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Thursday, April 10, 2008

Unintended consequences: Alberta slow to learn basic economic lessons

250pxlucas_gusher In a press release today from the Alberta government on new royalty programs for high cost oil and gas development, the term “unintended consequences” was thrown around liberally.

In economics, an unintended consequence is typically defined as a negative outcome that is not intended and normally unforeseen. The slowdown in Alberta’s oil patch as a result of the New Royalty Framework announced in October 2007 is being called an unintended consequence, and the Alberta government is now scrambling to undue the harm it has done.

To its credit, the government announced today that it is creating new tax programs in response to declining investments in high cost oil and gas development projects. The tax reductions are expected to leave $237 million more annually in the hands of oil and gas investors. That’s great. What’s not great is that Alberta Energy Minister Mel Knight is essentially admitting that he was surprised by an oil and gas industry slowdown resulting from the higher taxes announced last year.

After announcing the tax cuts, Knight said “Addressing the unintended consequences with these programs will help Alberta achieve the necessary levels of investment and production to generate the royalties anticipated by the New Royalty Framework.”

So let me get this straight: To generate the oil and gas royalty revenues anticipated in the New Royalty Framework, the government has been forced to lower the royalty tax increases announced last year in the...New Royalty Framework.

All this unintended consequences stuff must be very confusing for Knight and his colleagues in the Alberta government. Perhaps they’ll find this explanation easier to understand:

Taxes kill jobs and investment.

CORRECTION - I reported that the royalty tax reduction would amount to $37 million. This number included deep oil royalty tax reductions, but did not include deep gas. The total royalty tax reduction announced is actually $237 million.

Posted by Matthew Johnston on April 10, 2008 in Canadian Provincial Politics | Permalink

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Comments

I agree. We are so fortunate to have the oil and gas reserves in this province, and these arrogant, retarded politicians kill investment and incentives for the junior oil and gas companies with their reckless actions--


Dirk Diggler

Posted by: Dirk Diggler | 2008-04-10 6:50:41 PM


Unintended consequences-not bloody likely. Where was Mr. Knight when everyone in the oil industry was telling him that precisely this would happen?

Posted by: DML | 2008-04-10 10:02:54 PM


LOL! So, people here are supporting the free give-away to fat cat oil companies who are plundering the natural resources of Canada? What makes the oil companies indispensable in Canada? Nothing. If developing countries can boot these corporations around with impunity, why does Canada act as if the corporations hold all the aces and the state is impotent in the face of a grab for obscene profits from the public trough of natural resource give aways?

Until the early 1970s, no OPEC country set the price of oil. The price was dictated by oil companies to the oil producing OPEC countries. Muammar Q'addafi broke the oil company stranglehold and Libya became the first OPEC country to set the price oil companies would have to pay for oil. The rest is history.

Alberta has a choice. Make the best deal for citizens and taxpayers or make the best deal for corporations and fat cat businessmen. This is public money that is involved.

Another case where one-party rule in Alberta damages the interests of citizens and taxpayers.
While Albertans lamented the voting pattern of Canadians, especially easterners, Albertans are quite complacent in their one party dictatorship. Hypocrites.

Posted by: ROGER | 2008-04-10 11:05:15 PM


Stelmach was told how stupid his greedy plan was and now, to quote the great Reverend Jeremiah Wright, "The chickenssssss have come home to Roooooooosssst.

And if there are any adults running this blog, please get rid the troll Roger. He is stinking this place up yet again.

Posted by: John West | 2008-04-11 11:22:50 AM


The slowdown in Alberta's oilpatch has nothing to do with the royalty revue. That's the biggest red herring they've dragged across our trail for quite a few years. Most of the major players had plans in the works to divert investment elsewhere. Encana has been focusing on the gulf of Mexico for some time. Deals like that don't just jump up a couple of months after a political announcement.

Conventional oil reserves in Alberta are becoming a risky investment. It's to the point that no one wants to invest in new infrastructure. They are basically riding out existing projects. Shallow gas projects are down by at least 75%. Conventional oil is getting so scarce that only small operators have any interest in drilling. The big money is going into big projects, namely the oilsands. That project doesn't benefit nearly as many Albertans as conventional drilling. The gravy train is leaving the station without us this time.

