Regressive Resource Revenue Distribution

 

It’s soon going to be budget day in Alberta. There will undoubtedly be weeping and gnashing of teeth regarding the size of the deficit from the opposition parties with accompanying calls for spending cuts a la Klein 1993 and there will undoubtedly be various rejoinders of both a nuanced and not-so-nuanced type. To be sure, borrowing for program spending is problematic. Yet drastic cuts can also exacerbate an economic downturn and so I believe Notley is right to try to hold the line on spending. There are numerous aspects of Alberta’s budget which make governing more expensive than other provincial counterparts. For example, public sector wages are higher than other jurisdictions in Canada. But these higher wages are the legacy of high wage inflation that comes with an overheated economy that Alberta experienced from 2001-2008 or so. In order to recruit competent employees, the public sector must offer competitive compensation to the private sector. Such wages are “stickier” than private sector in part because stability of wages and job security are a trade-off for wages lower than in the private sector where a premium is paid because of the lower job security. 

The more substantial challenge for Alberta’s fiscal policy is on the revenue side. Alberta has, for too long, been overly dependent upon resource revenue to fill the budgetary gap between revenues and expenditures. This phenomenon is also common to all administrations since the Leduc discovery in 1947 to varying degrees. For this blog post I will focus my attention on three administrations in particular: Lougheed, Getty & Klein. I want to make the argument that this budget gap is a serious problem, not because it is fiscally irresponsible, although I am sure that case will be made in the coming days, but because it is a highly regressive mechanism by which to distribute resource revenue to its owners – the citizens of Alberta. To make this argument, I will make three points. First, I will demonstrate how the revenue/expenditure gap serves as a mechanism by which resource revenue is distributed to Albertans. This emerges from my dissertation research where I am analyzing a number of pathways by which governments can and have distributed wealth to their citizens – from public wealth funds such as the Alberta Heritage Savings Trust Fund to dividend systems employed by Alaska. Second, I will illustrate how it is regressive. Finally, I will highlight the fact that its regressive nature is exacerbated by progressive taxation rates. The final point is meant to demonstrate the importance of this issue for addressing other policy issues – such as inequality in the Province – rather than simply as an issue about fiscal prudence.

For this post, a number of assumptions must be stated and set aside. The first assumption is that natural resources belong to the citizens of Alberta collectively and are managed, for that collective public interest, by the government on their behalf. This would also include future generations of Albertans – an issue with which my dissertation is concerned – but we will set that aside for the moment. With this in mind, we can argue that one of the decisions government’s must make is how best to distribute the wealth or rent that it receives from those resources to the owners of those resources – Albertans. Different mechanisms can distribute that money through different transfer pathways. For example, the Alberta Heritage Savings Trust fund is one such mechanism. Revenue is collected and set aside to be distributed to citizens at a later date. The most extreme version of this kind of savings fund is operates according to what is known as the permanent income theory whereby resources are treated as capital and so 100% of the rent collected by the government is retained as financial capital in order to provide a continuous stream of interest income for the government in perpetuity. Lougheed, in setting up the AHSTF, only went with 30% of resource revenue. An alternative distribution mechanism is a dividend system such as that employed by Alaska. This transfer mechanism distributes resource revenue directly to citizens on an annual basis. The prosperity bonus cheques distributed by the Klein government in 2006 are a poor form of this distribution mechanism primarily because it was a single one-off payment rather than a consistent policy regime established to operate over time. From an intergenerational perspective, both policy choices are valid as a means of distributing money to future generations. What is key is that they conceptualize future generations differently. A government fund policy choice conceptualizes future generations as future residents of Alberta. Regardless of their origins, whoever lives in Alberta 50 years from now is entitled to the benefits of Alberta’s resource wealth. The dividend policy conceptualizes future generations as future descendants of the present generation of Albertans. Regardless of where they reside 50 years from now, whoever is a descendant of THIS generation of Albertans is entitled to Alberta’s resource wealth. While I don’t want to focus on the intergenerational distribution of resource wealth, this point remains important because it differentiates between public and private mechanisms of wealth distribution. The dividend system is a private mechanism for wealth distribution and requires the families themselves to save and distribute that wealth to their descendants. The government fund is obviously the public option. One could compare government run vs private pension savings regimes as analogous.

