Alberta Premier Rachel Notley announces the government's plans to not increase royalty rates.

Rachel Notley boosts her credentials as a pragmatist by accepting Tory royalty rates

If you were looking for evidence that Alberta Premier Rachel Notley is a pragmatist, we saw it yesterday. Backed by the members of the Royalty Review Panel, Energy Minister Marg McCuaig-Boyd and the 16 New Democratic Party MLAs from the Calgary region, Ms. Notley announced the Alberta government would not be increasing natural resource royalty rates.

The Royalty Review wraps up the second major review panel launched by the NDP after their win in the 2015 provincial election. The report from Alberta’s Climate Change panel represents a more meaningful shift by the government by phasing out dirty coal fired power plants and introducing a carbon tax. As the Climate Change report represents sweeping change, the royalty review panel embraces the status quo.

It is not the time to reach out and make a big money grab. That just is not going to help Albertans over-all right now, and so I feel quite confident that this is the right direction to take,” Ms. Notley told the news conference in Calgary yesterday.

The decision to keep royalty rates the same is a 180 degree turn from the feisty NDP opposition we knew ten months ago, which claimed Albertans were not getting their fair share from royalties under the old Progressive Conservative regime.

It was also a sharp contrast from the words we heard from the chairman of the province’s previous royalty review. In 2007Bill Hunter wrote that “Albertans do not receive their fair share from energy development. Albertans own the resource. The onus is on their government to re-balance the royalty and tax system so that a fair share is collected.”

If you were paying attention to the moderate language Ms. Notley and NDP cabinet ministers have used when discussing royalty rates since forming government and launching this review panel in mid-2015, you might be less surprised.

With the government’s messaging in mind, it is not shocking that the NDP did not choose to ignore the panels recommendations and impose sweeping changes that many Albertans, including myself, felt were needed. It is my belief that our resource royalties should have been raised to ensure that Albertans are actually getting their fair share when oil prices are high. This report does not do that.

While the decision to accept the status quo on royalty rates will certainly be a divisive issue within the NDP caucus and party, it demonstrates that Ms. Notley is not a partisan ideologue.

The NDP would have faced a severe political backlash from its right-wing opponents, the energy industry, and thousands of Albertans nervous about the state of the economy if they had jacked up royalty rates yesterday. In the short-term, with the current economic situation in mind, it is a smart political decision to keep royalty rates the same, but in the long-term it represents a missed opportunity for Albertans.

Closing the door to royalty increases will also not help solve the revenue shortfall caused by the drop in the international price of oil. After enjoying decades of high oil and natural gas prices, the old conservative government became over dependent on resource royalties to fund the province’s operations budget. With international oil price dropping, the new government now faces a significant shortfall in revenue.

By accepting current royalty rates, the government has also rebuked months of hyper-partisan rhetoric and nasty attacks from Wildrose leader Brian Jean, who claimed the review was risky, ideological and would “not be independent or fair.” It is troubling that Mr. Jean and his party are opposed to even the concept of reviewing Alberta’s resource royalty rates, something that should be done by the Alberta government on a regular basis to assess whether our rates are competitive.

Creating mechanisms for increased transparency around royalties is one positive outcome of this review. The report recommends the annual publication of a capital cost index for oil and gas wells and the costs and royalties paid for each oil sands project. The Auditor General has reported numerous times that the old Conservative government was not properly tracking whether Albertans were receiving the royalty rates they were owed.

Significant new investment in the Heritage Fund when oil prices do rise again will pay off for Albertans in the long-term. In their 2015 election platform, the NDP campaigned on the promise that “100% of incremental royalty revenue, above the sums earned by Alberta under the current regime, will be invested into Alberta’s Heritage Fund.”

