An Iraqi geologist named Farouk al-Kasim was an advisor to the Norwegian government Norway when it reorganized its oil industry in the 1970’s. According to al-Kasim, “fantastic self-restraint” is the key to success.
As a result of Farouk’s unpopular advice to restrict annual allocation of operating licenses, along with a decision to reinvest all oil revenue back into new oil and gas related R & D, Norway’s Government Pension Fund has grown to an estimated $664 billion dollars.
A report from the Canadian Center for Policy Alternatives suggests that federal and provincial leaders in Canada need to work together on resource development, all the while reducing impacts on the environment and moving towards a more sustainable oil and gas industry. This would mean a step away from privatization.
CALGARY – A new report has some advice for Canada when it comes to managing its oil wealth — be more like Norway.
The study from the Canadian Centre for Policy Alternatives released Thursday calls for a more hands-on approach both provincially and federally toward developing the resource, divvying up its riches and reducing its environmental impacts.
“Right from the beginning in Norway, there was a consensus that the government had to be in the driver’s seat, both as an owner and as a regulator and it had to be involved in all aspects of the industry,” Bruce Campbell, executive director of the group and the report’s author, said in an interview.
In Canada, it’s been much the opposite, with foreign and domestic private interests more or less in control since the start.
However, the Peter Lougheed government in Alberta did have a more active role in the industry in the 1970s, for example creating incentives for more petrochemical processing to be done in-province.
The report acknowledges the inherent differences between Norway and Canada — not the least of which is the decentralized nature of Canada, where provinces have control over resource development.
Nonetheless, Campbell said there are lessons to be learned from the Scandinavian country, which owns 80 per cent of its petroleum production and retains about 85 per cent of its net revenues.
“It doesn’t have to be the way that Canada and Alberta have chosen to go. There are alternatives and Norway points the way,” he said.
A striking difference between Norway and Alberta is the proportion of their respective oil wealth that has been socked away in savings funds.
Norway set up its Government Pension Fund Global in 1990. It is now the largest sovereign wealth fund in the world at $664 billion and continues to grow.
By contrast, the Alberta Heritage Savings Fund, set up by the Lougheed government in 1976, contains only about $16 billion.
The report calls on the federal government to create a resources saving fund, into which some proceeds from an excess profits tax would be placed. Part of that capital would be invested outside the country as a means to mitigate “Dutch Disease” — when resource development leads to a rise in currency values, harming other parts of the economy that rely on exports.
Campbell sees the returns of that fund being used for public infrastructure and social programs, as they are in Norway.
Jack Mintz, a tax policy expert at the University of Calgary, said Norway is viewed as the “poster child for good governance” and that the public has largely bought into its “disciplined approach.”
“The problem with Alberta is it’s never really done a good job in managing the natural resource wealth,” said Mintz.
“The last 10 years is a good example, where government spending went up much faster than growth in the economy, so a lot of costs got built into the government’s budget line.”
Norway had very high taxes before oil was discovered there and, unlike Alberta, has opted to keep them that way.
Alberta’s taxes are the lowest in Canada and even though there is likely to be a stream of red ink in the March provincial budget, Premier Alison Redford has said not to expect higher taxes.
Mintz said he expects low natural gas prices and discounted oilsands crude to persist, so the budget squeeze won’t let up any time soon.
That leaves three choices — keep running up deficits and hope that things get better eventually, cut spending or raise taxes.
“In a way I kind of feel sorry for the politicians right now because I don’t think Albertans really know what they want,” said Mintz.
“The math doesn’t add up, so some sort of decision has to be made.”
The CCPA wants Alberta to bring its income and sales taxes into line with other jurisdictions, so that other provinces aren’t forced to compete and weaken their own ability to provide public goods and services.
If Canada taxed its citizens the way Norway does, Campbell figures there would be another $200 billion annually flowing into government coffers.
Norway, the report says, has one of the lowest levels of income inequality in the world. On the flip side, the gap between rich and poor is growing among Canadians, especially in Alberta.
And fiscal disparities have also widened between provinces, something the CCPA wants to see addressed through strengthening the federal equalization program.
The report says it’s “unacceptable” that in a country so rich in oil, the eastern region relies on crude from abroad. The CCPA supports proposed eastbound pipeline projects as a near-term solution.
The group wants to see a surtax based on part of the price difference between cheaper Alberta and pricier foreign crudes that could be invested in renewable energy development.
On tackling climate change, the report says, Norway is leaps and bounds ahead of Canada.
While Norway has plans to become carbon neutral by 2050, Canada’s and Alberta’s efforts have been “embarrassingly inadequate.”
The CCPA wants to slow the pace of bitumen development, toughen environmental regulations and put a “meaningful” price on carbon, among other things.
The group is urging Ottawa — not Alberta, as has been the case so far — to take the lead on establishing a national energy strategy to “break the cycle of interminable federal-provincial bickering.”
“‘Letting the market decide will only make inequality worse and bring the looming climate crisis closer,” the report said.
“Doing nothing, on the ground that Canada is too decentralized and fragmented a federation for such a policy to succeed, is also a cop-out.”
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