Highlighting the private wealth distribution mechanism allows us to see another means by which the government distributes money to its citizens, namely by using resource wealth to fill the spending/expenditure gap in the government’s overall budget. This allows the government to provide high quality and a high quantity of government services while maintaining an artificially low taxation system. If we remove the non-renewable resource revenue from the government budget, we see the gap that emerges on a per capita basis in the chart below. Note that this accounts for the Alberta Heritage Fund by reducing the gap when money was saved and adding that to later years when that money was taken from the fund to pay for expenditures. This is why the deficit from 1976-1983 is significantly lower than any other period.

 

 

Tax Gap

What we see is a pretty consistent use of resource revenue to fill a budget gap. To be clear, this illustrates what the government’s deficit would be without non-renewable resource revenue. Some years the government was running surpluses, some years deficits, but without non-renewable resource revenue the government doesn’t run a single surplus from 1970-2006.

Averaging over each premier’s administration we get the following tax gap in 2002 dollars.

Average Lougheed  $(1636.67)
Average Getty  $(2,788.76)
Average Klein  $(1,450.02)

 

For comparison, the current 2015-2016 Alberta budget numbers had a tax gap of approximately $2934.22 in 2002 dollars putting us just slightly above the Don Getty average. Like the Getty era, Notley has inherited a budget based on oil at $80/barrel when oil is nowhere near that number.
The purpose of all this is to make one simple point: this tax gap serves as a de facto transfer of resource revenue to Albertans via foregone taxes that would otherwise be paid. My purpose is to not argue for what the cause of this tax gap is – i.e. whether it’s a spending problem or a revenue problem – but simply to argue that spending more than you take in and using resource revenue to fill all or a significant portion of that gap transfers money to the citizens of that jurisdiction. In other words, Albertans are currently receiving approximately $3000 per citizen in foregone taxes as though Alberta had a dividend system like Alaska’s set up.

However, when compared to both the public government fund transfer mechanism or the Alaskan dividend system, this method of distributing resource wealth to Albertans is highly regressive and, as a result, highly problematic. In Alaska’s dividend system, resource revenue is distributed to each citizen based with adjustments made for residency duration (so someone living in Alaska more than 10 years receives a greater amount that someone who just move there, thus mitigating the population influx that could occur from such a system). With Alberta’s system, the money does not go towards citizens but only taxpayers. So, anyone who does not make enough income to pay taxes in the first place, receives absolutely no benefit whatsoever. Granted they may receive government services which are primarily focused on low income individuals and households, but that is a separate issue. Moreover, the more you pay in taxes the greater your benefit of foregone taxes through this mechanism. Thus, higher incomes which pay a greater tax amount and, now with the reintroduction of a progressive taxation brackets, a greater tax rate receive a greater discount. If we assume that 1/3 of Albertans don’t make enough to pay taxes then the per capita tax gap increases to $3300 per tax payer. And that amount would be prorated for overall tax burden so an individual making $50k a year will receive a much lower portion of foregone taxes than an individual making $200k a year. (I will try to update this with actual numbers once the StatsCan website is back up).

There are numerous reasons why an over reliance on volatile resource revenue is highly problematic for fiscal stability and prudence. Imagine trying to buy a car or a house if your income fluctuated that much. What I have tried to illustrate here, however, is that this is also fundamentally problematic from an equity perspective as the wealth benefit from this low tax, high spending regime – aka the Alberta Advantage – much more than lower income individuals. The progressive tax rates introduced by the Notley government to address the inequality in the province actually exacerbate the regressive nature of this system and undermine the policy priorities of this NDP government. Whether it is through spending cuts, or an open and honest discussion about alternative revenue sources, or both, what is clear is that Alberta needs to stop relying on resource revenue as quickly as possible.

 

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Alberta Ministers Database

Found myself in need of a database of Alberta’s ministers for my dissertation. I wanted a source in particular that I could organize by Premier, but also sort by appointment date to see what and how ministries were shuffled and reorganized over the years.

Fortunately, Wikipedia has a page with a list of the Alberta ministers. However, it was cumbersome and organized by ministry only. I was able to export each table to a comma delimited text file and then convert that into excel. As my source was open-sourced, I feel it is only fair to share the database for others to make use of as well.

So I’m posting the excel file here.  Enjoy.

