Oilsands

[myata]

An article in a recent issue of "L'Actualite" examined the costs and benefits (for Albertans and the rest of the country) of the oilsand development. One of the readers letters from the discussion that followed caught my attention. The author is claiming that there's substantial investment in this development from the whole country, while Alberta's government has steadfastedly refused to any sharing of revenues. Federal public investment comes through these three channels:

1. 100% tax on capital investment exemption for oid industry.

The cost is paid by all taxpayers of Canada;

Benefits are oil industry and provinces with significant oil industry;

Losers are the taxpayers in the provinces which have no significant oil industry (they pay their share of the capital tax exemption but receive no revenues from royalties or job creation);

2. Exemption for revenues generated from development of natural resources from equalization payments.

The cost is paid by taxpayers of provinces that have no significant natural resources revenues. E.g. Ontario has to pay higher, per dollar of real GDP, equalization payments, than Alberta; recepient provencies with no oil revenues receive less equalization payments.

Benefits provinces whose revenues are based on netural resource development;

Losers are the taxpayers of provinces with non natural resource economy (e.g Ontario, Quebec)

3. Environmental cost. In particular, development of oilsands generates 3 times the greenhouse gases of the regular oil extraction methods.

The cost is paid by all residents of Canada (in fact, the planet).

Benefits oil industry which is under no obligation to limit or even reduce the amount of generated greenhouse gases till 2020 ?

Of course, it is often claimed that there are benefits for everyone in the country through job creation and wealth redistribution. It is not clear if / how they outweigh the costs.

I do not immediately subscribe to this analysis as I haven't done much research on this issue. But it seems like an interesting topic. Is the current handling of the oilsand development on the federal level fair to all provinces and taxpayers?

[geoffrey]

1. 100% tax on capital investment exemption for oid industry.

The cost is paid by all taxpayers of Canada;

Benefits are oil industry and provinces with significant oil industry;

Losers are the taxpayers in the provinces which have no significant oil industry (they pay their share of the capital tax exemption but receive no revenues from royalties or job creation);

You know little about accounting or tax... eventually these would have been written off down the road. There isn't really a major net loss here for the coffers in the long run. It encourages development greatly in the short term. Capital rules are varied greatly by industry and application, it's unfair to pick on oilsands directly.

2. Exemption for revenues generated from development of natural resources from equalization payments.

The cost is paid by taxpayers of provinces that have no significant natural resources revenues. E.g. Ontario has to pay higher, per dollar of real GDP, equalization payments, than Alberta; recepient provencies with no oil revenues receive less equalization payments.

Benefits provinces whose revenues are based on netural resource development;

Losers are the taxpayers of provinces with non natural resource economy (e.g Ontario, Quebec)

Don't you dare for a second bitch about equalisation. We pay more than our fair share, deal with your failing economies and then you wouldn't need our money. Ontario may pay more per dollar of GDP, but Alberta pays 4 times as much per capita as Ontario. Natural resource revenues need to stay within the province as they are conversion of resources to money. It's not a value added situation. That money is part of the inherent value of the province.

It's off limits anyways, the constitution protects it.

3. Environmental cost. In particular, development of oilsands generates 3 times the greenhouse gases of the regular oil extraction methods.

The cost is paid by all residents of Canada (in fact, the planet).

Benefits oil industry which is under no obligation to limit or even reduce the amount of generated greenhouse gases till 2020 ?

Oh ok. When you deal with your cloud of poisionous smog back East, then you can complain to us.

Of course, it is often claimed that there are benefits for everyone in the country through job creation and wealth redistribution. It is not clear if / how they outweigh the costs.

Well, for the last half-year or so Ontario has been losing jobs. Alberta is providing those unemployed with new opportuntiy. Our economic growth and productivity out here provides much of Eastern Canada's employment... where these people bring our dollars back home and help revitalise the economies of Newfoundland and the Maritimes.

Not to mention that besides being only about 10% of the population, Alberta generates about 14% of the tax revenues of the country.

