A long, long time ago, dinosaurs roamed the earth, many of them in Alberta. Around 65 million years ago, fortunately for us, they died.
This was fortunate because there’s now global demand for their remains, which we’ve discovered can be used as fuel for cars and other handy devices. OK, fine, I’ll admit that the oil we dig up in Alberta was generated more from ancient marine life and vegetation than Albertosaurus bones, but dinosaurs are way more fun to write about. And the moral of the story remains true: Albertans own a vast pool of "dino remains" and enjoy the economic benefits associated with that ownership.
Alberta is sitting atop an estimated 170 billion barrels of oil. Our oil reserves are the third largest in the world, behind only Venezuela and Saudi Arabia. Our production of nearly two million barrels a day provides jobs to many Albertans, economic activity that drives our provincial and national economies and generates important revenue for the provincial government.
The government, as Albertans’ collective representative, gets to determine how best to use that money. It could fund social programs; it could be returned to Albertans as dividends; it could be saved for future generations; or it could be transferred into capital assets through infrastructure spending. Unfortunately, in my mind, previous governments too often used that money to fund ongoing social programs while habitually reducing the amount of personal and corporate income taxes collected.
It’s important that we remember that we are the owners of that oil reserve. Through our government, we charge energy companies for the rights to explore for the resource and then retain for ourselves a portion of the revenue they generate, through a very complex royalty regime.
Determining what royalties to charge is a balancing act, to be sure. Charge too much, or create too many burdensome regulations, and companies might not invest in our province. On the other extreme, the government needs to ensure that it gets a fair rate for the owners of the resource and that the regulatory conditions protect the environment and health of its citizens and workers.
So how do we know we’re striking the right balance? How does any owner know that they’re getting the best price for a product they sell? It’s a classic microeconomic problem that has profound impacts on the macroeconomic situation in Alberta and all of Canada.
Last year, the Alberta government brought in $8.9 billion in nonrenewable resource revenue. Should we, or could we, have brought in more? There are obvious implications for teachers and for public education.
The last time the government seriously tackled this question was in 2007. A panel struck by Premier Ed Stelmach looked comparatively at the price and regulatory environments for oil extraction around the world. It determined that Alberta had relatively low royalty rates and favourable conditions, but that Alberta’s product was costlier to extract and process.
The Our Fair Share report concluded that Albertans were not receiving their fair share and that royalty rates and formulas had "not kept pace with changes in the resource base and world energy markets."
Unfortunately, by the time the recommendations could be implemented, the 2008 global economic collapse and sinking oil prices moved the government to reverse any rate increases.
As prudent owners, we should be constantly reviewing the market and the prices we charge for our products. Well, as it turns out, we have a chance to do that in a meaningful way right now, as the province has struck another review panel, which is seeking input from all Albertans over the next couple of months.
Go to letstalkroyalties.ca to learn more and to find out ways that you can have your input heard. There are an online survey, opportunities to remit longer-format submissions and information on community engagement sessions coming up around the province.
As owners, it’s important that we provide our perspective, as there is no doubt that the oil companies and other private interests will be providing theirs, and the decisions made will have a large impact on education for many years.
I welcome your comments—
contact me at email@example.com.