Many Albertans will disagree with the report’s claim that Albertans are currently receiving our fair share from resource royalties. Others will claim it will limit the government’s options for dealing with the revenue shortfall. But, for better or worse, it does show the evolution of Ms. Notley and her party from leftish opposition into a moderate government. For better or worse, yesterday we saw Rachel Notley boost her credentials as a pragmatic Premier of Alberta.

11 thoughts on “Rachel Notley boosts her credentials as a pragmatist by accepting Tory royalty rates

  1. Sam Gunsch

    The Crossroads royalty review leaves AB’s take very low compared to what AB’s history was under Lougheed, based Anielski’s analysis at the links below.

    And as you point out, the author’s of Our Fair Share 2007 report that Stelmach commissioned said AB’s take was low.

    Hopefully some economists will explain why the differences in evaluation?

    ==========

    per Anielski using this: ‘Most oil-rich nations of the world collect a royalty tax on the percentage of the market value of oil and gas produced.’

    Socreds averaged 17.8%
    Lougheed’s: 27% with a high of 37.7% (note: sky did not fall.)
    Klein: 15.2%
    Redford: 9.1%

    http://www.anielski.com/alberta-continues-to-have-a-revenue-problem/

    And then under Prentice = 4.8%… found in Anielski’s post with the graph here: http://www.anielski.com/what-i-advise-premier-rachel-notley-on-monday/

    ( I was unable to copy and paste graph.)
    ============================

    Anielski’s graph depicts the Alberta take of oil/gas value
    based on the approach below:
    http://www.anielski.com/alberta-continues-to-have-a-revenue-problem/

    excerpt: Most oil-rich nations of the world collect a royalty tax on the percentage of the market value of oil and gas produced. I’ve run the numbers for Alberta using the Canadian Association of Petroleum Producer statistics for the ratio of oil and gas royalties (net of credits) collected by the Alberta Government to the total value of oil and gas producer sales between 1962 and 2014.

    Reply
  2. Sam Gunsch

    Foundational questions raised by another analyst of AB royalty regime at also seem at odds with Crossroads headlines.

    Detailed numbers showing AB is the lowest in it’s take.

    What the heck?

    And this analyst argues that Albertans have not yet been given adequate explanation of royalties so that we can participate on an informed basis.

    http://www.bgrodgers.com/wp-content/uploads/2016/01/RoyaltyInTrust16.01.07.pdf

    Alberta Royalty Review Issues Summary

    Alberta Royalty Policy and the
    Notion of “In-Trust”as a Principle of
    Natural Resources Management

    by Barry Rodgers

    I noticed the link in today’s Climenhaga blog.

    Reply
  3. Julie Ali

    I am amused at this evaluation of the total capitulation to the oil and gas industry by Notley and crew:

    http://daveberta.ca/2016/01/rachel-notley-alberta-royalty-review/

    For better or worse, yesterday we saw Rachel Notley boost her credentials as a pragmatic Premier of Alberta.
    ********************************

    This review was a way for the Notley crew to turn away from fair royalty rates and simply prove that that oil and gas industry is the real government in Alberta.

    In Alberta, it appears no matter who we elect, we can only get the same sort of political junk that has gone on for the past 44 years which appears to be the alliance of government with the oil and gas industry for mutual benefit while the people are left out of the cosy relationship. How else can citizens interpret the about face by the Notley who was haranguing the AER employees prior to election and now has the AER has her Edmonton office pals? How else can citizens interpret the failures of the NDP to ensure environmental regulations with reference to fracking be strengthened with inclusion of true protections to water such as inclusion of fracking tracers in fracking cocktails. How else can citizens interpret the failure of the Notley crew to do any legislation other than what would benefit themselves (Bill 1) or the special interest groups that they are beholden to?

    It’s a failure of governance yet again and we see it clearly. The government uses these review panels to justify failures to act much like the hospital and health care system now use outside medical specialist consultants to justify simple conclusions that they want for complex problems that cannot actually be solved with one stop thinking.

    The problem with the expedient way which is the way the Notley crew have chosen is that the problem of decreased provincial revenues is not solved.