Oilsands development is a major part of that.

As well, oilsands and in general Alberta, provides Canada with a secure supply of fuel independant of international situations. The Americans are in a frenzy about foreign oil, we'll never have a concern especially with further development of pipeline projects in Eastern Canada to get them more Canadian oil instead of North Sea or Norweigen exports.

The export of our oil is a valuable tool in increasing our currency value and our current accounts balance. Sure, it hurts Ontario to have a high dollar, but it helps everyone else. And Ontario isn't a majority so we should really care less, right? That's their attitude towards us, so I don't see the harm in the RoC applying it in reverse?

I do not immediately subscribe to this analysis as I haven't done much research on this issue. But it seems like an interesting topic. Is the current handling of the oilsand development on the federal level fair to all provinces and taxpayers?

It is an interesting topic, and there needs to be some changes to oilsands development... especially in regards to resource royalties. But understand that this is a fine balance. Newfoundland over taxes and burdens their oil industry, and they've only have had limited success despite oil prices bring prime for off-shore development. Newfoundland has the resources of Alberta, but the wrong policy and economic mindset for success. Albertans are being ripped off slightly with resource royalties, and we do need to increase them on a sliding scale connected with oil prices.

[myata]

Your comments on #2 do make sense but #1 and 3 need further discussion. Is there a consistent federal policy to the extent which industry should qualify for the capital tax exemption and why (i.e. on which criteria)? Oil industry is already making stellar profits with the raise of price of oil. Giving them additional tax advantage w.r.t. e.g. manufacturing may create an imbalance (e.g. by inflating job growth in one sector at the expense of another). I'm not saying it is actually the case just a possibility. Another effect is the loss of the tax revenue, or, which is the same, direct federal investment in the oil industry. Is it justified, compared to other industries?

On #3, I agree that environmental cost of all industries must be measured and balanced. Ideally everyone should pay their share according to the volume of pollution they create. I'll try to find some numbers on the federal govt site.

[B. Max]

Actually Alberta contributes far more to this country than any other province, and far as most Albertans are concerned, it's away to much. Just scroll down until you come to Alberta is already spreading the wealth

http://www.projectalberta.com/

[geoffrey]

Your comments on #2 do make sense but #1 and 3 need further discussion.

Let's do it then.

Is there a consistent federal policy to the extent which industry should qualify for the capital tax exemption and why (i.e. on which criteria)? Oil industry is already making stellar profits with the raise of price of oil. Giving them additional tax advantage w.r.t. e.g. manufacturing may create an imbalance (e.g. by inflating job growth in one sector at the expense of another). I'm not saying it is actually the case just a possibility. Another effect is the loss of the tax revenue, or, which is the same, direct federal investment in the oil industry. Is it justified, compared to other industries?

Capital deductions for most industries can be easily found under GAAP or tax law. There are accepted terms of depreciation. It's just with the oil sands the government has pretty much waived that whole idea. You can write off the cost right away instead of over a time period.

The loss in revenue is only so much as the oilsands make more now than in the future, which is unlikely. Costs are going to come down with new technology and more production is coming online. Writting off the costs at the beginning doesn't really hurt our tax revenues in the big picture, and encourages development NOW, not 10 years down the road when the companies can afford the tax.

All industries completely write off their capital expenditures... just generally over time instead of instantly. This is common misconception. That factory that Toyota builds in Ontario is written off against revenues over say, 30 years. In the oilsands, it's instantly. It's a little more complex than that in the big picture, but that's about the best representation I can make without going into too great of detail.

It's only certain capital assets as well... it's much more complex than the NDP and the Ontario naysayers make it out to be.

On #3, I agree that environmental cost of all industries must be measured and balanced. Ideally everyone should pay their share according to the volume of pollution they create. I'll try to find some numbers on the federal govt site.

I disagree. I think all industries should be coerced (given incentives) to invest a similar amount into environmental measures. Shouldn't be a tax, unless the government is willing to spend it on environmental R&D... which they won't be.