Take a quick peek at the mls website folks. Between Medicine Hat and Lethbridge there are over 1000 houses for sale. It's difficult to count the number in Calgary.

Fort MacMurray will eventually become a foreign worker camp. The product will pass us either by rail or in a pipeline and we won't see a dime from it.

Posted by: dp | 2008-04-11 5:36:03 PM


JOHN WEST CANNOT MAKE SUBSTANTIVE REPLY TO MY POINTS. So the poor fellow is reduced to begging for respite by censors to silence voices bearing messengers he cannot stand reading. Tough titillation! LOL! Boooohoooo!

Posted by: ROGER | 2008-04-11 10:14:16 PM


I left Alberta after Harper killed the Investment Trusts. Stelmack's arrival on the scene and his impact was predictable: he is just a dumb, oil-hating farm boy who thought tearing a page from the left wing Liberals play book would be a cool, populist compassionate thing to do. He and Harper are hell on wheels for this province. I don't think oil will come back in all its glory in Alberta for a decade or more.

Posted by: Dutch Fleming | 2008-04-12 1:42:41 AM


I don't think oil will come back in all its glory in Alberta for a decade or more.

Posted by: Dutch Fleming | 12-Apr-08 1:42:41 AM

Only one thing wrong with this statement. Oil doesn't come back. Once it's gone, it's gone.

It's really getting scary out there. Lots of company trucks parked for weeks at a time. People waiting to go back to work for months, not bothering to apply for EU. A whole lot of self-employed people with no safety net. Thousands of houses for sale at inflated prices.

Things will improve some, I have no doubt. It won't be anything near a lot of people's expectations. Companies will downsize, budgets will shrink, prices and wages will drop. The biggest problem will be trying to unload all the "stuff" people bought. I don't expect new car dealers and building contractors are in for a happy new year.

The only place that will stay on the fast track is Fort Mac. There will be environmental restraints that keep growth to a much slower rate. The surrounding area can't support much more population growth.

Unintended consequences? I suppose so. Consequences of our own greed, not some half-hearted attempt to negotiate a better deal for the residents of Alberta.

Posted by: dp | 2008-04-12 3:10:48 PM


I don't think oil will come back in all its glory in Alberta for a decade or more.

Posted by: Dutch Fleming | 12-Apr-08 1:42:41 AM

Only one thing wrong with this statement. Oil doesn't come back. Once it's gone, it's gone.

It's really getting scary out there. Lots of company trucks parked for weeks at a time. People waiting to go back to work for months, not bothering to apply for EU. A whole lot of self-employed people with no safety net. Thousands of houses for sale at inflated prices.

Things will improve some, I have no doubt. It won't be anything near a lot of people's expectations. Companies will downsize, budgets will shrink, prices and wages will drop. The biggest problem will be trying to unload all the "stuff" people bought. I don't expect new car dealers and building contractors are in for a happy new year.

The only place that will stay on the fast track is Fort Mac. There will be environmental restraints that keep growth to a much slower rate. The surrounding area can't support much more population growth.

Unintended consequences? I suppose so. Consequences of our own greed, not some half-hearted attempt to negotiate a better deal for the residents of Alberta.

Posted by: dp | 2008-04-12 3:10:48 PM


Let us look at the logic of it. We depend on oil the Arabs are ripping us off and we have little alternative. With the West, India and China competing for oil, the Middle East wells will run dry and the Arab influence will diminish. Then, it will be worth developing the Canadian and US fields. The Arabs will be back on their camels as sand is not a great commodity.

The Chinese are bribing African politiciens to sell them Africa with all its land and resources.

New forms of energy are being developed and probably hydrogen, which we have plenty of, will be the energy of the future.

Everyone shouts about oil prices and scarcity, but why do not governments cut back on gas guzzlers, organise better public transport, limit consumerism. Instead, they are encouraging the use bio fuels for railways, which have to be transported, whilst electric current travels cheaper in conductors.

There are only three problems in the world, we are too many, we want too much rubbish and our oppressive governments (goon-one-ments) are studded with people, to whom by comparison, a dungbeatle is an intellectual superstar.

Posted by: George | 2008-05-12 11:36:18 PM



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