. As he notes, Norway’s fund is worth so much money at this point that it has become a self-sustaining economic behemoth. This means Norway’s oil resources will continue to pay off indefinitely. This isn’t just money set aside for the privileged future generations; this is money that is generating wealth and prosperity now. Norway isn’t investing in this fund to the detriment of the current generation, as Cosh seems to be implying. The current generation in Norway is just as well off as Alberta’s; in fact it’s arguably better off in many ways. It’s quite likely that 50 years from now, when Alberta is completely out of oil, Norway will be generating more profit from oil extraction than they were when they were extracting it. Not only will they have more money to invest in the current generation, they will have ensured the future generation will be taken care of as well, regardless of what happens in the future. Alberta, on the other hand, at least if people like Cosh have their way, will hopefully have figured out how to create an economy from this mysterious technology Cosh and his counterparts rely on when making these ridiculous arguments. It’s worth noting, however, it’s likely the Norwegians will have figured it out too at that point, and will have a lot more capital to invest in it, whatever that magic technology may be. It’s unbelievable to me that backwards thinking like Cosh’s even has a platform any more.

    • Exactly, Fitz.
      You have made a counter-argument for every assinine comment Cosh has made.
      If Ralph Klein and followers had paid any attention to Peter Lougheed’s Heritage Fund and how it would have worked if they had followed his lead, the province of Alberta would be standing head and shoulders above every other province in Canada.
      Here is BC we should be doing the same thing. We have squandered our lumber resources; we don’t charge nearly enough for all the holes in the ground that mining companies have left; and we allow fracking in the Peace without taking into water contamination, etc. And now we want to contaminate our fishing industry by allowing tankers through our coastline after some rich SOB’s have built the Northern Gateway Pipeline.

  5. Spend it as it comes, the motto of the working poor.

  6. Mr. Nash’s attitude is quite stunning. Natural resources should not be considered spending money and the idea that oil and coal is something that won’t be needed in the future is ridiculous. Future technologies will hopefully be able to make use of these resources more efficiently and mining activities less harmful environmentally. But suggesting it won’t be needed is silly.

    The focus for any society should be the long term sustainability of what they are doing presently. History has many examples of societies that failed because of unsustainable resource management, perhaps Norway has paid some attention to that fact.

    • You referring to stylish former CBC anchor Uncle Knowlty, the recently retired NBA MVP guy, or game theory beautiful mind guy?

      Maybe a combination?

  7. Entire article missed the mark. Liberal writers all seem to think that oil economics is as simple as, ‘how much does oil cost?’, while ignoring the issue of taxes and costly regulation (finical management). So if they think that way about that, then you cannot expect them to get anything else right either. Oil prices did not make us poor: The very liberal politics of that woman Redford, and the even more liberal politics of the NDP, is what made us poor, and is what is keeping us poor. And we were poor before Kline took over, and prices were ok then too. So oil prices is clearly not a deciding factor of our wealth at all. What made us rich was Kline’s wise management of the money that we had. when Kline cut the liberal social spending, and lowered the cost of producing oil, (overhead) Oil producers could actually afford to operate when they started new projects; and they had extra money to spend back into the economy. that is what made us rich. In other words, good Conservative money management; the same sort of frugal management that Harper was using to fix Canada from Justin’s dads costly social spending in the 70’s. But now that’s out the window, thanks to mr “budgets will balance them selves”, ‘so let’s max the credit cards, and spend like the world is ending’.

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