[jbg]

I think Canada gains, as a nation, a certain amount of clout and status being an oil exporter. That itself is worth a lot.

[geoffrey]

I think Canada gains, as a nation, a certain amount of clout and status being an oil exporter. That itself is worth a lot.

It certainly gives us a considerbly sized carrot to dangle over the heads of the Americans.

[Ricki Bobbi]

An article in a recent issue of "L'Actualite" examined the costs and benefit2. Exemption for revenues generated from development of natural resources from equalization payments.

The cost is paid by taxpayers of provinces that have no significant natural resources revenues. E.g. Ontario has to pay higher, per dollar of real GDP, equalization payments, than Alberta; recepient provencies with no oil revenues receive less equalization payments.

Benefits provinces whose revenues are based on netural resource development;

Losers are the taxpayers of provinces with non natural resource economy (e.g Ontario, Quebec)

This is ridiculous and sorta makes sense it was in l'actualite.

Gotta wonder if Quebec really wants to open this debate. Through hydro-electric income into the mix and Quebc might actually be a have province.

There are many, many examples of inefficiency in the Quebec budgeting system. Yet instead of dealing with them they expect the rest of Canada (Alberta, BC and Ontario) to pay for them.

Why not attack NFLD for the deal struck on offshore oil???

[Argus]

Don't you dare for a second bitch about equalisation. We pay more than our fair share, deal with your failing economies and then you wouldn't need our money. Ontario may pay more per dollar of GDP, but Alberta pays 4 times as much per capita as Ontario. Natural resource revenues need to stay within the province as they are conversion of resources to money. It's not a value added situation. That money is part of the inherent value of the province.

What exactly does that mean anyway?

I see no reason whatever why natural resources industries should be treated any differently than other industries. There's nothing fair or logical about it. And while Alberta pays more than its fair share already, Ontario pays more, and has been paying through the nose for decades. The one year when the economy got so bad (under Rae, I believe) where we actually would have qualified as a have-not province the feds hurriedly got together and changed the rules so we didn't qualify. That's because with all the loafers along for the ride the country couldn't stand a have-not Ontario.

The biggest loafer of all, of course, has been Quebec, a poorly run province perpetually in a state of economic doldrums and high unemployment due to its insistence on socialist style governments, labour and business rules, and its fascist language laws. You won't find them ever admitting it or thanking anyone, though.

That's one of the reasons I'd really enjoy watching them separate, become an economic basket case within a year, and beg to come back in and get more transfer payments.

[BubberMiley]

I don't think it would be fair for Alberta to siphon another province's resources and leave them in state of drought for such an environmentally suspect project.

"Alberta oil sands could leave Saskatchewan short of water, study says

By Dennis Bueckert NAIROBI, Kenya (CP) — A study released Monday at the UN climate conference in Nairobi says voracious water consumption by Alberta’s oil sands threatens the quality and quantity of water available to Saskatchewan and the Northwest Territories through the Mackenzie River system."

[geoffrey]

I don't think it would be fair for Alberta to siphon another province's resources and leave them in state of drought for such an environmentally suspect project.

"Alberta oil sands could leave Saskatchewan short of water, study says

By Dennis Bueckert NAIROBI, Kenya (CP) — A study released Monday at the UN climate conference in Nairobi says voracious water consumption by Alberta’s oil sands threatens the quality and quantity of water available to Saskatchewan and the Northwest Territories through the Mackenzie River system."

All operations have environmental impact studies, and there has been little concern so far. And what does Nairobi have to do with our domestic affairs?

Again, someone that knows nothing, against a project, because it's in Alberta, makes money and has something to do with oil.

[B. Max]

I don't think it would be fair for Alberta to siphon another province's resources and leave them in state of drought for such an environmentally suspect project.

