Economic analysis

Four questions for the Alberta NDP about its approach to energy

University of Alberta professor Andrew Leach in conversation with the Alberta NDP about its energy policies

(Tyler McKay/Shutterstock)

(Tyler McKay/Shutterstock)

With the Alberta NDP enjoying a strong showing in election polls, Andrew Leach, professor of energy policy at the University of Alberta, asked the party to shed light on its policies for the energy sector. The party’s response was compiled by campaign spokeswoman Cheryl Oates. Go here to read Leach’s analysis.

Q: First, on resource royalties. You’ve stated that you will establish a commission, but you’ve said little about the terms of reference for this commission, other than that it would seek to implement “competitive, realistic royalty rates as prices rise, to ensure full and fair value for Albertans as the owners of the resources.” Would you tell me how you define a realistic royalty rate, and what you think is a fair share? Furthermore, Alberta’s oil-sands royalties currently share risks on capital and operating costs through collecting a net revenue royalty. Is this something you’d consider changing?

A: The resources we have in Alberta belong to all of us, and the return we get on resources needs to be discussed publicly and regularly, openly and transparently. Peter Lougheed urged all Albertans to “think like owners,” yet his PC successors have done the opposite. The Resource Owners’ Rights Commission (composed of independent experts) that we have proposed would independently evaluate the issues surrounding the full and fair return to Albertans from the development of our resources. Among other considerations, that evaluation would examine comparative returns in other jurisdictions with oil and gas resources. It’s possible that the commission could review royalty rates and come back with a conclusion that, in fact, Albertans are getting a fair share of royalties.

Albertans need to have confidence that we are getting a proper return, and that confidence does not exist today because of the lack of accountability and transparency under the PC regimes in recent years; people have been kept in the dark.

The commission would also examine the long-term sustainable management of our energy resources and the opportunities for the upgrading of raw resources, with the goal of keeping more jobs in Alberta.

The terms of reference for the commission are outlined in Bill 209 (PDF).

We’re not looking at major changes to the arrangement of risk-sharing.

Related: Paul Wells in Alberta: Could Jim Prentice really lose?

Q: Second, on resource processing. You’ve suggested that you’ll amend royalties to encourage more processing of resources here in Alberta. Would you expect this to take the form of a higher royalty for raw bitumen, a royalty deduction for capital and operating costs of refineries, or some other measure? You state that these policies would create jobs through upgrading. Do you expect that they would be incremental to extraction jobs, or is it implicit that we’d see some slowdown in extraction with a substitution of more activity in refining?

A: We believe that, with the right policies and different priorities within government, we can work with industry to build value-added capacity right here at home.

In 2007, the royalty review commissioned by the PC government of the day recommended that Alberta introduce an “upgrader royalty credit” with the objective to encourage the construction of upgrading facilities. Again, this topic will be considered by the Resource Owners’ Rights Commission.

The PCs are shipping processing jobs to Texas. We want to partner with our industry here to provide long-term, sustainable, mortgage-paying refinery jobs, in addition to extraction jobs.
Regarding what forms any possible incentives would take, we would seek recommendations from the Resource Owners’ Rights Commission to ensure industry remains healthy and decide what would work best in the current economic climate.

Related: Prepare for the Alberta election with the latest analysis on our hub

Q: Third, on greenhouse-gas-emissions policy, you’ve been very vague. Your platform states only that you “will take leadership on the issue of climate change and make sure Alberta is part of crafting solutions with stakeholders, other provinces and the federal government.” [NDP Leader Rachel] Notley has said we need to have a hard conversation about greenhouse-gas-emissions policies in this province, so I’m curious where you believe our policies should take us. What should Alberta’s targets be, or how should we compare ourselves to other provinces? How should we improve our performance?

A: First of all, we have proposed a number of very specific actions that would reduce greenhouse-gas emissions in Alberta. We agree with Jim Prentice’s commitment to phase out coal-burning electrical generation and we will act on that, while he may not. Our platform also includes the formation of a revolving loan fund for home and small-business energy retrofits, a commitment for broad energy-efficiency policies and for a renewable energy strategy. We will also move unallocated funds from carbon-capture and -storage programs in order to boost investments in public transit.

We know that Alberta has avoided the large issues that are involved in a long-term plan to reduce greenhouse-gas emissions from the oil and gas sectors. As a result, our international reputation has suffered, many energy projects are surrounded by conflict, and we are not seen as playing any positive role in the Canadian and international discussions and negotiations. Many major corporations are ahead of the Alberta government on these issues, and are seeking a provincial policy that will provide long-term guidance and stability.

It is our intent to establish Alberta’s presence in a meaningful way, with discussions and negotiations with industry, public interest organizations, and other governments as efforts on greenhouse-gas-emission reductions are intensified. We need to be at the table for important climate-change discussions, like the recent Quebec City Climate Summit, which Jim Prentice didn’t think was important enough to attend. Being absent is not in the best interests of anybody in Alberta, including our energy industries. PC policies to date have either been failures or broken promises, and Alberta’s credibility on the issue is now close to zero. That must change, and it is our intent to change it with both the specific actions noted above, and with serious dialogue and participation in Canadian and international processes that will lead to firm strategies and actions.

Related: Colby Cosh and Paul Wells take your questions on the Alberta election

Q: Finally, you talk about investing incremental royalties from your changes into the Heritage Fund. That fund has traditionally served two purposes: investing in Alberta economic activity, as well as saving for future generations of Albertans. Would you expect the funds to be saved, and invested outside of Alberta, as is the case with Norway’s fund? Or would you see them invested in Alberta?

A: It is our policy that 100 per cent of incremental royalty revenue, above the sums earned by Alberta under the current royalty regime, will be invested into Alberta’s Heritage Fund—an important first step to achieving the original vision for this fund.

We won’t deplete the increased revenue going into the fund. Instead, we will allow investment earnings to compound over time, using capital to grow capital.

Rather than focusing on where this money will be invested, at this point, we are focused on building up the Heritage Fund for the long term. The PCs have failed to carry through with the vision that Peter Lougheed demonstrated when he formed the Heritage Fund and, in many ways, they have abandoned Lougheed’s legacy for their own short-term political objectives. A healthy Heritage Trust Fund ensures that our children’s and grandchildren’s future is protected. That is the legacy of Peter Lougheed that we will uphold. In the short term, we do not see a need to alter investment strategies, but we will ensure that a public and transparent review of the investment strategy will regularly take place.

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