Over the past three weeks, Premier Smith has been busy issuing “mandate letters” to her cabinet colleagues. These mandate letters are ministers’ marching orders and are an excellent guide of future legislative and regulatory initiatives by the newly minted Smith government.
Given the importance of five ministries which represent the most important conduits of public spending (Health and Education) and strategic public policy and intergovernmental relations (Energy and Minerals, Environment and Protected Areas, and Treasury Board and Finance), this post, and a succeeding post, looks at the central elements of Smith’s agenda. This post looks examines what I call the Big Two Mandates- Energy and Treasury Board and Finance.
Energy and Minerals
Smith’s letter to Jean, begins, excluding the boilerplate pleasantries in all mandate letters, with Alberta “ownership of largest oil and gas deposits in the free world and our energy sector is by far the most environmentally responsible and innovative” (emphasis added). Thus contextualized, the sole policy issue is to develop our energy resources to meet global energy security while “achieving meaningful emissions reductions.” Note the assumed fact that Alberta’s carbon intensive is by far the most environmentally responsible. Below I dig a little deeper into the claim that Alberta ‘s oil and gas resources are “by far” the most environmentally responsible by looking at some studies on SAGD (Steam assisted gravity drainage) production.
“Meaningful emissions reduction” are not defined except in for “net-zero by 2050.” I can only think “meaningful” means not increasing GHG while letting the oilsands expand production in defiance to federal “rules,” rules which Alberta will choose to ignore even if it does prompt federal regulatory retaliation.
Specifically, development is what Jean is expected to do. Develop, development and developed are mentioned twelve times in this two-and-a-half-page letter. “Promote” comes up three times.
He is also mandated to work with Smith in “defending Alberta’s energy interests against federal overreach and developing strategic alliances with other provinces to deal with energy-related issues.” This will mean a lot of late-night briefings and discussions with the Premier and Environment minister, Rebecca Schultz. Jean’s role, to line up BIG investment projects into shovel ready expansions, will be difficult given the Teck-Frontier precedent.
Instead, development will focus on approving incremental in-situ production which have the greatest potential. However, will the federal Environment and Climate Change department have something to say on this? Or will Ottawa play nice and abet the growth of this new source of incremental development. This may be dependent on the review of Bill C-69, the so-called No Pipelines Act now awaiting final judgment from the Supreme Court. In-situ production Incremental growth is not splashy but the incremental barrels do add up. The Alberta government and the oil companies will be beneficiaries from added production and the government should extract a premium for this. But the Smith government will continue to ignore the associated environmental costs associated with permanently altering the geology of hundreds of metres of formerly pristine boreal forest. Does the government even have a plan on studying the effects of in-situ production let alone collecting fees for remediation of at least the surface disturbance area?
Environmental Studies of SAGDIn a 2010 paper to the 21st World energy Congress in Montreal, Neil Edmunds a professional engineer and Vice-President of Enhanced Oil Recovery for Laricina Resources described the future potential of in-situ development. In the paper he notes that of 174 billion barrels of recoverable bitumen, 85 per cent is represent by in-situ or underground bitumen. In this paper, questions critics who claim “oil sands development in Alberta will result in a ‘hole the SAGD requires 3 volumes of water be boiled for every barrel of bitumen with a recycling rate of 80 or 90 per cent. He compares the water use with beef, rice, wheat and corn production and again SAGD is presented as a parsimonious user of water. What is done with the disposed water is deep injections below the bitumen with the “injected water is of higher quality than that in the receiving formation. The target formation, well design, injected substances, concentrations, volumes, and pressures are all regulated and enforced.” Edmunds then goes on to address the criticism that it causes “3-5 times” the CO2 emissions, compared to “conventional” oil production. This statement is true as far as it goes, but is also largely meaningless,” because: less light sweet conventional oil is being produced, 2) production emissions are a