"Alberta oil sands could leave Saskatchewan short of water, study says

By Dennis Bueckert NAIROBI, Kenya (CP) — A study released Monday at the UN climate conference in Nairobi says voracious water consumption by Alberta’s oil sands threatens the quality and quantity of water available to Saskatchewan and the Northwest Territories through the Mackenzie River system."

By the sounds of it that guy likely doesn't even know which way the mackenzie flows and couldn't even find the mackenzie river on a map. Nor could the majority of people in Nairobi. It's the same old bullshit with these watermelon outfits trying to stop oil production. Both the territories and sask. have more water than they could ever use.

[BubberMiley]

Natural resources are strictly under provincial jurisdiction, unless they are natural resources Alberta wants.

[BubberMiley]

Nor could the majority of people in Nairobi.

It's a UN climate conference in Nairobi. I wouldn't expect it's packed with locals.

[B. Max]

Nor could the majority of people in Nairobi.

It's a UN climate conference in Nairobi. I wouldn't expect it's packed with locals.

Just the type of audience they need to spin a yarn of nonsense to, and which by the way, it's non of their business. Ambrose should be telling them to shove it, get on the next plane and come home.

[gerryhatrick]

Nor could the majority of people in Nairobi.

It's a UN climate conference in Nairobi. I wouldn't expect it's packed with locals.

Just the type of audience they need to spin a yarn of nonsense to, and which by the way, it's non of their business. Ambrose should be telling them to shove it, get on the next plane and come home.

I would love to see her do that.

[B. Max]

Nor could the majority of people in Nairobi.

It's a UN climate conference in Nairobi. I wouldn't expect it's packed with locals.

Just the type of audience they need to spin a yarn of nonsense to, and which by the way, it's non of their business. Ambrose should be telling them to shove it, get on the next plane and come home.

I would love to see her do that.

The next step should be to get out of the UN.

http://www.newsmax.com/archives/ic/2006/11...4132.shtml?s=ic

[BubberMiley]

Blame the messenger.

[geoffrey]

Natural resources are strictly under provincial jurisdiction, unless they are natural resources Alberta wants.

That doesn't really make sense.

[myata]

Well, writing all capital expenditure off now (against the profit now) as opposed to 30 years later is a substantial money given the size of this investment. The tax written off by this instant amortization is the tax revenue lost is like a direct subsidy for the oil industry. The question is, does it really need this subsidy more than the same Toyota?

As for environmental efficiency, the only way to make industry (ies) "care" about the environment is to associate money cost with it. That will make them want to reduce the cost i.e. reduce the polution. The relation should be positive ie. more pollution = higher cost, otherwise there's no incentive to do anything.

[BubberMiley]

Natural resources are strictly under provincial jurisdiction, unless they are natural resources Alberta wants.

That doesn't really make sense.

You feel that it would be okay for Alberta to drain freshwater from the river systems and empty Saskatchewan lakes?

[geoffrey]

If that is what we were doing, I may take issue.

Can you find a Saskatchewan lake that has been drained?

[B. Max]

Natural resources are strictly under provincial jurisdiction, unless they are natural resources Alberta wants.

That doesn't really make sense.

You feel that it would be okay for Alberta to drain freshwater from the river systems and empty Saskatchewan lakes?

You mean it's only Alberta that can't take water, our own water, from our own rivers. The oil sands take one percent of the water out of the athabasca river, and the rest flows on.

[jbg]

The biggest loafer of all, of course, has been Quebec, a poorly run province perpetually in a state of economic doldrums and high unemployment due to its insistence on socialist style governments, labour and business rules, and its fascist language laws. You won't find them ever admitting it or thanking anyone, though.

That's one of the reasons I'd really enjoy watching them separate, become an economic basket case within a year, and beg to come back in and get more transfer payments.

But if people do work there, their right to work in French is sure protected well, even though most of North America speaks English.

[jbg]

If that is what we were doing, I may take issue.

Can you find a Saskatchewan lake that has been drained?

Enough that their coastline's in danger and so are its seals.