 

P.S. If you make use of it, I’d be interested to hear about it.  Add comments below.

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And life continues…

So it’s been a while since I’ve updated this thing and I realize much has changed since my last post. Primarily, I have successfully defended my dissertation proposal and am now ABD&F (All but Dissertation & French – out dept has a language requirement that I’ve been continually putting off. Time to check the box.). 

Looking back over the past failed proposal, this time has been good. I realized my original proposal was more a 10 year research agenda not a proposal for an original piece of research for an apprentice honing his craft. As academics we always want to do the most ground breaking research and change the world. But very few dissertations are or do. The central criterion is “is this an original contribution to knowledge”. That’s a much more humble target for one to achieve. 

In that light, my dissertation is now essentially 1/4 of what I originally proposed. I had wanted to compare Alberta and Norway with regard to intergenerational non-renewable resource governance. I wanted to cover both the costs and the benefits of the resource in order to develop a more holistic understanding of intergenerationallu equitable resource governance in both jurisdictions. The problem was that in order to do that I would have to cover fiscal policy, tax regimes, royalty regimes, saving funds, local environmental policy and climate policy in two jurisdictions with a lot of differences. That list right there gives me 12 balls to juggle, not withstanding other issues like nation vs sub-national jurisdiction, federal vs unitary country, political culture, social movements, and so on. The one thing my supervisor kept saying was “make it manageable”. 

So here I am. I am no longer covering Norway and, despite climate change being what drew me into questions of intergeneration justice, have dropped the “costs” side of the balance sheet as well. My focus is now on intergenerational issues of non-renewable resource wealth governance in Alberta. 

The second thing is that I have also signed up for my 3rd Ride2Survive. It is a 388 single day bike ride from Kelowna to Delta, BC raising money for the Canadian Cancer Society. It is a wonderful event that has changed my life in a number of ways. First, yes it got me hooked on cycling. Second, it taught me the perseverance and determination in ways I never understood. When I first signed up, the biggest ride I had done was 28km. That group trained all of us up so that my first year I rode the whole ride. That taught me that seemingly impossible goals are possible when you plan properly and keep working at it. Something that has proved very useful in the PhD program. Third, it has connected me to a wonderful community that, even though I am currently in Edmonton, I still feel very much a part of. We are all doing what we can to make a difference in the world and this crazy ride is just one of the ways. If you would like to donate you can do so here.

I’ll write more later, but just wanted to give that little synopsis. 

Now, back to my french homework. 

Je suis un petite poisson!

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A new lease on life…

I had a bad day yesterday.

I had my candidacy exam and I failed.

Needless to say there have been a lot of tears. And a lot of support from many friends and family both near and far.

My dissertation proposal sought to look at Alberta and Norway’s governance of oil and gas resources from an intergenerational justice perspective. The primary research questions of the proposal were as follows:

  • To what extent did Alberta and Norway each address or fail to address the concerns of intergenerational equity with regard to oil and gas policy?
  • What factors contributed to their success or failure?
  • What lessons can be drawn from these cases about the creation of intergenerationally equitable oil and gas policy?

There were two distinct components to my proposal: a normative component and a social scientific component. The normative component sought to look at a broad number of policy areas through an intergenerational justice lens. I wanted to understand what intergenerationally just policy looked like in a very holistic manner recognizing the numerous issues that could potentially impact future generations. The second part of the dissertation sought to understand and explain the conditions and factors that lead to or impeded the intergenerational equity of those policies. In other words, I wanted to understand a) what intergenerationally equitable policy looked like, and b) what impediments are in the way of intergenerationally equitable policy being adopted. On the face of it, that seems like a perfectly reasonable dissertation. The first problem, however, was that I didn’t have enough conceptual clarity about my own understanding of what intergenerational justice actually means. I had identified various ways in which one COULD assess intergenerational equity, but I didn’t take the next step to try and define how I would want to assess intergenerational equity. The second problem was with or without that theoretical clarity, evaluating all of those policy areas and understanding all of the factors that shaped those policy areas could very easily be a lifetime worth of work rather than a single dissertation. Without clarity on those issues the committee felt, rightly so, that it would be a disservice to me to approve the proposal and have me lost in the weeds.

