Alberta gave $5B in royalty discounts to oil & gas sector since 2015

Through royalty adjustments, the provincial government reduces royalty rates for fossil fuel companies, which they hope will encourage new oil and natural gas reserves and improve the longevity of already existing reserves.

I recently wrote a news story on how the fossil fuel sector contributes less in corporate income tax revenue in Alberta than 11 other sectors do. I also wrote on how fossil fuel royalties made up only 15.5% of Alberta revenues over the last 13 years.

It’s clear from these two articles that the fossil fuel industry doesn’t contribute as much to provincial coffers as we’re led to believe.

However, this is only the money that the government takes from them (or, I guess, in this case doesn’t take from them). It doesn’t include how much the government gives them.

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Not only does the provincial government not receive revenue from the fossil fuel sector that are relative to their being the largest single economic producer in the province, the government also gives them money in the form of subsidies, including tax breaks, funding, grants, and so on.

In fact, a report published last year by Environmental Defence Canada in partnership with the International Institute for Sustainable Development found that the Alberta government subsidized the fossil fuel sector to the tune of $1.6 billion a year, on average, between 2015 and 2018.

Plus, the report points out that given programs and budgetary measures that the government had announced, the fossil fuel industry can expect another $8.6 billion (or more) of taxpayer-funded subsidies between now and 2026.

And that’s just based on programmes and budgetary measures announced by the NDP; that estimate doesn’t include any UCP initiatives.

Take royalty adjustments, for example.

Through royalty adjustments, the provincial government reduces royalty rates for fossil fuel companies, which they hope will encourage new oil and natural gas reserves and improve the longevity of already existing reserves.

Here’s what these reductions looked like last year, according the the Alberta Government’s Energy Report, which was released last month.

Natural gas deep drilling$354.437
Shale gas$68.758
Horizontal oil$9.207
Incremental ethane extraction$14.489
Enhanced oil recovery$15.985
Horizontal gas$0.949
Proprietary waiver$2.001
Innovative energy technologies$0.300
Otherwise flared solution gas$0.151
Deep oil exploratory well$0.000
Coalbed methane$0.004
Total royalty adjustments$465.982
in millions $

When you add it all up, it comes to nearly half a billion. Last year’s total royalty revenues came to $5.9 billion. Without the discounts, Alberta’s royalty revenue theoretically could’ve been $6.403 billion.

Here’s how these reductions compare to annual reductions over the last 5 years.

Natural gas deep drilling$573.000$879.800$1,071.600$676.798$354.437$3,555.64$711.13
Shale gas$65.800$142.500$199.900$159.384$68.758$636.34$127.27
Horizontal oil$140.900$95.800$87.000$44.594$9.207$377.50$75.50
Incremental ethane extraction$25.200$22.400$63.400$28.849$14.489$154.34$30.87
Enhanced oil recover$21.000$19.800$21.500$21.252$15.985$99.54$19.91
Horizontal gas$16.400$14.000$10.300$6.883$0.949$48.53$9.71
Proprietary waiver$3.800$2.600$2.300$2.817$2.001$13.52$2.70
Innovative energy technologies$4.500$2.900$0.300$0.000$0.000$7.70$1.54
Otherwise flared solution gas$0.200$0.200$0.200$0.135$0.151$0.89$0.18
Deep oil exploratory well$0.100$0.100$0.100$0.012$0.000$0.31$0.06
Coalbed methane$0.020$0.020$0.007$0.006$0.004$0.06$0.01
Total royalty adjustments$850.920$1,180.120$1,456.607$940.730$465.981$4,894.36$978.87
in million $

Fossil fuel companies paid an average of nearly $1 billion less a year in royalty revenues thanks to these adjustment programmes. In total, the province missed out on nearly $5 billion in royalty revenues over that 5-year period.

In a 2018 article, The Narwhal’s James Wilt showed that the 4 companies that produced Alberta’s oil in 2017—Suncor, Cenovus, Canadian Natural Resources Limited and Imperial Oil—generated $10.14 billion in profits yet paid only $2.37 billion in royalties.

That’s an effective royalty rate of only 23.37% of profit.

For comparison, Saudi Arabia takes 85% of profit and Norway takes 80% of profit.

Royalty reductions aren’t the only subsidy. Tax breaks are another one. As is industry funding, such as carbon capture and sequestration, Alberta Innovates, Emissions Reduction Alberta, Oil Sands Innovation Fund, Methane Emission Reduction Program, Keystone XL expansion, oil well cleanup, and so on.

And this is only subsidies from the Alberta government. Federal subsidies are much higher, with a 2019 article also by The Narwhal claiming that the federal government paid out $60 billion in fossil fuel subsidies in 2015 alone.

Not only are we not receiving as much from the fossil fuel industry as we should be (through royalty rates and corporate income tax), but we’re giving them more money, effectively cancelling out some of the revenue that they do generate for the province.

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By Kim Siever

Kim Siever is an independent queer journalist based in Lethbridge, Alberta. He writes daily news articles, focusing on politics and labour.

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