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Finance Minister Jim Flaherty moved yesterday to end a much-criticized tax break for oil sands producers, but softened the blow to the industry by providing a long lead time for the changes.

In his budget speech, he announced the government will phase out the accelerated capital cost allowance that allows oil sands producers to quickly write off the cost of their investment for income tax purposes.

The tax break was introduced by the Liberal government in 1996, when oil prices were low, in an effort to stimulate investment in the vast tar sands of northeastern Alberta. But with the price of a barrel of crude now hovering around $60 (U.S.), the Conservative government decided the tax break was no longer necessary.

Alberta Finance Minister Lyle Oberg had personally appealed to Mr. Flaherty to leave it intact, but yesterday, provincial officials said they needed to study the details of the tax change before commenting.

Mr. Oberg complained that the federal Conservatives had targeted Alberta with a triple whammy: the end of the income trust tax break that was so popular in the oil patch, the threat of significant new costs to combat climate change, and the elimination of the accelerated capital cost allowance.

But John Bennett, executive director of the Climate Action Network, yesterday slammed the Conservative strategy on the oil sands tax break as "devious."

"They are making it look like they are doing something when they aren't doing much," Mr. Bennett said, in reference to the lengthy phase-in.

"They are letting all the horses out, and then they're going to close the corral."

One industry analyst said many of the companies will see only a marginal impact on their rates of return, given that they will be able take advantage of the tax break until 2010.

Instead, it will be phasing in an accelerated capital cost allowance to promote investments in greener technologies, including so-called carbon capture and storage projects that would capture the greenhouse gas emissions from projects like the oil sands and then bury those gases underground.

To soften the blow to the oil industry, Mr. Flaherty said that any major project that began construction prior to budget day will be grandfathered, and the companies' capital spending will still qualify for accelerated write-offs.

For the multibillion-dollar projects that have been approved but construction has not yet started, companies will be eligible for accelerated writeoffs until 2010, and then the rate will be reduced to the normal capital cost allowance by 2015.

Finance officials estimated that the tax break costs Ottawa an average of about $300-million a year, depending on construction activity in the oil sands. The change announced yesterday will not boost federal revenues until after 2010 at the earliest.

At the same time, Ottawa will spend $60-million over the next two years to create a major projects management office to streamline the regulatory approval process for major resources projects.