The topic of pipelines is all the rage in policy circles of late, all because there appears to have been some recent progress on the Alberta to B.C. Coast pipeline plans, albeit via a non-optimal route. Before anyone gets too excited, there remain many roadblocks to this project, virtually all of them self-inflicted. Commentators have been critical of all of the so-called climate-related measures the federal Liberals are insisting the project include such as the very expensive carbon capture, utilization and storage (CCUS) plan as well as the fact that Canada imposes added costs on the industry such as the industrial carbon tax and methane regulations, among others.
An excellent analysis of these issues was recently done by tax expert Jack Mintz for the Fraser Institute as a means of quantifying the disadvantage to Canadian producers from these Canadian government policies. Mintz used a newly developed methodology to determine the impact of corporate, royalty and energy taxes and carbon policies on the marginal cost of oil, gas and power industry production in Alberta, Texas and New Mexico.
With respect to the requirement for the CCUS project, both the U.S. and Canada have subsidies that encourage this type of activity, but the subsidies do not improve cost competitiveness as CCUS costs are so high. Mintz also concluded that with the current Alberta industrial carbon tax at $95 per tonne, Alberta’s conventional oil is disadvantaged and the oil sands lose most of their tax advantage relative to Texas or New Mexico, while natural gas still remains competitive. As Alberta’s carbon tax is slated to increase, both oil and natural gas will be disadvantaged.
Another important fact that Mintz notes is that although most of the focus to date has been on the impact of the industrial carbon tax on the oil sands, the most significant impact will be on the electrical power industry. This important outcome has not received anywhere near the attention it deserves, as electricity prices will rise considerably and have an impact on the competitiveness of virtually all industries as a result.
As for the impact on the price of the various energy sources in Alberta, Mintz states that the cost of production of oil sands oil will increase by 19.6 per cent, conventional oil by 25.6 per cent, electric power by 35.9 per cent and natural gas by 39.1 per cent. These are big numbers that will substantially disadvantage Alberta energy producers relative to their U.S. competitors. This general conclusion is not a surprise, but the magnitude of it is greater than expected by many analysts.
We have now had over 11 years of punishment of our valuable oil and gas sector by the federal Liberal government. It appears that so many Canadians have been starved for positive news for so long, we now react effusively regarding any government that actually makes progress on an infrastructure project, however minor. Governments should be doing these projects as a matter of normal activity, not as if they are exceptional and treated as a miracle if anything actually gets completed. This used to happen in Canada without fanfare, but since the current incarnation of the Liberals and some ridiculous court decisions that have put all kinds of roadblocks in the way, we’re just not good at it anymore. Given all the evidence, it is amazing that the federal government seems determined to stay on this course.
Despite some apparent minimal progress on this pipeline, many barriers remain. The opaque and excessive approval process by the Major Projects Office has yet to weigh in, and the always problematic and protracted negotiations with First Nations have not begun. Such project delays and added costs have discouraged almost any participation from the private sector, such that taxpayers are now stuck with financing things that used to be routinely financed by private companies at minimal cost to taxpayers. The sum total of all of these influences is that we have the miserable economic performance and declining standard of living to show for government standing in the way of our prosperity.
She has published numerous articles in journals, magazines & other media on issues such as free trade, finance, entrepreneurship & women business owners. Ms. Swift is a past President of the Empire Club of Canada, a former Director of the CD Howe Institute, the Canadian Youth Business Foundation, SOS Children’s Villages, past President of the International Small Business Congress and current Director of the Fraser Institute. She was cited in 2003 & 2012 as one of the most powerful women in Canada by the Women’s Executive Network & is a recipient of the Queen’s Silver & Gold Jubilee medals.