small part of total emissions, and 3) SAGD technologies are “technologically immature.” He cites research by T.J. McCann Associates and IOSA that shows life cycle GHG emissions of in situ are higher than all blends except Venezuelan and California in situ. Bitumen mining and SAGD dillbit are also second and third highest in GHG emissions per volume of gasoline. Other slides attest to its high emissions especially at the production end (Figure 8). Edmunds goes on to minimize in situ emissions in the international context stating in situ emissions which will only account for 0.5 per cent of world emissions in 2006. He concludes the paper saying environmental impacts from in situ projects are “reasonable and responsible” in relation to: absolute/cumulative local impacts; international norms & intensities; and an exacting regulatory environment. However he concedes CO2 emissions currently (2020) exceed the life-cycle emissions from conventional crude by 10-15 per cent. In a 2017 paper by Korosi et al, in the journal Environmental Pollution reported on studies in the Cold Lake region where expansion of in situ production was rapidly expanding. The authors measured polycyclic aromatic hydrocarbons (PAH) in soils, spruce needles, and lake sediment cores in the Cold Lake oil sands region…. A pronounced increase in PAH concentrations was recorded in one of two study lakes (Hilda Lake) corresponding to the onset of commercial bitumen production in ∼1985. Distance from extraction rigs was not an important predictor of PAH concentrations in soils, although two samples located near installations were elevated in alkyl PAHs. Evidence of localized PAH contamination in Hilda Lake and two soil samples suggests that continued environmental monitoring is justified to assess PAH contamination as development intensifies” (emphasis added). In a 2014 paper by Morrow et al given at the SPE Heavy Oil Conference in Calgary that June, the authors studied four method of extracting bitumen. These included In-situ Combustion (ISC), Steam Assisted Gravity Drainage (SAGD), Steam Flooding (SF), and Hot Water Injection (HWI) which they say “are known as environmentally unfriendly bitumen extraction methods….The experimental results showed that while with ISC, the least amount of water is produced; the produced water requires more severe treatment due to its high metal and sulfur contents, and low pH level. On the other hand, since the amount of the produced water for SAGD, SF, and HWI is higher, the produced water management poses handling problems. The oil production from ISC results in the greatest recovery with upgraded oil which will reduce the environmental impact for oil processing when compare to SAGD, HWI, and SF. While all processes produced more or less the same amount of gases, SAGD and SF have additional gas production due to steam generation. As conventional resources decline, it is essential to address environmental challenges to produce from these massive oil sand resources. In this study, the environmental impacts of bitumen extraction with thermal EOR were examined extensively.” Finally, in an undated brief comparing the environmental impacts of SAGD vs. mining, the Pembina Institute found differential impacts with mining disturbing more land, having slightly more Nitrogen Oxide intensity and water use intensity than SAGD. SAGD was nearly four times more intensive on SO2 and nearly three times more intensive for CO2 when compared with mining. Although SAGD has a smaller land footprint than mining, the seismic lines, pipelines and power lines contribute to reduced use of habitats through forest fragmentation. |
Capital knows that it is not enough to receive rents from guaranteed markets and pricing systems. Rather growth is the sine qua non of capital accumulation. Unless investors see growth prospects they abandon companies and move to the next investment opportunity. This is why Pathways Alliance was formed among the top six oilsands producers. The Alliance has created a pathway for another 27 years of bitumen production.
Another role for Jean is to facilitate “partnerships” between the industry and Indigenous groups.” It is an important task of the Energy Minister to set in motion financial incentives for indigenous governments to stimulate continued drilling and extraction. The Indigenous community is divided between those benefiting from the few oilpatch jobs and others who see the continuing dark side of extraction practices which permanently transforms habitat into industrial contamination and waste. Many courts cases are wending their way up to higher courts dealing with how the cumulative effects of the oilsands development has broken treaty rights of access to treaty lands for traditional uses such as hunting and fishing.
