By Kenneth P. Green,
and Ashley Stedman
The Fraser Institute
TransCanada Corp. recently pulled the plug on Energy East, its proposed 1.1-million-barrel-per-day oil pipeline between Alberta and New Brunswick, a month after the company said it would conduct a “careful review” of the cost impacts of changes in National Energy Board regulations.
It was the latest in a chain of bad news for Canada’s energy industry, and further evidence that Canada’s growing regulatory barriers may be damaging our investment climate.
Plunging oil prices and the approval of competing pipelines such as Keystone XL certainly contributed to the cancellation of Energy East.
But governments, by continuing to pile on new taxes and create unclear regulations, are killing existing projects and driving investment away from Canada.
A 2016 Fraser Institute survey of energy executives and managers found that Alberta has become significantly less attractive to investment over the past few years. In 2014, Alberta ranked in the top 15 most attractive jurisdictions worldwide, but tumbled to 25th in 2015 and continued its downward slide to 43rd in 2016. This ranking is based on a policy perception index score, which measures the extent to which policy deters oil and gas investment.
So what policies are driving capital and companies out of Alberta?
Simply put, regulatory hurdles and poor policy decisions by the provincial and federal governments. Alberta’s carbon tax, higher corporate and personal income taxes, a cap on greenhouse gas emissions from oilsands production all contribute to a poor investment climate.
And while Alberta has become less attractive for investment, U.S. jurisdictions such as Texas, North Dakota and Oklahoma have remained among the most attractive in the world. The survey showed that in 2016, eight American states were in the top 10 most attractive jurisdictions in the world. Saskatchewan was Canada’s only top-performing jurisdiction.
And Alberta’s investment attractiveness will likely continue to fall behind its American counterparts as new U.S. policy changes, driven by President Donald Trump, favour the energy sector. Trump is simply making it easier develop oil and gas resources, opening additional lands, suspending onerous regulations, dropping international greenhouse gas obligations, allowing oil exportation and, perhaps, cutting taxes on business.
Yet in Canada, we have a difficult time getting shovels in the ground for major energy infrastructure projects – at a high cost for Canadians and the economy.
Studies show that if Canada exported one million barrels of conventional heavy oil and oilsands bitumen a day to world markets at US$60 a barrel, additional industry revenues would reach $4.2 billion annually. And if access to international markets garnered Canadian producers a price boost, the Alberta and Saskatchewan governments could see oil royalties increase by more than C$1 billion annually, assuming oil reaches US$60/barrel.
That would mean more Canadian (and Albertan) jobs and billions of dollars in revenue for governments, which could be used on vital services such as health care, education and infrastructure.
But regulatory hurdles and poor policy decisions have crippled Canada’s attempts to access new energy markets.
TransCanada’s abandonment of Energy Easts appears to be the latest example of investment walking out the door, leaving Canadian jobs and economic opportunities behind.
Kenneth P. Green is a senior director, and Elmira Aliakbari and Ashley Stedman are analysts at the think-tank Fraser Institute.