Alberta’s landowners deserve better!
This article was originally published elsewhere as a commentary on an article that appeared in the Toronto Star:
Mount Royal University Professor of Political Science — Duane Bratt, doesn’t do the whole situation justice with his remarks. This isn’t a “moral hazard” but a moral tragedy! To say I was shocked at the whole thing is an understatement, rather I’m pissed. Not at the Premier, but at the whole genesis of the situation. Premier Smith’s proposed Liability Management Incentive Program lowers the amount of royalties an oil company has to pay to Alberta’s government in exchange for them cleaning up their oil wells. Wells that Alberta’s environmental laws already obligate these companies to clean up. This $100 million program is a betrayal of the principles of Free markets, and of conservation. Professor Bratt called it exactly what it is: Corporate Socialism. The Premier’s plan has garnered the strongest criticism in that her proposal only targets wells in active use, yet the genesis of this whole problem comes from orphan wells, wells often left in a state of limbo especially after an oil company goes bankrupt. For the communities left to face these wells, there is little effective recourse. The Land and Property Rights Tribunal exists to enforce environmental legislation on this issue but it has served little value as an effective remediator. Its decisions leave the affected in disarray with little recourse and are part of a larger issue of protecting property rights in Alberta’s rural communities.
However, as I said, the genesis of this issue is the root of the problem. Because Alberta’s government holds a monopoly over the rights to natural resources, even on privately owned land, once an oil company is given a lease to develop, there is nothing a private landowner can do. Farmers watch unable to act as oil companies come and open wells on their land. It’s unconscionable. It’s only justification, that it’s for a greater cause. The royalty system is a cornerstone of the “Alberta Advantage”. A socio-economic order that combines strong public services with low taxation relative to the rest of Canada. Still, property rights are property rights, and they should be respected even if they cost the public revenue. Perhaps if Alberta wasn’t so reliant on an industry with such levels of “boom and bust” there would not be such a unique outpouring of political capital in favour of the sector at the expense of local communities. Unfortunately, proposals to make that a reality rarely get off the ground. The oil industry is so vital that any perception of trying to undermine it receives a rabid response. I swear Alberta’s oil sector is its “golden calf”. Nevertheless, proposals both long and short-term continue to be considered. In the long run, is the diversification and greening of Alberta’s economy. In the short term, there has been ample debate over potential tax reform focusing on a sales tax.
Economists (including those with a conservative/free market bent such as Jack Mintz who has called for a 13% HST) argue that a sales tax would stabilize Alberta’s revenue during times of “bust” in the oil sector as consumption (the buying of goods and services) remains relatively constant. The idea for an Alberta sales tax goes back to the turn of the century and has remained overwhelmingly unpopular ever since. Critics of the sales tax argue that it increases the cost of living, pointing to the cost of consumption in Provinces with their own sales tax on top of the Federal tax. They also argue that it weakens economic development by restricting the flow of capital which is critical to business development. Economists have long argued that a sales tax could and should be used to reduce or eliminate taxes deemed more punitive such as the income tax. This yet remains to be a winning message in Albertan elections. The Liberals ran on such an agenda for tax reform in the last provincial election and have been stuck in the realm of political irrelevance ever since. I myself think that a sales tax is unnecessary. I understand the logic of “offsetting” but I remain sensitive to the concerns of critics. I think instead we should look at establishing a land value tax and using that to eliminate property taxes, eliminate or reduce personal income taxes, and reduce corporate taxes. Anyway, Alberta’s main parties (the United Conservatives and the New Democrats) have both pledged to not introduce a sales tax with the New Democrats opting to raise the corporate tax instead.
Regardless of one’s view on tax policy, I think three policy proposals should be pursued to remediate the situation of orphan wells:
1) Structural reform of the Land and Property Rights Tribunal
2) Levying a new fee or tax (aside from royalty fees and standard taxes) on oil companies to be used to finance the clean-up of orphan wells in the event a company goes bankrupt.
3) Strengthening property rights including establishing mandatory consultation, compensation, and maybe even consent with landowners before oil development can proceed.