Energy and Minerals will also review the Alberta Energy Regulator’s policies, rules, regulations etc. with a view to “streamline approvals and to align policies with the government’s goals of increased natural resource production, carbon neutrality by 2050, investment in emissions-reduction technologies and increased energy export” (emphasis added). This signifies, as if we didn’t know already, that the government fully aligns with the Pathways Alliance goal of Net Zero by 2050 and wants more production, not less.
Smith’s ill-advocated RStar proposal which has evoked worry and derision on both capitalist and socialist camps, makes a cameo appearance. The wording is veiled -“Developing a strategy to effectively incentivize reclamation of inactive legacy oil and natural gas sites, and to enable future drilling while respecting the principle of polluter pay.” This suggests yes to the idea that the polluter may not pay. There is room for a rationalized explanation like “we will pay you to reclaim wells if you create jobs now and keep drilling like mad, so long as you pay us back,” which is basically the system we have today.
The usual deference is also made to Alberta’s technology industry which has a mixed record despite the public money that has been poured into economic and technology areas, specifically developing oilsands production techniques. However, the amount of money poured into ecological and environmental monitoring has always been a poor cousin. As Kevin Timoney in Hidden Scourge reveals, the process of developing the industry while ignoring its environmental pitfalls has been abetted by the Alberta government’s regulators. The specifics on technology promises include modular reactors, hydrogen, lithium, ammonia, helium, geothermal and mineral development. The Smith government and her predecessor Kenney have placed a huge bet on whether any of these technologies are commercially viable and actually will work to lessen emissions and not create new environmental liabilities.
Co-operation with Environment and Protected Areas
Next follows an outline of tasks that the minister is to get involved with- these include with Environment and Protected Areas:
- to implement the Emissions Reduction and Energy Development Plan.
- with industry and relevant ministries to develop a pathway for implementing carbon-reducing technologies and liquefied natural gas export and credits to achieve carbon neutrality in Alberta’s energy sector by 2050.
- As lead and working with the Minister of Environment and Protected Areas, to develop and implement a regulatory framework for small modular reactor technology use in Alberta.
- As lead and working with the Ministers of Justice and Environment and Protected Areas, to review the mission, policies and operations of the Canadian Energy Centre and make recommendations to align its work with the government’s goals of 1) informing Canadians about the importance of the energy industry and its efforts to protect both Canadian prosperity and Canada’s environment; and 2) informing the world about the Alberta energy sector’s world-class environmental standards.
- Working with the Minister of Environment and Protected Areas, who is the lead, to develop a plan to improve reclamation certificate issuance.
But does this government still believe Alberta energy producers operate under a “world class” regulatory regime- in which the Alberta Energy Regulator subsumes the environment department? How can that be world class? How many Alberta scientists have spoken out about environmental problems – what was happening to biodiversity and the fact that there has been virtually no monitoring of the industry by the regulator. The recent Kearl Lake spill is one example among thousands of incidents where the regulator has shown to be ineffective in regulating on environmental issues.
The letter also directs Jean to work closely with his new deputy minister Larry Kaumeyer who left Premier Kenney’s inner office to become President of Ducks Unlimited. Kaumeyer has a very long connection with the Progressive Conservative party and the UCP . Kaumeyer was an executive assistant to Jim Dinning and then in served in executive roles at Alberta Treasury Branches for about a decade.
In her penultimate paragraph, as if it was necessary to reinforce streamlining processes for the industry, she sums up
I also expect you to regularly and proactively reach out to all ministry-related stakeholders in order to take feedback and identify potential solutions on issues of importance to them, including finding ways our government can reduce burdensome and unnecessary red tape and barriers that are hurting their members’ ability to grow the economy and improve quality of life for the Albertans they serve.
In this phraseology, the industry is referred to as servants of the Alberta people. This concept could not be more Orwellian.
