Oil sands royalties aren’t big enough for Albertans, Parkland Institute argues

Steve Mertl
National Affairs Contributor
Daily Brew

With Alberta's provincial election in full swing, an Edmonton think tank is claiming the incumbent Progressive Conservatives have allowed the industry to short-change residents on oil sands revenues.

A report by the non-partisan Parkland Institute based at the University of Alberta says the Alberta government has received less than 20 per cent of the wealth generated by oil sands production since 1997, well short of its 35 per cent target, The Tyee reports. It says the industry has banked $260 billion in pre-tax profits since 1986, while the public has received less than $25 billion, or less than six per cent of the total value, even though Albertans own the resource.

"Albertans have never received more than 20 per cent of the rent in the tar sands, and since 1997 have averaged only nine per cent," says the Parkland report, entitled Misplaced Generosity.

The report, an update of work originally published in 2010, says that despite a provincial deficit, "the Alberta government will forego some $55 billion in potential revenue over the next three years as a result of overly generous royalty cuts and the government's failure to meet even the modest targets set by previous administrations."

If the 35 per cent target set by former Conservative premier Peter Lougheed in the 1970s had been met, the report says, Albertans would have collected an extra $195 billion between 1971 and 2010.

The Conservatives have held power since Lougheed first defeated the Social Credit party in 1971. But the Tories under Alison Redford are facing their first serious challenge in four decades coming from their right. The Wildrose Alliance Party led by Danielle Smith sees the Conservatives as too moderate.

The Parkland Institute report says foreign-owned oil companies pay minimal royalties until they recoup their original investments in the massive oil sands projects. Once they've earned their capital and building costs back, the royalty percentage rate rises with the price of a barrel of oil. However, the royalty is based not on the international oil price but on a price on the tarry, un-upgraded oil sands bitumen.

Alberta's weak royalty regime, aimed at encouraging production, has been criticized by the province's former auditor general, Fred Dunn, The Tyee reported. Royalty expert Jim Roy also told The Tyee that while he disagrees with some of the report's calculations, the institute's conclusion that Albertans aren't getting their rightful share of oil sands revenues is correct.

Neither the Conservatives nor Wildrose are talking about reforming the royalty regime in the election campaign, focusing more on how to spend oil revenues. Wildrose, for instance, is promising to revive direct payments to individual Albertans.

The New Democrats, in a fight with the Liberals for third place, have embraced the institute's premise.

"The Conservatives have left billions of dollars on the table and chose to charge some of the lowest royalties in the world," NDP leader Brian Mason said, according to the Edmonton Journal.

Mason said the NDP would boost oil sands royalties by 25 per cent while leaving them the same for conventional oil and gas, and for companies that commit to upgrading bitumen in Alberta.