At least 40 percent of Alberta’s projected deficit for fiscal year 2015/16 could be eliminated by simply returning to the royalty formulas in place prior to 2009, according to the findings of a new fact sheet released today by the Parkland Institute, written by Jim Roy, former Senior Advisor for Royalty Policy for Alberta Energy.
Contrary to claims that the new royalty regime put in place in 2009 would bring in an additional $2 billion annually, Roy found that Alberta instead collected $13.5 billion less in royalties in the five years after the change was made than it would have under the previous formula. The most significant drop was in natural gas royalties, which fell from an average of $6.3 billion annually in the five years prior to the change to just $1.1 billion annually in the five years after 2009.
“The royalty formula changes implemented in 2009 by the provincial government have already cost the provincial treasury more than $13 billion dollars,” says Roy. “At a time when Albertans are engaged in a provincial election campaign focused on what to do about Alberta’s budget woes it seems absurd to ignore the disastrous role that changes to the royalty regime has had on Alberta’s finances.”
While the drop in royalty revenue from conventional oil and oil sands were not as dramatic, Roy found that there are still significant problems with oil sands policy in the province. Low royalty rates relative to other jurisdictions and the price differential between Alberta oil prices and that of European and US jurisdictions means the Alberta treasury missed out on an estimated $8.4 billion between 2009 and 2013.
“We can’t get those billions of dollars back, but what we can do is stop the headlong rush to get more oil out of the ground while oil prices remain at historic lows,” Roy argues. “There are many reasons why a more measured approach to Alberta’s natural resources makes sense, but given current fiscal realities, surely the fact that we’re leaving billions of dollars on the table ought to be one of the major debates in the second half of the election.”
The Parkland Institute is a non-partisan public policy research institute in the Faculty of Arts at the University of Alberta. “Billions Forgone: The Decline in Alberta Oil and Gas Royalties” is available for download on Parkland’s website at http://parklandinstitute.ca.