I choose Energy as the top mandate because, for as long as I worked in Alberta’s public sector, energy dominated the government’s policy agenda. government. In Lougheed’s era it was what to do with the excess oil and gas revenues, create AEC, finance and build Syncrude, fight Ottawa, support industry drilling in downturns; in Getty’s – to diversify (Husky Bi-provincial Upgrader, forestry); in Klein’s -to subsidize oilsands development (generic oilsands royalty regime), Stelmach- “emissions reduction,” (CCUS) , under Kenney, fight Ottawa, technology support (hydrogen, nuclear reactors); and the costs of orphan wells and the environmental damage from bitumen extraction (Teck Frontier application withdrawn). There was never a good time to discuss a clear vision for health or education.
Mr. Jean has his hands full. He is one of Smith’s strongest ministers- fierce and driven by passion. He also shares Ms. Smith’s passion for “Alberta First. “
Treasury Board and Finance
Our government is committed continued balanced budgets, limiting operational spending to less than inflation plus population growth, lowering the provincial debt and growing the Alberta Heritage Savings Trust Fund to lessen the province’s reliance on resource revenues over the long term.
The above phrase summarizes the UCP’s fiscal brand. This is actually an aspirational statement, not a factual statement, because these policies were never fully realized except limiting spending. Balanced budgets in the past two years are the result of a growing dependence on resource revenue, not expenditure management. Lastly, the Heritage Fund remains the residual beneficiary of a political budget-making system. Continuation does mean lower taxes, cuts to government’s programs, hopefully more private sector investment, and a balanced budget.
There are two main elements in Smith’s remit to Nate Horner,
scion of Alberta’s famous political Horner family. The first is to continue the previous government’s record of limiting “operational” spending while lowering taxes as promised during the election. The second relates to building a stronger financial foundation which limits Ottawa’s tax role, potentially establish a new “enhanced” Alberta pension plan, and making ATB Financial more “competitive.”
Other tag ends include developing recommendations to make auto insurance affordable and Implementing a Halal financing option for Alberta’s Islamic communities.
Fiscal Policy
Horner will have an easy job legislating tax cuts in an Assembly filled by tax lowering zealots The tax measures include lower gasoline bills (until 31 December 2023), a material aid to those dependent on gasoline vehicles, unwilling to bike or walk, or find it undignified to take public transit.
Meeting fiscal targets set in the last budget will be more difficult given inflation, lower tax revenue (falling oil companies’ taxable profits), and various election and pre-election goodies not mentioned in Toews’ budget. With the Saudis having cut production by 1 million barrels though, prices are hugging about U.S. $80 a barrel, a touch above the February budget estimate. Horner may be ok for now on the fiscal front.
Absent however is any mention of a much needed revenue review which Travis Toews pressed for when he was the finance minister.
Tax Administration
Horner was asked to explore the feasibility and advantages of establishing an Alberta Revenue Agency (ARA). Alberta has collected the provincial share of the corporate income tax going back to the early 1980s. Generally speaking the provincial government has not deviated from federal corporate tax legislation partly because different definitions from federal law would have been a nightmare for Alberta companies to deal with. This legislation allowed Alberta to create the Alberta Royalty Tax Credit of benefit for oil and gas companies who could not deduct provincial royalties from the federal CIT. Also other changes were made Capital Cost Allowance treatment.
Politicians have mused about collecting personal income tax at least going back to Ralph Klein’s government in the mid-90s. Nothing came of it likely because the cost and disruption were not something the Klein government felt comfortable with after cutting operating budgets deeply. The Smith government will have no compunction about costs since this action is nation-building.
The ARA idea is consistent with the Free Alberta Strategy (FAS). A revenue agency is a nation-building exercise and will allow Alberta to continue to collect taxes to lure capital to this province. The question though is- will this approach bring local jobs, billionaires, increased investment in plant, equipment and machinery, corporate mailboxes, or increased inequality?
The attraction to politicians like Smith and advisers like Jack Mintz is that Alberta could design an income tax system from the ground up which would be a hallmark of simplicity and attract mobile professionals, start-ups, and professional investors into Alberta. The agency could also develop a high-powered policy unit to use the Alberta Corporate Income Tax Act to enhance Alberta’s “tax advantage.”