Towards the end of the first round of questions, my supervisor made the point that rather than making the dissertation about intergenerational justice, the dissertation could be looking at the historical development of two specific policy areas – royalty regimes and wealth funds – with an eye towards intergenerational equity. This project would be a simpler, more focused, and thus more manageable version of my dissertation that would be fairly straightforward as a piece of social scientific inquiry. I expressed openness to the idea and as I was about to leave to let the committee deliberate I expressed that I had an interest in a career in the public service rather than academia. Thinking aloud I suggested that my supervisor’s proposal might be better suited to a public service career. One of my committee members disagreed. He said (and I’m paraphrasing cuz it was a bit of a blur) that the challenge for public servants isn’t being well versed and an ‘expert’ in a particular historical era, but the ability to apply complex theoretical issues and constructs to real world problems. He raised the illustration of David Mowat who is currently chairing the Royalty Review Panel here in Alberta. He said that when asked what the objectives of the panel are, David replies that the panel is seeking to “optimize” the royalty regime for Alberta. But if pressed on what criteria “optimization” refers, he cannot answer. That is what government needs. But that, also, is the bigger challenge.

I posted on Facebook about my situation. I expressed that I had failed and that I faced a significant question about my future. I knew that I could re-write the proposal in a more manageable way, focusing on the historical account of royalty regimes and wealth funds as expressed by my supervisor. I knew I could finish the PhD IF I so choose. But I had already been thinking about a career in the public service and had applied for a few jobs already. I had, in effect, one foot out the door as I was working on my dissertation proposal. After posting about my situation on Facebook, I took a bath. I was trying to relax and spend a bit of quality time with my two daughters. But I kept thinking about my future, and the choices that lay ahead of me. I thought about quitting and just applying for public service jobs that may be out there. I thought about re-writing my proposal as my supervisor suggested in order to make my project as manageable as possible in order to complete my PhD. But then a thought came to me.

Thinking about that comment, as benign as it may have been for that committee member, inspired me. It also gave me a new attitude for thinking about my dissertation. Thus far, because of the imposter syndrome that infects so many academics, I had been worried about writing a dissertation proposal that would not fail. I had been worried that I might miss something and so I dutifully identified and catalogued as many relevant components as possible without the ability to sort through all of those factors and synthesis them into a coherent whole. My proposal sought to be everything to everyone on a committee comprised of public policy specialist, political theorist, critical theory comparativist, and an economist. By trying to be everything to everyone, my proposal became unwieldy and incoherent.

Now I have, quite literally, been given a new lease on life. Rather than writing a proposal that I am afraid might fail, I can write the proposal I want to write and IF it fails, so be it. To use an overused cliché, I have the confidence to “leave it all out on the field” as President Obama/Bartlett said. If they approve me, great. If not, then I at least I can say I tried. I still have SSHRC funding for another year.

So what is MY proposal idea?

Here it is:

This new proposal will outline a dissertation that will take the intergenerational justice literature and convert that into a framework that will help guide policy makers about the intergenerational equity of policy proposals. It will identify the key issues that must be included in an assessment of intergenerational equity. While I do not at this time know what they will all be, I do have one example of what that might look like. One issue that must be decided is how to put boundaries demarcating who counts as future generations. Is the next generation sufficient or must we think 7 generations into the future? The challenge is that the further out we look, the more uncertainty with which we must contend. There will be other issues of course, and the framework will help policy makers sort through those additional complexities that may not necessarily be front and center. The idea would be to develop a framework that would be applicable to various governments and jurisdictions. Intergenerational equity will look differently in Alberta than it will in Norway, and this framework would allow for those unique contextual factors to shape what the policy should look like. I will then apply this framework to two specific cases which have the potential to impact intergenerational equity here in Alberta: Alberta’s new Climate Change panel recommendations and Alberta’s upcoming Royalty review.

If it is the big theoretical questions that energize me, then it is the big theoretical questions that I will succeed or fail by. I will not lower my expectations in order to pass. Doing so would be a cop-out and a poor example to set for my daughters. Now I’ve got some work to do.

