A New Year’s Resolution for Alberta: Stop Mismanaging Oil Wealth

When you cover energy and environment issues day in and day out, you’re prone to having some pretty geeky fantasies.

Case in point: over the holidays, my mind wandered to considering what advancements in Canadian energy policy I’d put on my wish list for 2015. I could have rattled off five or 10 things, but one kept rising to the top.

If I could wave my magic wand and make just one thing happen on the energy and environment front, what would it be? I’d like Alberta to start managing its oil wealth more responsibly.

The context: as 2014 draws to a close, Calgary public-school officials are asking the province to cough up the funding required to complete eight new schools and two modernization projects on time.

Right now, one-third of Calgary’s schools are running at more than 90 per cent capacity. All of the projects that require funding have been announced by Alberta Premier Jim Prentice since he took office in September.

“With the recent fluctuation in oil prices, we’re concerned,” Calgary Board of Education trustee Amber Stewart told Metro Calgary.

Let’s take a pause and reflect on how totally absurd this is for a moment.

Alberta has been developing one of the world’s largest sources of oil for more than 40 years and yet Calgary’s schools are nearly overflowing and the province doesn’t know if it’ll be able to locate the cash to build new ones because — surprise! — the price of oil changed.

So what’s wrong here? For starters, new infrastructure shouldn’t be tied to the price of oil. Even the Fraser Institute and the Canadian Centre for Policy Alternatives can agree that the Alberta government shouldn’t rely on non-renewable resource revenue to fund its operating expenses. (For the best run-down on this topic, read Money for Nothing: The Province vs. Non-Renewable Resource Revenue by Alberta Oil editor Max Fawcett.)

Fawcett references a 2013 Fraser Institute report that said to treat oil revenues as “analogous to sales tax receipts, and to spend them on projects that provide a flow of present services, would be to engage in unwise capital consumption, a drawing down of principal. Intuitively, the present generation would be selfishly eating away at a finite stock pile of wealth, rather than acting as custodians of ­nature’s gifts on behalf of all future generations.”

Another report by former Premier Ed Stelmach’s Council for Economic Strategy noted: “The true Alberta advantage is not the ability to create a low-tax environment by underwriting a significant proportion of government services with funds received from the sale of energy assets.”

Despite generating almost $190 billion in non-renewable resource revenues since 1980, the value of Alberta’s Heritage Fund was just $17.3 billion at the end of 2013 — paling in comparison to both Norway and Alaska’s non-renewable resource savings.

So here we are digging up two millions barrels of oilsands per day, and Prentice is warning that tough times could lie ahead as oil prices plunge below $75 U.S. per barrel. The province has projected that there could be a $7 billion shortfall in revenues next year as a result of the price crash.

Could these fiscal woes offer the window of opportunity needed for Albertans to wake up and see how poorly their oil wealth is being managed?

It took millions of years for all of that oil to end up trapped in sand in northern Alberta. We only get one shot at digging it up. It’s high time we start getting that right (and getting that right would inevitably mean going slower and collecting higher royalties).

The first step in changing the way Alberta manages (or mismanages) the oilsands is to untether government spending from oil revenues, thus starting to dismantle the government’s reluctance to fairly regulate industry. Right now you have a situation in which the Alberta government is reluctant to bite the hand that feeds it.

As an added bonus, keeping one-time resource wealth out of the province’s operating budget could weaken the government’s chokehold over its citizens (pretty easy to stay in power when you’re dishing out $400 “prosperity cheques”) — not to mention actually creating a savings fund for the future.

In an interview with The Tyee, Terry Lynn Karl, one of North America's foremost experts on the politics of oil, offered some wise words on the impact of oil revenue on governments. 

"Let me be clear: the commodity itself is neither good nor bad,” she said. “But the excessive profit involved from what Adam Smith called 'reaping what has not been sown' has led to a concentration of power and influence that makes it exceptionally difficult to fight the negative consequences of hydrocarbon dependence.”

The first step to breaking up that concentration of power and influence? Stop borrowing from the future and spending oil revenue like it's going out of style.

So here’s a little new year’s resolution suggestion for Prentice and the Alberta government: show your commitment to managing the oilsands responsibly by weaning yourselves off relying on one-time oil revenues to provide government services. If you showed that kind of courage, there may be short-term pain, but Albertans 50 years from now would still be clinking their glasses in your honour.

Photo: Jim Prentice by Connect 2 Canada