Rob Anderson Source: Alberta Counsel
Other FAS Ideas
Other measures not listed in the mandate letter could be coming.. According to FAS the “absurdly unjust” system of equalization and fiscal transfers has contributed to the stagnation of the Heritage Fund and Alberta’s continuing dependence on resource revenues to fund its budget. The Constitution does not “grant the federal government the authority to plunder tens of billions of dollars a year through federal transfer programs from one province, to largely fund the electoral needs of the country’s second-largest province (Quebec)” (emphasis added, p. 26).
Whether the following ideas of the AFS become a reality in Smith’s first term is a question mark. FAS also proposes an Alberta Public Sector Employer corporation (APSEC) (a payroll company) which would be the official payer of public sector employees which would in turn remit withholdings to the ARA. In addition, any private corporation banking with ATB or other provincially regulated financial institution (like credit unions) would be given the opportunity to have federal withholdings channelled to the ARA instead the CRA! Whether this would be legal is another question.
More absurdly, the:
Alberta Revenue Agency would instead transfer an amount equal to that of the equalization and federal transfers the federal Ggvernment (sic) collected from Alberta during that year to the Alberta Treasury and, any surplus remaining thereafter, to the CRA. (p. 27)
ATB Financial
Horner is also directed to develop recommendations on making ATB “more competitive in financing business and homebuyers” as well as recommending measures to strengthen the institution’s financial position to remain “viable” as it “contributes” to Alberta’s “unique” provincial economy over the long term.
This is code that ATB will be more of a direct policy instrument of the government. It also means it will be easier to get a loan from ATB.
Banks with no desire to extend credit to weaker borrowers will direct customers, new homebuyers and small and medium and maybe even large business borrowers, to ATB. How the government will “capitalize” ATB to remain viable will be important from both a rating agency perspective and from taxpayers’ perspective. Taxpayers will ultimately be on the hook for loan losses when marginal borrowers begin to default.
A UCP government, whose main base is rural Alberta and where ATB which is very popular, will not privatize this unique financial institution. ATB is an obvious choice to privatize for a libertarian, like Smith. ATB as a policy instrument is one of many contradictions we shall see in the UCP’s governing philosophy.
Pensions
Smith downplayed Alberta’s desire to consider leaving the Canada Pension Plan during the election as public reaction had been almost universally negative. However, the CPP emerges with the publication of a report left over from Kenney’s time in office. The report, prepared by Lifeworks (formerly Morneau Shepell) will attempt to woo Albertans for a second time to an Alberta clone of the Quebec Pension Plan. The plan purportedly will bring “increased pensions and benefits, lower premiums for workers.” This is a very bad idea, but the AFS proponents play an outsized role inside the government policy-making process. This idea might serve as a foil to occupy the New Democrats which campaigned on protecting pensions, while other subtle sovereignty proposals slip in legislatively.
Auto insurance reform
Reform of auto insurance is very difficult given the influence of private insurance brokers who benefit handsomely from Albertans paying the highest premiums in the country. The remit specifically directs Horner to work with the Affordability and Utilities Minister Neudorf to develop short and long-term recommendations to make automobile and property insurance “more affordable.” I expect the government to consider extending a freeze and see what other affordability issues come into play. Right now the regulated rate option is a highly charged issue. There is no doubt there are many members of the public who need to see premiums significantly reduced to keep themselves above water. This area has all the characteristics of turning into a potent issue given the pocket book nature of auto insurance. But how organized are these voices? Auto insurance premiums may be a fruitful area for the New Democrats to mobilize opposition and raise memberships.
The Ernst and Young report prepared for the B.C. government showed that Alberta had the highest premiums in the country. The detailed report- comparisons are very difficult because of the different tort systems and public ownership- showed that Alberta drivers are paying considerably more than their prairie neighbours and British Columbia and also Ontario and Quebec.
Next week, I will look at the priorities in mandate given to the ministers of the Environment and Protected Areas, Education, and Health.