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Democratic Rationale for a Carbon Tax in Alberta

The royalty review and climate change panels currently underway in Alberta have the potential to radically alter the role that the oil sands play in Alberta’s economy. The royalty review is designed to assess what my constitute a “fair share” of the oil wealth. Albertans collectively own these resources and it is fair to inquire whether we are collectively getting the best return, much the same way individuals will continually evaluate their investment portfolios. Alternatively, the climate change panel is designed to find the best ways to address the costs of the extraction and use of these resources so that we don’t place those increasingly costly burdens on future generations. However, there has, up to this point, been minimal discussion about significantly altering Alberta’s sources of revenues.

Over the past decade, Alberta has relied on resource revenue for 20-40% of its total revenue. This is problematic, but not just for the reasons that have typically been put forth. When discussing the problem of over reliance on resource revenue, the central argument has been that such revenue streams are not reliable due to the volatility of the price of oil. This volatility makes it extremely difficult for governments and government departments to be fiscally responsible from year to year as they typically increase spending or implement tax cuts during the prosperous times, while slashing spending in the lean years. This exacerbates the already volatile budgets, creates inefficiencies within the public service, and does a disservice to tax payers. Jim Prentice was right that we needed to get government off the “oil revenue rollercoaster”.

All of this is well and good, but there is another compelling reason why Premier Notley should transition the Alberta government away from dependence on resource revenue: democratic accountability. The basic logic of democratic governance is that elected officials make governance decisions, implement policies to enact those decisions, and are held accountable by the citizens that elect and pay for those decisions through elections. This process establishes accountability linkages between elected officials and the electorate. However, if oil revenue supplants tax revenues collected from citizens the result is that the accountability linkages are no longer between citizens and elected officials, but between the oil industry and elected officials. Elected officials implement policies that keep the industry happy and thus their revenue stream secure, rather than implement policies for the good of its citizens. When Jim Prentice presented his budget earlier this year that proposed various tax increase across the board except for corporate taxes, and when you see that the Progressive Conservatives donor list is largely composed of corporations rather than citizens, you understand to whom the PCs were accountable. Such a situation is undoubtedly an erosion of our democratic institutions.

It is not that we should not use any resource revenue, but it must not be of such a quantity that the maintenance of that revenue stream can supplant other competing interests. We need to find sources of revenue that are reliable and maintain proper accountability linkages between our government and its citizens. Assuming Albertan’s don’t want our social services cut by one third (yes there are some spending cuts that could be made, but not enough to close the gap entirely), we would need to find a source of revenue to fill this gap such as increases to various existing taxes, the introduction of new taxes such as the currently anathema sales tax or a carbon tax. All of these have various trade-offs associated with them. For the sake of argument, and because it is one possible outcome of the climate change panel, let’s explore what a carbon tax might look like. When British Columbia introduced its carbon tax they made it revenue neutral meaning there were correlated cuts to income taxes. This is good economic policy: tax the things you don’t want (carbon emissions) more and tax the things you do want (income) less. In fact, the BC government cut income taxes more than the carbon tax brought in. In comparison, Alberta has subsidized its low income tax levels with resource revenues. By implementing a carbon tax it could use that revenue to maintain Alberta’s already low income taxes while filling the volatile resource revenue gap. The resource revenue could then be saved in the Alberta Heritage Savings Trust Fund for future generations while other revenue could be placed in another savings fund from which the government could draw a steady stream to spend on infrastructure and other capital spending projects to help diversify the economy away from oil and gas. This would have the added benefit, democratically speaking, of re-establishing the accountability linkages with all Albertans and not just a select group.

**UPDATE**

In discussions after posting this, Andrew Leach rightly pointed out that a carbon tax, especially in Alberta, would still result in a significant amount of money coming from the oil and gas sector and thus keep the Alberta government dependent on that revenue stream. Additionally, a carbon tax would negatively impact the amount of royalty revenue the government would take in.

An alternative to a carbon tax, which would be a clearer example for my argument from a democratic perspective, would be a sales tax. This would completely severe the dependence by the government on money from the oil and gas sector for the purposes of everyday budgetary program spending. To be clear, this post was originally about shifting revenue sources and looking at various options including both carbon and sales taxes. I chose to focus on the carbon tax for two reasons. The first is that the carbon tax is already in the news as a possible outcome of the climate change panel and has received support from the oil industry. The sales tax remains anathema to Albertans and has already been struck down as a possibility by the Notley administration. The second is that, while not as ideal as a sales tax for the democratic argument, the carbon tax has additional benefits (such as reducing GHG emissions) which are socially beneficial. Thus I was taking other benefits into consideration. This weakens the argument about about democratic accountability, but alternatively provides an additional argument for a policy proposal that is a real possibility for Alberta.

