Twisted information hurts oilsands, Alberta

Alberta Enterprise Group op/ed published in the Edmonton Journal. 

BY TIM SHIPTON, EDMONTONJOURNAL.COM

DECEMBER 4, 2010 

Are oilsands developers "corporate welfare bums?" 

For decades, pioneer Canadian oilsands developers like Syncrude and Suncor clamoured for a higher profile that would both increase the value of investments in northern Alberta and tell the world what a technical marvel the oilsands mines were. 

These days, some oilsands producers may be wistfully thinking they should have been careful what they wished for. 

Every other month, it seems, a new damning study or campaign is launched -- some more credible than others, though all aimed squarely at the oilsands. In August, San Francisco-based environmental group Forest Ethics claimed they had assembled a list of companies, including heavy hitters like The Gap, Levi Strauss and Timberland, who were committed to boycotting oilsands-derived energy. It was later revealed these companies never agreed to boycott anything at all. 

Earlier this year, another California-based organization, Corporate Ethics, ran a billboard campaign in major cities across North America and the United Kingdom urging tourists to avoid Alberta until it commits to halting the expansion of the oilsands. 

Now, a new study commissioned by Greenpeace and prepared by the Global Subsidies Initiative (GSI) alleges Canada's oil industry was "subsidized" to the tune of $2.84 billion in 2008, with the lion's share going to upstream oilsands production. 

In the weeks since the study was released, various newspapers and online publications have picked up on the theme, culminating in a call from NDP Leader Jack Layton to "stop billion-dollar giveaways to oil and gas." 

The revelation that Alberta's "blue-eyed sheiks" are the recipients of generous corporate welfare payments from various levels of government is sure to raise a few eyebrows. As it turns out, along with many of the other claims that have been made, it's not really true. The trick here is in the definition of the word "subsidy." The biggest "subsidy," according to the study, is that oil producers "write off" natural gas costs. 

Oilsands operators use a lot of natural gas to create steam to extract the oil from the sand. The cost of that natural gas is, as you might expect, deducted from income to determine net profit, which is then taxed by various levels of government. A writeoff, sure, but hardly a subsidy. If a baker deducts the cost of flour to calculate profits and therefore income tax owing, is the government subsidizing baked bread? 

In fact, the study is riddled with methodological problems. The study's authors promise to focus on programs which are "otherwise not available to other sectors," only to go right ahead and list allowances and credits available to every business. It even assumes laws allowing companies to deduct capital expenditures are subsidies. Any business in Canada is allowed to deduct capital expenditures over a certain period of time. 

Of course, media outlets and environmental groups breathlessly decry corporate welfare to big oil. The problem is this supposed "subsidized" industry still paid some $18 billion in royalties and taxes to the federal and provincial governments in 2009. Clearly, the industry is paying a heavy price to develop the oilsands on Canadians' behalf. 

The GSI study is a continuation of a troubling trend in Canada's environmental movement. Time and again, fatally flawed studies are released and repeated as gospel by a web of environmental groups and friendly media outlets. If the trend continues, it's only a matter of time before the damaging "oilsands are subsidized" allegation becomes accepted wisdom. 

And here is the kicker: This study itself is subsidized, at least in part, by your very own tax dollars. The Global Subsidies Initiative is a Swissbased offshoot of the International Institute for Sustainable Development (IISD). IISD was established under prime minister Brian Mulroney with funding by Canadian International Development Agency, Environment Canada and the government of Manitoba. 

A discussion on the appropriate level of "economic rent" charged by resource owners (read: taxpayers) is valuable. In fact, Albertans have been involved in a heated discussion about this very issue for several years. Taxpayers have a right and are well-advised to maximize returns on the sale of finite natural resources, knowing full well that setting a price too high could mean nobody will want to extract the resource and taxpayers will get paid nothing for it. 

A conversation about oil and gas royalties is healthy, but twisted and poorly researched literature used by environmental groups and politicians to score political points is not. 

Tim Shipton is president of Alberta Enterprise Group, a public policy advocacy group. AEG members employ 40,000 people in the energy, manufacturing, construction and retail industries.