    Just accepting a review panel’s chatter without doing the hard work of thinking about what this means for every Albertan is a cop out and a failure in leadership. I don’t think that we should –as Albertans accept this sort of whitewash and even praise for failures to do the right thing in terms of generating profit for citizens.

    Why is it that it is perfectly fine for the oil and gas industry to enjoy obscene profits but the thought of the public enjoying equivalent profits— is such an anathema in Alberta?

    Why is it that we cannot do the work of resource development by ourselves?

    Why are we hostage to foreign oil and gas companies who would be our owners in every way if we think in terms of colonization?

    But of course these are unpopular thoughts in Alberta. We have been taught to think of the oil and gas industry as our saviours and job generating machines.
    Has anyone also thought of the costs of the industry?
    What is the price of clean water? What will we drink when our water is contaminated? What will we do when water is taken for fracking and can’t be returned to the water cycle? What about the time when water will scarce and we won’t be worried about the oil development but the lack of water? What then?

    The failures of all political parties is that of cowardice, and dissimulation rather than facing the facts of giveaway resource development and the reality that will inevitably be imposed on us that we have failed future generations by our subservience to the industry. The new reality that no one thinks about is that oil is not the most precious resource–it’s the water that is more important. The new reality is that there are finite reserves of water; this water is important not only for us but also for our kids and we cannot live the way we are living without there being consequences that we are all avoiding. Water will be used in amounts we are still not told about and will not be returned to the water cycle. This water is gone forever. And tons of fracking chemicals are being dumped deep below where the migration patterns are unknown.

    The failure of the oil royalty review panel was designed. I doubt we will get any panel saying the truth–that there needs to be better returns to the resource development. I doubt that any government will do more than the obsequious chatter we have heard as citizens for decades.
    Only Lougheed had the guts to do the right thing by citizens and his time is long gone.

    Ms. Notley is not the leader I expected.
    But neither were the premiers before her.
    We have no leaders right now.
    Just followers of the oil and gas industry.

    I am curious what would happen if we ignored this review and hiked the royalties. I wonder if the oil and gas industry would leave Alberta. Why don’t we try this and see what happens? I’d say this would be the evidence we need to determine if the oil and gas industry is indeed suffering in Alberta.
    Instead of determining if the industry is suffering Ms. Notley endorses the money grab of the oil and gas industry at the expense of citizens who (of course) aren’t allowed the same money grab:

    http://daveberta.ca/2016/01/rachel-notley-alberta-royalty-review/

    “It is not the time to reach out and make a big money grab. That just is not going to help Albertans over-all right now, and so I feel quite confident that this is the right direction to take,” Ms. Notley told the news conference in Calgary yesterday.

    Reply
  4. Gary Feltham

    Dave provides a positive spin on the outcome of the royalty review. Instead of stating that the NDP is a moderate party I would have said that the NDP aren’t quite as ideological as they had previously appeared. Would a moderate government have raised taxes in a downturn or raised the minimum wage to the highest level in Canada or refused to cut government spending? The NDP had previously claimed that Albertans weren’t getting their “fair share” so they brought in a royalty review, which lead to job losses and deferred/cancelled business investment.

    NDP supporters can spin the results as much as they want but the bottom line is that the royalty review was yet another example of NDP inexperience and economic illiteracy.

    Reply
    1. jay

      Yet, Gary Feltham, you don’t explain how the NDP are supposed to deal with a revenue crunch with less revenue coming in than Ralph Klein had while he was making his “economically literate” cuts. He was careful not to reduce corporate taxes, royalties, and income tax until after oil prices went up. Currently, Brad Wall doesn’t seem to have eliminated Sask’s sales tax–wouldn’t that be the” literate” thing to do while the economy is hurting?