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Cenovus Christina Lake Tour

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I had the fortunate opportunity to tour the Cenovus Christina Lake In Situ Facility. For those unfamiliar with oil sands terminology, In Situ is a fancy word for “in its place”. This technology drills into the ground and inserts two sets of parallel pipes that travel through the bitumen layer up to a kilometer. The top pipe pumps in steam that melts the bitumen, which can be as hard as a hockey puck. The second pipe, which is placed below the steam pipe, then sucks up the oil as it is melted. The benefit is that this process has a much lower environmental footprint when compared to they mining process commonly associated with the oil sands.

The tour began in Edmonton as Cenovus flew 50 University of Alberta students and faculty up to Conklin airport, approximately 370km northeast of Edmonton. We were able to see the luxurious accommodations the Cenovus camp boasts including a recreational room, movie room, and music room. Their overriding message to us was that Cenovus did its best to make this a “home away from home”. The accommodations were so impressive that I overheard a number of tour participants say “maybe I should drop out [from UofAlberta] and come work here”. Perhaps this kind of camp demonstrates why Alberta has the lowest High School completion rate…

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After a brief overview of what Steam Assisted Gravity Drainage or SAGD was, we got on the bus to tour the rest of the facility. Our first stop was a well pad. This is where the pipelines go into the ground to melt and suck up the bitumen/oil over a square kilometre.

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Our next major stop was to see the steam generators and the ‘water treatment plant’. Our tour guide highlighted the fact that the main component of the SAGD process is basically a water treatment facility with oil as the by-product. When the oil returns from the well pad it is an emulsion of oil and water (think a vinaigrette salad dressing shaken up). They need to find a way to efficiently separate the oil from the water in order to reuse the water to generate steam, and pipe off the oil as a marketable product.

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Throughout the tour our various guides answer a multitude of questions from engineering to economics to the environment. They were generous with their time and patient with such a very large group of people. You could tell that they were dedicated to their work and committed to doing so in as safe as humanly possible with as little impact on the environment as possible.

Jon Mitchell (Cenovus’ Environmental and Sustainability lead) was telling us all of the things they do to lessen the impact they have on the environment. For example, they developed wooden pads that they can put down for heavy machinery to operate on in the swampy muskeg rather than needing to put down a gravel base for whatever bit of construction that needs to happen. They’ve made great advances to reduce the amount of water that they use per barrel. They’ve implemented mechanisms that cut NOX emissions in half. Throughout the tour, Cenovus staff was highlighting all the innovation that has gone on. The company, like many that hope to remain competitive, is constantly evolving. Yet here is where the rub is: Cenovus highlighted a number of micro issues they have worked on to make their work more efficient and less impactful on the environment, but the concern in the general public isn’t necessarily the “Steam to Oil Ratio” but the fact that the industry as a whole wants to double production capacity in 10 years. The question is how do you reconcile that macro level impact, especially in a context of climate change?

As we were flying home Andrew Leach asked me what my biggest take away was from the tour. I’m an environmentalist, I am worried about the impact that climate change is going to have on future generations, and I believe we need to transition away from fossil fuels. The facility is impressive with the amount of technology, resources, dedication, and innovation that goes on there. But all of that operates within a particular governance structure. That structure is what guides the evolution of these companies as they move forward. If pushes them to innovate in some areas and not others. The problem is, as Andrew put it, we [in Canada] have not had an open and honest discussion about our fossil fuel resources in a context of climate change. There has been fear-mongering on both sides. Whether it is about jobs (as though the oil industry were so fragile that some alteration to the regulatory framework would bankrupt them all) or unfairly targeting the oil sands in a world awash with fossil fuels.

We need a strong and robust climate policy in this country. We need to do our part as a member of the global community. A strong climate policy isn’t going to destroy the oil industry, it isn’t going to stop production and throw Alberta and the rest of the country into poverty. What it is going to do is provide some indication to the industry of what our priorities are, whether they are economic priority, social priorities, or environmental priorities. That regulatory structure will shape how these companies evolve over the next 10, 20, or 50 years. A strong climate policy isn’t going to destroy jobs; it’s going to change the jobs we have in this country over a long period of time.

