Economic analysis

Four questions for the Wildrose Party about its approach to energy

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

Written off as good-as-dead by many after their leader, Danielle Smith, along with 10 MLAs, crossed the floor to the governing PC party in the fall, Alberta’s Wildrose party has staged a stunning comeback under new leader Brian Jean. Andrew Leach, professor of energy policy at the University of Alberta, asked the party to shed light on its policies for the energy sector. Go here to read Leach’s analysis.  And go here for Leach’s Q&A with the NDP.

Q:  First, on oil sands, Brian Jean has been very critical of oil sands management since he left the CPC caucus in Ottawa. In a pre-election interview with the Financial Post, he stated that, “It’s the wild west up in Fort McMurray … too many licences have been handed out to developers competing with each other on all levels, driving up costs, requiring the import of labour from across Alberta and around the world, while forcing workers to spend hours a day commuting to oil sands plants before 12-hour shifts.” Jean went on to say that, “the pace of the oil sands doesn’t need to be sporadic … it needs to be well-planned. We have to have a long-term vision.” Would you give me a sense of what that vision is, how it would be implemented, and what it would mean for oil sands development, royalties, and employment in Alberta?

A: Brian’s views on the pace of the oil sands development come from his experience growing up in Fort McMurray and later representing that community as a federal MP. While the pace of development was and should always be driven by market forces, it is incumbent upon the province to ensure that the infrastructure on the impacted community keeps pace with enormous demands on health care, roads, housing and the other amenities of life all other Albertans expect and demand. Of particular concern to Brian Jean is the impact on the community of tens of thousands of fly-in/fly-out workers who pay no taxes in Alberta. They put tremendous pressure on the already strained infrastructure of Fort McMurray but make no contribution to the Alberta or municipal treasury. He’d like to see the province facilitate an industry-led committee to work on how to manage these difficulties better, finding ways to keep the income taxes paid here and plan better for growth.

As for the long traffic delays workers in oil sands plants north of Fort McMurray experience in both directions going to and from work while trying to live normal lives in the community, his main point is make Albertans and oil sands developers understand the personal sacrifice people in this community make to unlock the wealth in this massive resource and the lifestyle sacrifices they endure in the process.  The fact that the province held back the release of Crown land for so long, preventing the community from growing and causing hyperinflated housing costs, is another example of how the province has failed to plan adequately for oil sands growth.


Q:  Your platform states that you would “ensure the Alberta advantage extends to value-added industries so that investment in these valuable jobs is not artificially constrained by uncompetitive regulations or tax rates. What regulations or tax policies would you change, when, and what do you expect the impact of these policy changes would be?

A:  Experience in this province tells us that the best means to encourage diversification or value-added industries is to have an attractive tax and regulatory environment for investment, not government intervention.

There should be no barriers and possibly broad based tax-driven incentives to add value to Alberta’s primary hydrocarbon resources prior to sale. Finding a site and getting a project through the review and approval process should also be more efficient in Alberta so as to pose no barrier to good investments. While most of the focus has been on bitumen upgrading, there are currently other opportunities in petrochemical processing using terribly undervalued products like propane and butane as feedstock. But we must note that adding value to raw oil and gas through primary processing cannot be regarded as a replacement for pipelines. When refining bitumen into consumer products such as gasoline or diesel fuel, every barrel of bitumen generally yields more than one barrel of finished product. This means that the takeaway capacity through pipelines would have to be even greater. So a value-added resource strategy must be accompanied by an undiminished commitment to market access by pipeline, not rail.


Q: On GHG policy, you’ve been very vague.  Your platform states that you will “ensure Alberta’s standards for CO2 emissions are in line with national and international standards.” Does that imply that you will seek to strengthen current regulations? What international standards do you think best apply to Alberta?

A:  As a global player in hydrocarbon development, Alberta is also subject to global pricing. Alberta’s situation is particularly challenging in that Alberta is the largest oil-producing jurisdiction in the world without greater access to tidewater (the only pipe in place so far is Kinder Morgan TransMountain which is facing opposition to expansion). Operating costs in Alberta are also higher than many other regions due to strict regulations on worker protection, environmental protection, high wages, and the seasonality of activity caused by spring breakup. The Wildrose view on GHG emissions and levies will be congruent with that of other producing jurisdictions. However, for Alberta to introduce GHG levies on its oil and gas production while competitors do not will lead to a situation that make Alberta even less competitive, something the Wildrose party is not prepared to do. That said, there still exists numerous opportunities for regulators to work with industry to ensure all other aspects of oil and gas production are as efficient and environmentally benign as possible. While there is certainly more to do, it should be noted that Alberta is already recognized as a world leader in the areas of protecting the air, water, ground, wildlife, people and communities.


Q: You talk about investing budget surpluses in the Heritage Savings and Trust Fund, and have pledged that, “through saving 50 per cent of future surpluses, a Wildrose government would grow the Heritage Savings and Trust Fund to $200 billion in 20 years.” Would the mandate of this fund remain the same or would you see it invested solely outside of Alberta? Would the fund be used to finance economic diversification within Alberta, and if so can you provide an example of the type of investment you would find valuable

A: While the contingency account is a rainy-day fund, Wildrose considers the Heritage Fund to be more like a retirement fund for our oil and gas resources. These resources belong to all Albertans, and the PC record of spending virtually all resource revenues and saving none for the future is an indictment. The fact that they are now racking up debt for future generations compounds the injustice.

The reason we have not saved more is not because Alberta needs higher taxes. It is because PC governments have spent all our royalties and the interest form the Heritage Fund and got us to a point where Alberta spends $5 billion to $8 billion more than neighbouring provinces on a per capita basis. If we were spending $5b less, we would have no revenue problem, even with oil at $50 per barrel.  Wildrose believes the overarching order of business for Alberta’s next government is to get our spending under control so that in a price climate such as the current one, we can still get by with nothing more than a small withdrawal from the contingency account.

50 per cent of ensuing surpluses going into the Heritage fund, with interest left to compound, would build the Heritage fund to $200b in 20 years. Had previous governments resisted spending the income generated by it, the Fund would be well over $200b today and we would see revenues of $15 billion to $20 billion from it most years.

Wildrose does not support politicians using the Fund for “diversification” initiatives. The Fund’s goal should be to grow to such a size that its income can actually replace our oil and gas revenues once they begin to permanently taper off.

Every politicized attempt to divert the principal and interest for present day use, as Minister Horner’s legislation from a few years ago did, and as Jim Prentice is suggesting doing again, undermines that goal. The PCs have neglected the Fund and future generations enough.  Wildrose will ensure the Fund is for our heritage, not to fund overspending in years of record revenue.