      Assuming that “job losses and deferred/cancelled business investment” aren’t due to the plunge in oil prices (as they are everywhere else in the world), how do we know they haven’t been due to the inflammatory rhetoric of the opposition and Postmedia (which has a much worse credit rating than any province in Canada, by the way). Talk about spin.

      Reply
      1. Gary Feltham

        AtIf the NDP were as pragmatic as Dave claimed they are then the NDP would look at reducing program spending instead of just trying to find new ways to raise revenue. Studies show that the best way to promote medium-term economic growth is through reducing program spending instead of raising taxes. The NDP govt. of Romanow, a truly moderate govt., lowered program spending by ten percent. Given that Alberta’a program spending is about $1,300 per capita higher than the Canadian average this should be relatively easy to do.

        Reply
  5. Jerrymacgp

    As a lifelong New Democrat, I am heartily disappointed by this result. Yes, the price of oil is alarmingly low and jobs have been lost, but this is a temporary state that should start to improve in a year or 18 months. But the royalty regime is a long-term policy framework and needs to be structured accordingly.

    What we should have is a simple, 33.3% royalty based on the price of the resource, charged to the producer at the wellhead. The costs of exploration, drilling &/or extraction, should be managed under the producer’s corporate bottom line, i.e. in determining profit or loss for the purposes of figuring the business’ corporate income taxes, rather than subtracted from the royalty charged.

    We also need policies that protect the smaller players that employ so many Oilpatch workers, like well service companies, welders and pipefitters, survey firms, oilfield haulers and camp operators, and all the other little players in the biz. I’m not talking about the Suncors and Encanas, but the little two and three truck operations.

    This is not a New Democratic report.

    Reply
  6. Peter Moss

    This is the most ridiculous partisan ideological drivel ever written on Daveberta. ‘Rachel Notley boosts her credentials as a pragmatist?’ WTF? Is that supposed to be a good thing?

    The royalty report is a total and absolute capitulation to Big Oil. A complete cave-in by Rachel Notley. She went supine, fetal. The Alberta oil industry must have read Notley the riot act. How else to explain the report’s findings which are totally opposite to what everyone was expecting, and to the very purpose of the report?

    Every study by major think tanks in Canada have concluded just the opposite: that AB was NOT GETTING IT’S FAIR SHARE. Parkland, Pembina, CCPA, even the CD Howe Institute said AB royalty rates were among the lowest in the world and needed to be increased.

    This isn’t ‘boosting’ any credentials of the NDP, except that they are known to sell out their constituents. The sell-out has now reached new heights.

    The article’s positive boosterism is an absurd ideological spin on a baffling report that keeps Alberta stuck on a path of giving away its resources, and remains the laughing stock of most of the rest of the world, especially Norway.

    Reply
    1. Dave Cournoyer Post author

      Thanks for the comment, Peter. As I wrote in the post, I believe royalties should be raised and I do not believe Albertans are currently receiving their fair share.

      Reply
  7. Sam Gunsch

    http://thetyee.ca/News/2016/02/02/Alberta-Royalty-Review-Disaster/

    AB’s sad history of asset giveaways to industry.

    excerpt:
    In another submission, the economist Mark Anielski reported how the province would have benefited if it had kept Lougheed’s approach to a robust and healthy royalty regime.
    “Had Alberta maintained a 30 per cent royalty rate on the share of the value of the oil and gas produced between 1971 to 2014, Albertans would have generated $471.4 billion in oil and gas royalties. Had 50 per cent of these royalties been invested in the Alberta Heritage Savings and Trust Fund with annual average return of five per cent per annum we would now have an investment account worth over $481 billion.”

    https://letstalkroyalties.ca/wp-content/uploads/2015/11/11-11-2015_Historical-Analysis-of-Albertas-Oil-and-Gas-Royalties.pdf

    so…Alberta’s conservatives, and their partners/cheerleaders in the RW media/thinktanks, and Calgary’s corporate towers can take credit for missing out on over $450B.

    Reply

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