My biggest take away from this tour? Let’s be serious about tackling climate change in this country. These guys are big kids and are definitely up to the challenge!

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Is Harper setting up the BC government to reject Northern Gateway?

The federal government accepted the Northern Gateway Pipeline Joint Review Panel’s recommendation to approve the pipeline project subject to its 209 conditions today. To many, this decision by the Harper Government to approve the project it has so emphatically been pushing is not surprising at all. What was surprising was relative lack of fanfare in which the announcement was released. As Jennifer Ditchburn noted, there was no MP, let alone the minister responsible, to make the announcement: just a simple press release four paragraphs long entitled “Government of Canada Accepts Recommendation to Impose 209 Conditions on Northern Gateway Proposal”.

In this release, the government highlighted the role of the (emphasized) independent panel in making the recommendation. It noted that this is another step in a long, thorough process. It urged Enbridge to now demonstrate how it will meet the 209 conditions, the independent panel put forth, as well as the additional work Enbridge has to do to “fulfill the public commitment it has made to engage with Aboriginal groups and local communities along the route” (ignore for a moment the fact that the “duty to consult” is 1) the Crown’s responsibility, not Enbridge’s, or 2) one would assume extends to Coastal First Nations that are adamantly opposed to the pipeline due to spill potential, and isn’t restricted to First Nation’s living along the pipeline Right-of-Way) . Finally, it stated: “It [Enbridge] will also have to apply for regulatory permits and authorizations from federal and provincial governments.”

All of this seems all well and good. Shortly thereafter, the First Nation groups stood up to voice their continued opposition and, to be clear, the “duty to consult” provision will likely be the most difficult hurdle for Enbridge to overcome. What was more intriguing for me was the response from British Columbia’s Environmental Minister Mary Polak. She noted that this was just the first of BC’s five previously stated conditions. She then went on to note that “the Federal government also highlights the fact that there are important permitting decisions that are properly the jurisdiction of the provinces.” Interesting.

What is interesting is that in no plausible scenario could Stephen Harper rejected the Northern Gateway pipeline given this government’s behaviour in backing the oil industry generally speaking, doing its best to discredit environmental opposition and going so far as to label such opposition “radicals” with an ideological agenda, and criticizing the Obama administration for delaying its decision on Keystone XL. Once the Joint Review Panel gave its approval – subject to its conditions – the door was wide open. The problem is the political opposition, not only within the “radical” environmental circles, but broadly speaking in British Columbia is increasing. 300 scholars signed a letter arguing that the Joint Review Panel was fundamentally flawed, particularly because it included upstream oil sands development as a benefit, while excluding the environmental and climactic costs associated with such development. Numerous polls have come out showing increasing opposition to the project (to be fair, the polls do vary depending on whether pro-pipeline or anti-pipeline framing is given to the questions, yet even the most pipeline friendly polling questions show 50% opposition). If Harper rejects the project based on political calculations, it looks bad, particularly to his base in Alberta. If he approves the project he potentially loses BC in the 2015 election, which doesn’t look bad, it is bad. The question is whether the Northern Gateway project has become such a political landmine that Harper has essentially written it off (knowing the likely outcome of First Nation challenges in court) and is searching for a way to reject the project, without him rejecting the project.

Enter British Columbia. It is at this point that the comments made by BC Environment Minister Polak seem much more significant. Opposition to Northern Gateway is significant. Christy Clark has issues five conditions which must be achieved in order for her to approve the project. One of them – “Ensuring British Columbia receives its fair share” – seems almost impossible given the structure of federal equalization payments. In either case, it is a way for Premier Clark to public look like she is saying “help me find a way to yes” when she knows, politically, that she’ll have to reject it anyway. If public opinion on BC is truly in opposition to the extent that it seems, and the Federal Government’s press release makes me think that it is, then rejecting the pipeline is a political win for Premier Clark. In addition, it would take the Northern Gateway off Stephen Harper’s agenda and let him focus his attention on other, less politically volatile, pipeline proposals. The emphasis of the provincial role in issuing permits by the federal government, and shortly thereafter re-emphasized by Min. Polak could very well be coincidental. Unless this is exactly what Stephen Harper wants.

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