Alberta’s new government should target energy sector taxes and regulations

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Appeared in the Calgary Sun, May 9, 2019
Alberta’s new government should target energy sector taxes and regulations

Albertans opted for change in last month’s provincial election. Now it’s time for the new government to do what it was elected to do—improve the economy by regaining a competitive advantage over competing jurisdictions and making the province an attractive place for investors, entrepreneurs and businesses.

The oil and gas industry accounts for almost 30 per cent of the provincial economy. However, the industry faces many regulatory and tax challenges.

According to the Global Petroleum Survey 2018, which surveys oil and gas executives, Alberta has become increasingly less attractive for oil and gas investment, ranking 43rd in the world—a significant drop from 14th place in 2014. The most problematic policy areas for Alberta include the cost of regulatory compliance (which deterred 73 per cent of survey respondents—a sharp spike from 45 per cent in 2014), environmental regulations (which deterred 71 per cent), political stability (60 per cent) and taxation (59 per cent).

Put simply, in the eyes of investors, the key policy areas where Alberta has declined are primarily regulatory with taxation a close second.

For example, the percentage of respondents deterred by environmental regulations increased from 38 per cent in 2014 to 71 per cent in 2018. With regard to taxation in Alberta, there was a similar decline in investor perceptions between 2014 and 2018.

So why is this happening? Why are investors souring on Alberta?

There are many potential reasons for Alberta’s decline in investment attractiveness (although we can’t attribute the decline to any specific government action). That said, since 2014 a steady stream of announcements (both provincially and federally) have eroded the province’s competitiveness and shaken the confidence of investors.

For example, the provincial government broadened and raised the carbon tax, imposed a 100 megatonne cap on greenhouse gas emissions from the oilsands, committed to further regulate methane emissions, enacted a far-reaching Climate Leadership Plan that extends to virtually every sector of Alberta’s economy, and both Edmonton and Ottawa raised personal and business taxes. Meanwhile, U.S. states including North Dakota and Texas, which compete with Alberta for investment dollars, are benefiting from tax and regulatory reform.

Due in part to government action, several proposed pipeline projects were cancelled, including the Northern Gateway pipeline and the Energy East pipeline. The cancellations may have contributed to declining investor confidence in Alberta. Canada’s remaining pipe¬line projects—the Trans Mountain Expansion, Line 3 Replacement Project and Keystone XL—continue to face delays, mainly due to environmental and regulatory issues.

Clearly, Alberta’s economy is reeling from a combination of insufficient pipeline capacity and a barrage of new or expanded regulations and taxes. Investment is down, unemployment is up. Given the important role the energy sector plays in Alberta’s economy, easing the double burdens of taxes and excessive regulation should be a top priority for the new government—if its goal is to restore prosperity for Albertans by regaining a competitive edge over its competitors.