Skip to main content
editorial

Sometimes you have to wonder what Alberta politicians don’t get about the word “non-renewable,” as in “non-renewable resource.”

Yes, Canada’s luckiest province sits on one of the world’s largest reserves of oil and gas. Every premier from Peter Lougheed to the recently elected Jason Kenney has understood that much, and has also been aware that, when times are good and carbon-commodity prices are rising, you can rely on royalties to deliver the revenues that the less-blessed premiers of other provinces have to raise through the lowly device of taxes.

But when crude prices fall, revenues collapse. And the provincial deficit explodes.

Each time this happens, the province’s politicians vow to diversify Alberta’s economy. “Please God, give me one more oil boom. I promise not to piss it all away next time,” goes from a bumper sticker to being a campaign promise.

And then prices rise again, royalties rolls in, investment returns in the form of new projects, the deficit shrinks and, well, don’t make us finish the metaphor.

At this early moment in his mandate, at least part of Premier Kenney’s legacy is staked on that scenario, with little thought to what’s downstream.

Kenney Year One: An ongoing guide to the new Alberta

The British Columbia Court of Appeal gave him a boost last week when it ruled 5-0 that the B.C. government can’t block shipments of crude across its territory. And it’s highly likely that Ottawa will soon re-approve the long-delayed expansion of the Trans Mountain pipeline.

As well, 2019 has seen a surge in global oil prices, and a return to profit for Canada’s oil and gas sector.

There is also the fact that, even as the global fight against climate change accelerates, demand for oil is rising. Barring an economic downturn, Canada’s oil and gas industry appears headed for better times, at least in the short term.

And Mr. Kenney is right in there, ready to profit politically. He has already announced a decrease in corporate taxes that will cost the province billions of dollars in foregone revenues. His move to reduce the provincial carbon tax will further deprive his government of billions.

In spite of these new shortfalls, Mr. Kenney is promising no tax hikes, and a budget surplus by 2022-23.

How will he do this? In any other province, accountants would be shaking their heads. But Mr. Kenney is in Alberta; he is counting on new investments in the oil patch, new jobs and the taxes they generate, and rising oil and gas royalties.

Mr. Kenney, like every Alberta premier before him, argues that the province has every reason to want take full advantage of its resource bounty. He’s right. Oil is Alberta’s competitive advantage.

But while the Alberta economy can’t abruptly diversify away from oil, the provincial government needs to diversify its revenues – up to and including the Alberta apostasy of a sales tax.

Other provinces use a broad tax system to provide stable income. Alberta’s budget, in contrast, is on an oil yo-yo. The government feels more flush than it really is in good times, and more broke than it really is in bad. Since the 1980s, governments lucky enough to be in office at the top of the cycle have spent every last cent of oil royalties, and sometimes more than every last cent.

Alberta, unlike oil-rich Norway, has saved almost nothing from its non-renewable resource windfall, which is a mistake.

Worldwide, oil and gas face a complicated future. The urgency of finding alternatives to carbon-based fuels is going to increase as the expected consequences of climate change, such as longer forest fire seasons, become more apparent. Renewable sources of energy will likely compete more aggressively with carbon over the coming decades, putting downward pressure on crude prices.

Given that a quarter of Alberta’s GDP comes from oil and gas and related industries, and that the sector drives the broader economy (the vacancy rate in downtown Calgary offices is above 25 per cent), it’s easy to foresee challenging times ahead for the province – even if Mr. Kenney gets lucky and oil prices are high during his term in office.

A better legacy for Mr. Kenney would be that of the politician who had the foresight to see beyond the election cycle, and the courage to tell Albertans that now is the time to start putting away money for a very different future.

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe