EDMONTON - When Premier Alison Redford talks about "a bitumen bubble," she's referring to the record amount of Alberta bitumen for sale, and the low price it's fetching in the U.S. these days.

That is partly because of competition from new supplies of higher quality crude oil from the U.S.

The price of bitumen dropped another $20 this month, so Redford's treasury will be short $6 billion by the end of this fiscal year.

Is this price gap between conventional oil and bitumen normal?

The fact is there has always been a gap between the North American price of conventional oil (West Texas International) and a barrel of sticky, thick bitumen, known as Western Canadian Select. (The world price, known as the Brent price, is another benchmark set by North Sea oil).

WTI is hovering around $95 a barrel, Brent slightly higher around $110 while bitumen, usually about $20 less, dropped to $50 last month.

Bitumen fetches a lower price partly because it needs more upgrading before it can be turned into gasoline, says Michael Moore, energy expert in the University of Calgary school of public policy. That costs money, so refineries won't pay as much for bitumen.

Usually the gap has hovers around 20-25 per cent, and in the last few months it went higher. But the gap has been higher in the past.

The lack of pipeline capacity makes it more difficult to get bitumen to market and using rail is expensive, says Moore.

But there are other challenges, he adds.

The new supplies of lighter, easier-to-use oil from North Dakota are more attractive to refiners.

Then, not all U.S refineries can handle bitumen, says Moore. Alberta bitumen has to get to specially adapted refineries on the U.S. Gulf coast.

But there's competition at those special refineries too — from heavy oil from Venezuela and Mexico which can get there cheaper, says Moore.

"So the refiners call the shots and they establish the discount. Our oil always had to go a long way and takes more processing."

So will more pipelines help?

Yes, the Keystone pipeline to the U.S Gulf coast will be a big help, says Moore — "though we will still be trading in competition with other heavy oil like ours from Mexico. Right now, there's a lot of competition."

Gil McGowan of the Alberta Federation of Labour says there's no doubt Alberta is facing a glut in the oil market and that puts downward pressure on the price of bitumen.

The low price is a sign the market doesn't want to buy more Alberta bitumen, he says.

The better solution is to upgrade the bitumen into synthetic crude in Alberta, "so we can sell a product the market wants."

"For Redford to suggest the only solution is to build more pipelines is not only simplistic, it is misleading. There are many other options," McGowan said.

Synthetic crude (upgraded bitumen), produced by a handful of oilsands companies, can be used in any refinery to make jet fuel or gasoline and it has occasionally fetched higher than the WTI price of oil, he noted.

McGowan also disputed Redford's view that today's deeper discount on bitumen prices is new.

The discount was worse in 2005 at 36 per cent and in 2006 it was 33 per cent — yet in both those years, the province had record surpluses because it had the cushion of high natural gas prices.

"It's true the gap has increased dramatically over the last few months, but if you look at average over last year, it was not out of line at 22 per cent. So the argument that all these budget problems are caused by the differential ring hollow," said McGowan.

U of C economist Ron Kneebone said the government has created its own problems by continuing to rely on volatile oil and gas revenues — despite frequent warnings from economists and its own advisers.

"The bubble is unfortunate, but the government invited disaster into the budget," said Kneebone.

"The bubble means the government won't be collecting as much revenue as it thought but that need not be a problem if they budgeted in sensible ways."

In 2002, the Klein government's Financial Management Commission advised the treasury to use just $3.5 billion in oil and gas royalties and put the rest into savings to build up a fund that would provide stable revenue from investments.

"They did that for one year, then raised the ceiling to $4 billion in royalties and then $4.75 billion. Then they dropped the plan and began to spend all royalties. That's where we are today."

"We need to have an adult conversation about raising taxes or decreasing spending," he added.

The Edmonton Journal, Friday, Jan. 25, 2013Byline: Sheila Spratt

EDMONTON — Ed Stelmach's program to stimulate drilling during the recession cost taxpayers $2.9 billion and failed to create promised jobs, new wells or new investment in the oilpatch, says the Alberta Federation of Labour.

AFL president Gil McGowan said Friday the program merely padded the profits of oil and gas companies while depleting the treasury of revenue that could have been used to fund health care and education.

He has passed on AFL's findings to Alberta's auditor-general and also requested the all-party legislature public accounts committee investigate the program.

"When Albertans learn about this they will see this for what it is, which is an outrageous misuse of government funds," he said.

Hugh MacDonald, the Liberal MLA who chairs public accounts, said he will canvass the 17 members of the committee to determine whether they wish to call a special meeting to examine the program. Conservatives have 13 seats on the committee.

MacDonald suggested the auditor general's officer might have a better mandate to determine whether the program met its goals.

But Auditor General Merwan Saher tossed the ball back, noting his office has audited the program.

"At this moment, I don't have a compelling reason to launch a particular audit," Saher said.

He said McGowan's request for a public accounts review is "a legitimate request."

"He is asking the public accounts committee to do what public accounts committees do — examine how policy is being put into effect and whether Albertans are getting value for money."

McGowan said someone should investigate where the royalty tax credits went because a loophole in the program created a "grey market" that enabled companies that had more credits than they needed to sell them to other companies. The program allocated $200-per-meter drilling credits on a sliding scale based on how much the companies drilled in 2008.

Companies that purchased extra credits were able to defray the amount they paid in royalties owed to Albertans without having to hire more workers or drill new wells, McGowan said.

But Albertans won't know who cashed in the credits because Alberta Energy keeps that information secret, he complained.

The AFL produced charts showing the number of new wells being drilled decreased steadily during 2009 and 2010 and over the same period the province lost about 8,000 jobs.

Capital investment in the oil and gas industry swooned, but industry profits increased, the AFL said.

Alberta's rate of well completions for that period mirrored Saskatchewan and B.C., which didn't have programs as generous, and seemed to climb and fall with the price of oil, despite the drilling stimulus program, the AFL reported.

University of Alberta energy economist Andrew Leach said the program was likely not as successful as the government claims and likely not as dismal as the AFL contends, because it can't be determined how many more jobs might have been lost without it.

"I think the truth is probably somewhere in the middle," Leach said. "What you really need is an account of what would have happened in Alberta in the absence of the program."

But Leach said the provincial government has an obligation to be open and accountable to Albertans since they own the resource.

"I think the government should be providing information on who is drilling and what they are paying in royalties," he said. "I can't really see a downside in releasing those numbers."

Alberta Energy spokesman Derek Cummings said the steps to encourage energy investment in Alberta "undoubtedly worked."

"Drilling activity declined from an all time high with the price collapse but would undoubtedly been even lower had it not been for the royalty credit," he said.

He said giving companies the ability to sell the credits ensured that new companies and companies with small production volumes would be able to participate in the program to drill wells and employ Albertans.

"The program also encouraged new technologies such as horizontal drilling that have played a large role in the increased activity today," he said.

Cummings pointed out that the province set records in petroleum and natural gas land sales for the last fiscal year.

Travis Davies, a spokesman for the Canadian Association of Petroleum Producers, said the programs were successful at keeping drilling rigs working during the downturn in the economy.

Hours of operation for drilling rigs jumped from 47,000 hours in 2009 to 76,000 hours in 2010, he said.

"I don't know how that equates to reduced employment in the oil and gas sector," he said. "If you increase operational hours, I don't understand how you have reduced employment."

Calgary Herald, Fri Jul 15 2011 Byline: Darcy Henton

With academics and everyone but the Tories themselves realizing that the government is too dependent on energy royalties, it was obvious Saturday's economic summit was little more than a feel-good exercise. Even the government itself said the meeting was a conversation about the direction Alberta needs to take moving forward and wasn't likely to shape next month's budget.

But of all that was said at the meeting, the best wisdom was expressed by the president of the Alberta Federation of Labour.

"Albertans are willing to make tough sacrifices when necessary. We're prepared to take it on the chin when we've been convinced it's the right thing to do," said Gil McGowan. "But allowing yourself to get punched in the face when it's not necessary is not brave and it's not noble. It's stupid."

McGowan's remarks appear to be in response to comments made by Tom Flanagan, who pointed out that the across-the-board cuts of Ralph Klein in the early 1990s balanced the province's books and set the stage for Alberta's economic boom.

Conservatives should heed what McGowan has to say, but instead, agree we shouldn't take tax increases on the chin while the budget has all but doubled in the past decade and a University of Calgary report found that 95 per cent of the increases in revenues during the same period were swallowed up by the public sector.

McGowan is right: we'll make sacrifices when necessary. But the fact the government can't do its job is no reflection on ordinary Albertans, who provide the highest tax contributions per capita in the country.The Calgary Herald, Sunday, Feb. 10, 2013

EDMONTON - The Alberta Federation of Labour says energy companies exploited a loophole in the province's drilling stimulus programs, forcing the province to spend about $2.9 billion, more than double the projected cost.

Government officials, however, say the incentive programs worked to stimulate the economy during the economic downturn and created jobs during the recession.

Federation spokesman Gil McGowan said Wednesday that documents obtained under access to information laws show it is clear the energy companies were squeezing as much out of the program as possible, at Albertans' expense.

"The governments' own staff knew that certain energy companies were gaming the system," McGowan said. "They presented that evidence to senior decision-makers within the government bureaucracy who have the ear of cabinet ministers.

"They could have taken action. They didn't."

McGowan said the federation is not against incentive programs that put people to work but that "there has to be some performance measures, there has to be some oversight.

"These foregone royalties represent the lion's share of the deficit, which the government has used to justify massive cuts to social services and public infrastructure," McGowan said.

"The government is telling Albertans the cupboard is bare for public services, but it's bare in large measure because of this irresponsible and out-of-control corporate giveaway."

Alberta's Drilling Incentive Program was announced in March 2009 to stimulate the economy during the recession.

It included three programs: the Drilling Royalty Credit, the New Well Incentive and the $30-million Orphan Well Fund.

The government originally said the incentives would cost about $1.6 billion in foregone royalty revenue over two years.

Budget documents show that in 2009, costs ballooned to $1.2 billion from the estimated $842 million. In 2010, costs surged to $1.8 billion from the original $732 million estimate.

The final price tag for the Drilling Incentive Programs was about $2.9 billion, roughly $1.3 billion over the budget.

Of that spending, the Drilling Royalty Credit accounted for $1.7 billion, more than triple the original estimated of $466 million. The New Well Incentive program cost for $1.2 billion, just over the initial estimated of $1 billion.

The documents released by the federation suggest bureaucrats knew the Drilling Royalty Credit program was going over-budget because energy companies were swapping credits on a "grey market" to increase the incentives they received.

Energy Minister Ted Morton said he was aware of the credit swapping.

"I was aware of the fact that the program was costing more than we anticipated. We looked at it, and we were getting good pick up and it was creating more jobs," Morton said.

"At the time we thought that if it gets the rigs back working again, then it's achieving its effect."

In 2009, fewer than one in five drilling rigs were working in Alberta. By 2010, that figure had climbed to one in three, due in part to the stimulus programs, Morton said.

Similarly, the number of rigs working had dropped to 141 in 2009 as a result of the recession. In 2010, 237 rigs were up and working.

Gary Leach, executive director of Small Explorers and Producers Association of Canada, said governments around the world launched stimulus packages at the time.

"I don't believe that companies were gaming the system," he said. "This wasn't a loophole. The program was designed to make sure the companies spent the money because the government wanted to make sure the companies were investing. ... These credits were designed to be transferred."

Leach said most of the money was spent in rural Alberta where "it gets turned into jobs, it gets turned into property taxes for rural areas, and it turns into royalty streams for the government.

"Two years later, I think it was a success. Nobody is looking for another one."

Edmonton Journal, Wed Mar 7 2012 Byline: Karen Kleiss

Ed Stelmach's program to stimulate drilling during the recession cost taxpayers $2.9 billion and failed to create promised jobs, new wells or new investment in the oilpatch, says the Alberta Federation of Labour.

AFL president Gil McGowan said Friday the federation's research shows the program merely padded the profits of major oil and gas companies in Alberta while depleting the treasury of revenue that could have been used to fund health care and education.

He has passed on AFL's findings to Alberta's auditor-general and also requested the all-party legislature public accounts committee investigate the program.

"When Albertans learn about this they will see this for what it is, which is an outrageous misuse of government funds," he said.

The program contributed to 55 per cent of the provincial deficit during the two years it was in effect — a cost McGowan estimated was 10 times the annual budget of Alberta Environment.

McGowan said the program also created a "loophole" in the form of a "grey market" for royalty tax credits that enabled smaller companies that had more credits than they needed to sell them to bigger companies.

Those companies were able to defray the amount they paid in royalties owed to Albertans without having to hire workers or drill new wells, he added.

McGowan said Albertans won't know who cashed in the credits because Alberta Energy keeps that information secret.

He quotes former energy minister Mel Knight saying the program would create jobs for Albertans and generate additional royalty revenue and production over the next 10 to 30 years.

Using statistics from Statistics Canada and the Canadian Association of Oilwell Drilling Contractors, the AFL showed the number of new wells being drilled decreased steadily during 2009 and 2010 and over the same period the province lost about 8,000 jobs.

Capital investment in the oil and gas industry swooned, but industry profits increased, the AFL says.

Alberta's rate of well completions for that period mirrored Saskatchewan and B.C., which didn't have programs as generous, and seemed to climb and fall with the price of oil, despite the drilling stimulus program, the AFL reported.

University of Alberta energy economist Andrew Leach said the program was likely not as successful as the government claimed and likely not as dismal as the AFL contends because it can't be determined how many more jobs might have been lost without it.

"I think the truth is probably somewhere in the middle," Leach said. "What you really need is an account of what would have happened in Alberta in the absence of the program and to say that Saskatchewan and B.C. are exactly like Alberta with the exception of these programs isn't true."

But he said the provincial government has an obligation to be open and accountable to Albertans since they own the resource.

"I think the government should be providing information on who is drilling and what they are paying in royalties," he said. "I can't really see a downside in releasing those numbers."

Travis Davies, a spokesman for the Canadian Association of Petroleum Producers, said the programs were successful at keeping drilling rigs working during the downturn in the economy.

The hours of operation for drilling rigs jumped from 47,000 hours in 2009 to 76,000 hours in 2010, he said.

"I don't know how that equates to reduced employment in the oil and gas sector," he said. "If you increase operational hours, I don't understand how you have reduced employment."

He noted Alberta just set a record for sales of oil and gas leases.

"Obviously there is some attraction to this province in terms of investment and I think part of that was the work that was done on royalties," Davies added.

Calgary Herald, Fri Jul 15 2011 Byline: Darcy Henton

EDMONTON – There's no denying the public sector took a hit in the 2013 Alberta Budget.

In fact, Gil McGowan, the President of the Alberta Federation of Labour claims Thursday's budget introduces the deepest cuts across the public sector that the province has seen since what he calls "the worst days of the Klein era."

As the province aims to deal with a roughly $2 billion deficit, it has flatlined spending. The budget's hard line applies to teachers, nurses, health sciences workers and civil servants. Many are in bargaining or about to start this spring. The budget also revealed about 80 civil service positions will be lost with more job cuts likely as the Redford government continues to reorganize departments.

So what does this all mean for the every day Albertan?

"It will hurt," McGowan says. "It will mean larger class sizes, it will mean less frontline service, and it's going to be very difficult for us to staff all these schools and hospitals that the government promises to build."

He believes that as the wealthiest province in Canada, if anyone should be able to pay for public service to move their economy forward, it's Alberta.

McGowan also thinks that the province's current fiscal problems date back to the time of Premier Ralph Klein.

"While it's true that he got rid of the deficit and the debt, he actually laid the groundwork for the deficit we're dealing with today – by slashing corporate taxes, introducing a flat tax that benefited the wealthy, and presiding over literally billions of dollars of royalty giveaways. When you give away your revenue source, you can't be surprised that you have a hard time funding things."

Political scientist Chaldeans Mensah of Grant MacEwan University points out that Klein did an "across the board cut."

"This government is using a different approach," he explains. "They want to borrow money, and this is why they've introduced the Fiscal Management Act that will allow them to borrow, and eventually it will create a debt, but they call it 'net financial assets,' so they've come up with a new term to describe the debt situation."

Mensah adds that in addition to trying to sell Albertans on this budget, she also has to sell her party on it.

"I think she needs to convince Tory party members that this new direction is not markedly different from the views in the past. She faces a leadership view in November, and if she's not careful, and doesn't sell this to the membership, there could be trouble politically."

Meanwhile, Finance Minister Doug Horner says he doesn't think public service unions should be surprised that the province did not allow for any salary increase. The government has warned for some months that salaries for teachers, doctors and nurses here are higher than elsewhere, he adds.

"When you look at comparative numbers from across Canada on a market-based perspective, we have the highest paid teachers and highest paid doctors in the country...This is somewhat of a reset for us to get us back to reasonable levels of expenditures."

Global Edmonton, Friday, Mar. 8, 2013Byline: Trish Kozicka, Global News

The budget cuts to post-secondary education will not only trickle down and affect the entire Lethbridge economy, they will also have a negative impact on the quality of education and threaten the autonomy and free speech that universities are founded on.

Those were some of the thoughts of several speakers scheduled to talk at a special session of the Southern Alberta Council on Public Affairs Tuesday evening.

The session addressed the question of whether the cuts to post-secondary education are justifiable. The University of Lethbridge's operating budget will be cut by about $12 million and Lethbridge College's operating budget by nearly $3.5 million.

Chris Nicol, economics professor and dean of Arts and Sciences, said the provincial budget and the letters of expectation that flowed to institutions in the aftermath have created both financial and philosophical challenges. He said he'd like to see the major universities collaborate more closely to craft a response to government.

"It's clearly bad news. From the financial side of things we had a written commitment from this government that certain things would happen this year and they've completely abrogated that agreement," Nicol said. "From a philosophical perspective, the Minister (Thomas Lucaszuk) almost seems to want to use the system for political purposes, tied with their own philosophy within the governing party and that's never what universities have been about."

In her role as the director of policy analysis for the Alberta Federation of Labour, Shannon Phillips sees how the cuts will trickle down.

"It's not just the support staff, the academic staff and the students and their families that this will have an effect on, but in an economy the size of Lethbridge's where post-secondary institutions are such a large employer and a large source of demand for goods and services, there are going to be spin-off effects through our city that have a great impact on the private sector, on small business, on new home starts, on home sales," she said.

Julia Adolf, vice-president academic with the U of L Students' Union, said the province's budget is not student-friendly, despite the government's assertion to the contrary. While tuition fees won't increase this year that could easily change next year.

"We could see the cap removed. We're very worried about that," she said, adding students are also worried that mandatory non-instructional fees will be hiked to compensate for the cuts.

The cuts will lead to larger class sizes, fewer course offerings and negatively affect student services, such as library hours or registrar services, Adolf said.

"They're very much talking about the homogenization of our university system and we're very scared that's going to lead to devaluing of our degrees," she said.

Bill Ramp, a sociology professor, said he has grave concerns about the cuts as they threaten the role post-secondary institutions play in a democracy. The seeming irrationality of the move may lead to an overall weakening of the system before their autonomy is eventually threatened.

"When you undermine the autonomy of universities in such a way that they threaten to become little more than a voice for the policy of the governing party of the day what you're doing is destroying another part of public space," he said. "If we're not prepared to defend free speech and autonomous research then where are we?"Lethbridge Herald, Wednesday, Apr 10 2013Byline: Caroline Zentner

The budget document includes a chart showing that every U.S. state is ahead of Alberta in collecting a fair share. The measurement used – called Combined Royalty and Tax Measure (CRTM) – is a composite of various forms of revenue collection and is a widely used measurement for the public share of oil and gas revenue.

2013 BackgrounderConventional Oil and Gas Royalties

Unconventional royalty breakscaused last year’s deficit: confidentialgovernment documents

Fact Sheet_Oil Companies' Profits

March 2013

2013 Fact Sheet_Revenue, spending and public sector wagesV3

When will Harper stop thinking as an oil CEO and start acting like he is prime minister of Canada?

VANCOUVER, BC, Jan. 27, 2012/ Troy Media/ – One of the most startling assertions contained in Natural Resources Minister Joe Oliver's controversial open letter, which was released on the eve of public hearings into Enbridge's tanker and pipeline proposal to B.C.'s West Coast, concerns how he equates shipping oil to Asia as unquestionably being in the "national interest."

There are at least five key reasons why he's wrong.

1) Protecting B.C.'s coast is about protecting B.C. jobs. According to a B.C. government report, more than 45,000 people are permanently employed by B.C.'s coastal seafood and ocean recreation industries. We're not just talking the fishing fleet, but also processors, anglers and tour operators. Enbridge's pipeline and tankers project will create 560 long-term jobs in B.C., but an oil spill could wipe out 45,000 jobs – in other words, B.C. would be risking 80 jobs for every one it stands to gain.

2) Canada's already got a bad case of Dutch Disease. When a currency becomes tied to the price of a single commodity, such as oil, due to a rapid surge in exports, it frequently causes job losses in the manufacturing sector. When this happens, it's called Dutch Disease. A recent University of Ottawa study found that Dutch Disease was responsible for 42 per cent of currency-related job losses in Canada between 2002 and 2007. That works out to about 140,000 jobs lost in the manufacturing sector because of the rapid expansion of the oil sands.

3) Exporting raw bitumen exports Canadian jobs. A recent public opinion survey by ThinkHQ shows 84 per cent of Albertans would prefer to see oil sands bitumen refined in their province. Further to that, 81 per cent of Albertans think the government should be taking steps to increase the amount of oil sands upgrading and refining provincially.

Even the Alberta Federation of Labour, which represents 29 unions and 145,000 workers, has spoken out against Enbridge's tankers and pipeline proposal because it would export unrefined bitumen – and 50,000 high-quality jobs – to China. Dogwood Initiative is not prescriptive about whether new refineries should be built or where (because we believe local people should make those decisions), but one thing is certain: it never makes sense to sell the wood and buy back the chair.

4) Half of Canada is reliant on foreign oil. Most of eastern Canada is currently dependent on foreign oil from declining or volatile reserves in the North Sea and the Middle East. If our government really cared about the best interests of Canadians, they'd be at least considering Canadian domestic energy security. Instead, they are selling off our oil to foreign oil companies and pushing to allow them to ship it to Asia on supertankers through an ocean environment that Environment Canada rates as the fourth most dangerous body of water in the world (which also just so happens to be one of the last remaining pristine places on the planet).

As former senior federal government geologist David Hughes writes in his 30-page report submitted to the joint review panel: "The proclivity to liquidate these resources as fast as possible in the name of economic growth is a very short-sighted policy practised by the Alberta and federal governments at the expense of the long-term energy security of Canadians."

5) What's the hurry? It is former Alberta premier Peter Lougheed who says that we should go slower on oil sands/pipeline expansion and use the oil we have left in the ground wisely. And one of Canada's top investors, the 85-year-old Stephen Jarislowsky, has said: "Long term, I think oil in the ground is a good asset."

Enbridge's pipeline and tanker scheme is predicated on the assumption that oil sands production could (and should) be tripled in less than 25 years – that calculation goes beyond even the Canadian Association of Petroleum Producers' predictions. Without that expansion, there is no oil to fill West Coast pipelines.

Given the plethora of unaddressed environmental and social concerns related to oil sands developments (as pointed out by six independent reports in 2010 and 2011), Canadians should be thinking long and hard before embarking on further rapid expansion. After all, this is a valuable non-renewable resource that we only get to dig up and use once. Let's use it in the best interests of Canadians, not for the short-term gain of multinational oil companies.

Every time you hear the federal government say "national interest," insert "corporate interest" and you'll see a clearer picture. The prime minister is abdicating his responsibility to serve in the best interests of Canadians – and Canadians, such as University of Alberta political economy professor Gordon Laxer, are right to be asking: when will Harper stop thinking as an oil CEO and start acting like he is prime minister of Canada?

Emma Gilchrist is a former Calgary Herald reporter who is now the communications director for Dogwood Initiative, a Victoria-based non-profit that brings together British Columbians to reclaim decision-making power over their air, land and water. Sign Dogwood's petition at notankers.ca.

Troy Media, Fri Jan 27 2012 Byline: Emma Gilchrist

As energy ministers from around the country gather in Kananaskis this week, it's starting to look like the Alberta government is engaging in an old-fashioned game of bait and switch.

Alberta Energy Minister Ron Liepert has billed the meeting as a potentially historic gathering at which politicians will begin long-overdue discussions towards the creation of a truly pan-Canadian energy strategy.

But are Liepert and other members of the Alberta government really interested in using the meeting in Kananaskis to develop an energy strategy that works for Canadians in all regions of the country?

Or is this whole exercise an elaborate attempt on the part of the Alberta government and its patrons in the oil patch to win support from other provinces and the federal government for their controversial plans to build bitumen export pipelines to the U.S. Gulf Coast and the port of Kitamat in B.C. (the "gateway" to China)?

It's clear that some groups involved in the process are sincerely committed to a wide-ranging discussion about what's really best for Canadians when it comes to energy policy (the respected and even-handed Canada West Foundation is particularly notable in this regard).

But it's also clear that a number of extremely influential individuals and groups have already made up their minds: they want bitumen pipelines, no matter how many good jobs in upgrading, refining and petrochemical production those pipelines might end up exporting to the U.S. and China.

Unfortunately, Minister Liepert appears to fall into the category of pipeline salesmen rather than the category of big-picture policy thinkers.

The same can be said for the Canadian Council of Chief Executive Officers and EPIC, a new think tank created by a coalition of major oil companies, which have both recently released reports calling for – you guessed it – more bitumen export pipelines and quicker approvals for oil and gas projects in general.

Instead of slapping together a plan for a couple of questionable pipelines and calling it an energy policy, Canada's energy ministers should set their sights much higher. Here are a few issues that cannot be ignored if federal and provincial politicians are serious about doing more than putting a bow on the status quo and declaring their work done.

Value-Added Jobs: Former Alberta Premier Peter Lougheed is right when he says that, when it comes to the oil sands, the real jobs are in upgrading and refining. According to a study done by the forecasting firm Informetrica for the Communication, Energy and Paperworkers union (CEP), if the volume of raw bitumen expected to be sent down the Keystone XL pipeline were instead upgraded here, it would create more than 40,000 direct and indirect Canadian jobs. It would also generated hundreds of millions of dollars in additional tax and royalty revenue for Canadian governments – revenue that could help pay for services that Canadians value like education and health care.

Now that the world is teetering on the verge of yet another recession, we simply can't afford to lose so many jobs and so much potential revenue "down the pipeline."

In order to avoid this fate, Lougheed has been exhorting Albertans to "think like owners" and demand long-term job creation as a condition of development in the oil sands. Unfortunately, our current policy makers continue to focus on "ripping and shipping" our resources instead of finding ways to move up the value chain. In fact, if you add up the bitumen export capacity of the XL pipeline and the existing Keystone and Alberta Clipper pipelines, energy companies will be able to export ALL of the expected increase in oil sands production for the next 20 years. In other words, we'll be closing the door on a real value-added strategy for a generation.

The big question from the Canadian labour movement's perspective is this: once the construction jobs on pipeline and extraction-only oil sands projects are complete, where will the jobs for Canadians come from? A real Canadian energy strategy simply must have an answer to this question.

Energy Security: Like it or not, we live in a world that runs on oil. For the time being at least, individuals and businesses simply can't make do without the stuff. Yet Canada is the only major oil producing jurisdiction in the world that doesn't have a coherent national strategy that puts their interest of its citizens first.

The results are perverse. Despite our status as a net energy exporter, Ontario, Quebec and the Maritime provinces import roughly 700,000 barrels of crude oil a day from places like Saudi Arabia, Algeria, Nigeria and Venezuela. In fact, Quebec and the Maritime province import more than 80 percent of the oil they use from outside Canada. Why? Because almost all of our pipelines run north-south. Shockingly, we don't have the infrastructure to send western oil to our fellow citizens in the eastern half of the country.

Minister Liepert and others are right when they say we should be looking for new markets for our oil: after all, demand from our biggest costumer, the U.S., is stagnating and quirks of the U.S. distribution system mean we're not getting world price for what we sell.

But if new markets are what we're looking for, doesn't it make more sense to build pipelines connecting west and east within our own country before building pipelines to supply refineries in Texas and China? Building pipelines to supply the Canadian east as opposed to the Far East also has the benefit of keeping the jobs, profits and tax revenue associated with upgrading and refining within Canada.

Economic Impact of Oil: Driven by massive investment in the oil sands, Alberta's energy sector has become the driving force behind the Canadian economy. This has been great news for Albertans and the hundreds of thousands of other Canadians who have flocked to our province to participate in the boom. But from a national perspective, by relying too heavily on the energy sector, we run the risk of developing what economists call Dutch Disease. This is an economic condition in which a booming energy sector drives up the currency and oil-related investment but, in the process, drives down investment, profits and jobs in other sectors, particularly manufacturing.

Any national energy strategy worth its salt would recognize this threat and take steps to deal with it. One possible solution is the one offered by former Alberta premier Peter Lougheed: set a slower pace for development in the oil sands. By proceeding with five or ten projects at a time (instead of the sixty-plus that are currently on the books) we would reduce the likelihood of developing a full-blown case of Dutch Disease. As added benefits, a more reasonable pace for development would also make it easier to address cumulative environmental impacts and it would reduce (perhaps eliminate) the need to bring thousands of temporary foreign workers into the country to supplement the domestic construction labour force. In other words, a slower pace for development would ensure that it would be Canadian workers who would benefit most from the construction of major Canadian resource projects.

Royalties: Royalties are not taxes. They are the price that forestry, mining and energy companies pay to develop resource assets owned by Canadian citizens. The good news is that royalties generate billions of dollars each year, especially in resource-rich provinces like Alberta, Saskatchewan and Newfoundland. This is money that we use to build need infrastructure and fund vital public services like education and health care. The bad news is that we don't always (or even often) get the best possible price for the sale of our assets. In Alberta, for example, under the Stelmach government we're actually collecting fewer royalties as a share of our overall energy oil and gas sector's revenue than the Social Credit government did in the late sixties (and less than a third of the proportion that was collected under Lougheed). To rectify this problem, and ensure Canadians get the best possible price for the sale of their assets, a national energy strategy could introduce a truly national process for setting and bargaining royalty rates, so that energy companies could no longer play one jurisdiction against the other. The bottom line is this: in an environment characterized by historically high oil prices and rapidly declining options for oil companies in other parts of the world, provinces like and Alberta, Saskatchewan and Newfoundland hold all the cards. By cooperating, we can play those cards more aggressively and successfully. Energy companies won't fold or leave the table, because they have nowhere else to go.

Transition: A post-carbon economy is years away, but make no mistake: it's coming. It's coming because the science around global warning is real and frightening; because a global political consensus has emerged in support of a greener economy; and because, more practically, the world is running out of oil (at least cheap oil).

This doesn't mean that we should stop developing our oil resources. The oil sands are one of our countries most valuable assets at the moment and it would be foolish not to exploit them. However, what the coming of a post-carbon economy does mean is that we're going to have to start looking at the oil sands in a different way. In particular, we should very consciously start thinking of the oil sands as a transitional resource: a resource that will help provide us with the revenue necessary to build the next, greener economy in Canada.

If Alberta can agree to a national energy strategy that uses the oil sands as a bridge to a better future for the entire country, then not only will our countriy's economic prospects be brighter, we may also be able to manage the "politics of envy" that inevitably come from one province having so much more wealth than other.

In the end, Minister Liepert is right about one thing: the meeting in Kananaskis has the potential to be historic. But that will only happen if he and other provincial energy ministers dare to think and dream big. Most importantly they have to understand that a true national energy strategy has to be much more than a plan to build a couple of pipelines that export jobs along with our oil. We can do so much better. In fact, for sake for future generations of Canadian, we need to do much better.

Gil McGowan is president of the Alberta Federation of Labour. The AFL represents 145,000 unionized Albertans, including about 25,000 who work in energy related jobs in Alberta.

An edited version of this column appeared in Calgary Herald, Tues Jul 19 2011

EDMONTON - A pair of left-leaning advocacy groups have teamed up on a new pre-election advertising campaign to attack the Alberta government's tax and royalty structure.

The $200,000 campaign from Public Interest Alberta and the Alberta Federation of Labour makes the case that budget deficits run by the province are due to the government's unwillingness to get more revenue from high-earning individuals, corporations and energy companies.

"We are here to say Alberta has a broken tax and revenue system," Bill Moore-Kilgannon, executive director of Public Interest Alberta, said Wednesday.

He made reference to U.S. President Barack Obama's state of the union speech Tuesday, in which Obama called for the wealthy to pay more.

The Better Way Alberta campaign features a website, betterwayalberta.ca, a mail-out, and a series of radio ads that will run over the next two weeks, mostly in Edmonton.

Alberta Federation of Labour president Gil McGowan called the campaign "cheeky." One of the radio ads features a fake foreign oil billionaire praising the Alberta government for its tax policies, while another features a shot at education cuts by depicting a child struggling to sing the alphabet song.

The campaign cannot run when the election is called due to new rules restricting third-party advertising. McGowan said his group is consulting with lawyers to see if the website can remain operational during the election, expected this spring.

The AFL was involved in the Albertans for Change campaign during the 2008 election that targeted the Conservatives for having "no plan." Since the Conservatives won that election with another huge majority, McGowan said his group learned a lesson to "focus on issues rather than personalities."

He said Better Way Alberta is designed as a challenge to all political parties to declare the positions on various questions, such as whether they agree with Alberta's flat-tax rate and whether royalties should be raised.

"We're not trying to paint anyone as a bogeyman," he said.

Many of the arguments and statistics used by the campaign are from the work of Liberal MLA Kevin Taft in his new book, Follow the Money.

Edmonton Journal, Wed Jan 25 2012 Byline: Karen Gerein

EDMONTON - Oil and gas companies have used $2.9 billion of public money to boost their own profits, while the government lays off over a thousand educational staff and professionals according to Gil McGowan, president of the Alberta Federation of Labour.

"It is staggering to me that this government is putting the education of our students in jeopardy because it says that it cannot afford to fund schools at an appropriate level, while it literally gives away billions of dollars to companies that are already very profitable," says McGowan, noting that 55 per cent of the government deficits for the 2008/09 and 2010/11 fiscal years were because of the $2.9-billion Drilling Stimulus.

"Albertans were told that for $2.9 billion, we'd get new jobs and increased oil and gas drilling," says McGowan. "The $2.9-billion Drilling Stimulus did none of these things. It did not create jobs – jobs in that sector declined over the run of the program. It did not stimulate new drilling – new well starts declined with the stimulus."

The Drilling Stimulus Initiative created a "grey market" – a legal, unregulated market - where companies could buy and sell royalty credits used to reduce payments to the Crown with no strings attached. This grey market allowed companies owing royalties to the Alberta public to reduce what they owed by simply writing a cheque: No new jobs or drilling required.

Where the $2.9 billion in drilling stimulus cash went is secret. Under Section 50 of the Mines and Minerals Act, this information is confidential except for the Minister of Energy and a handful of government staff.

"We are calling on the Alberta Legislature's Public Accounts Committee, who has the authority to review and report all public accounts of the province of Alberta, to convene a special review of this program," says McGowan. "$2.9 billion of public money simply vanished without any of the promised outcomes and without any public accountability. This is simply unacceptable, particularly when we are in an era of record government deficits.

"We have often said that the reason that the government is cutting our important public services is not because they cost too much, but rather because the government is not collecting enough revenue to pay for them," says McGowan. "This is a classic example of the government mismanaging public money and the ones who pay the consequences are average Albertans. This fall it will be our school children who will be suffering because of this government's misguided decision making.

"It's time that the Progressive Conservatives realize that they are meant to be working for the people of Alberta, not profitable private industries."

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MEDIA CONTACT: Gil McGowan, AFL president, 780-218-9888

Alberta's $2.9-billion Drilling Stimulus: Where did the money go? (report) Alberta's $2.9-billion Drilling Stimulus: Where did the money go? (fact sheet) Alberta's $2.9-billion Drilling Stimulus: Where did the money go? (powerpoint presentation - July 15, 2011 Press Conference, Chateau Lacombe, Edmonton)

Edmonton - Alberta Federation of Labour president Gil McGowan will participate in the pre-budget lock-up alongside other stakeholder groups.

McGowan says he has concerns about the direction that budget discussions have taken, and is glad to have an opportunity to look over the document in advance.

“Ralph Klein celebrated getting us out of debt by putting us back on the road to debt,” AFL president Gil McGowan said. “The reason that the Redford Government is having problems with budgeting is that they haven’t stopped giving Ralph Bucks to the province’s super rich.”

The lock-up, which allows media and stakeholders to read and analyze the budget before it goes public, is a longstanding parliamentary tradition. This is the first year that the AFL has been allowed to join the lock-up.

“We appreciate the unique role that journalism plays in a democracy, and we therefore have always supported media organizations being granted early access through the lock-up,” AFL president Gil McGowan said. “But the Canadian Taxpayers’ Federation is not a media organization. They’ve used their exclusion from the lock-up to create unnecessary drama.”

When last-minute collusion with the Wildrose Party allowed some other groups to join the lock-up, the AFL made a formal request to the office of Finance Minister Doug Horner.

“We’re pleased to have been given an advance opportunity to see how this budget will affect the more than 160,000 union members we represent,” McGowan said.

MEDIA AVAILABILITY:

Immediately following release of the provincial budget (Estimated at 3:30 pm)Alberta Federation of Labour president Gil McGowanLegislature Rotunda

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 MEDIA CONTACTS:

For more information, please contact Olav Rokne, AFL Communications Director at 780-289-6528 (cell) or via email orokne@afl.org.

Gil McGowan, President, Alberta Federation of Labour will be available by phone at 780-218-9888 (cell) to out-of-town media following his in-person availability.

"This year's budget shows the Progressive Conservative Party is more concerned about the Wildrose Alliance than it is about Alberta's workers, families and communities."

That's the reaction to the provincial budget from the Alberta Federation of Labour.

President Gil McGowan notes that this year's budget contains $6.6 billion in infrastructure spending, while program spending will not increase over last year, meaning a reduction when inflation is taken into account.

"After years of neglect, Alberta needs infrastructure investment," says McGowan. "However, without adequate program funding, Stelmach's legacy will be empty hospitals and schools. There is little point building new health facilities and schools if we don't have the funds to hire staff to run them."

McGowan says the budget proves the Tories are like the Wildrose Alliance in another important way: both parties only look at the spending side of the budget and ignore the revenue side.

"This budget is totally bereft of any plan to deal with the billions of dollars the government is failing to collect by not meeting its own targets on royalty revenues. The provincial purse lost about $37 billion in the last decade thanks to this madness," says McGowan.

"Like the Wildrose Alliance, the Tories are willing to let billions of dollars disappear because of politically motivated giveaways and a shoddy collection system."

ctvcalgary.ca, Fri Feb 25 2011

Federation president to set the record straight on bitumen glut

Edmonton – AFL president Gil McGowan will be tackling Alberta’s revenue problem this Saturday at the Alberta Economic Summit.

The summit will bring together industry, not-for-profit leaders, academics and government members to discuss Alberta’s economic future in light of the current low price of bitumen. McGowan will use this opportunity to ensure revenue reform and oil royalties are part of the discussion on how to tackle the deficit.

“In the debate so far, we’ve heard a lot of misinformation, some obfuscation – and even outright lies,” McGowan said. “Our economy is red hot. Balancing the budget should not be difficult, unless you’re either being deliberately dishonest, or you’re just bad at math.”

McGowan noted that Alberta does not spend more than other provinces on services, and when looking at expenditures on public services as a percentage of the economy, actually ranks dead last in Canada.

“We need to make sure that revenue is part of the discussion,” McGowan said. “By the government’s own numbers, we could collect $10 billion more in taxes and still be the lowest taxed province in Canada. We could use that $10 billion to protect and strengthen public healthcare and education.”

The summit, which will be held at Mount Royal University in Calgary, will involve four moderated panels. McGowan has been asked to participate in the moderated panel on “Balancing Expectations on the Services Albertans Need.” He notes that the ‘Services Albertans Need’ are already understaffed — Alberta has nearly the fewest public employees per capita in the country.

“It’s childish to think that Alberta can maintain good public services without having a revenue base to pay for them,” McGowan said. “That means royalty reform and it means returning to a progressive income tax like Alberta had before 2001.”

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AFL Factsheet:  “Revenue, spending, and public-sector wages”

MEDIA CONTACTS:

Gil McGowan, President, Alberta Federation of Labour at 780-218-9888 (cell)Olav Rokne, AFL Communications Director at 780-289-6528 (cell) or via email orokne@afl.org.

Alberta now suffers from too much of a good thing or what some wags call "the paradox of plenty."

Although blessed with the richest endowment of oil and gas in Canada, the bitumen exporter simply can't pay its bills or manage its oil wealth in a fiscally disciplined manner. Moreover, the government has failed to collect its fair share of oil profits let alone save any of this one-time inheritance for a rainy day. Nor can it table a balanced budget any better than a tin pot banana republic. For the last four years the province has recorded four deficits in a row totalling $10 billion. Wedded to increasingly volatile oil and gas revenues that have dropped by 50 per cent ($7 billion) since 2006, Alberta's government now offers but one innovative solution - that Albertans pray for another oil boom. 1

The whole sorry predicament confirms what many citizens still find impossible to accept – that Alberta is just another troubled petro state. Although the media and academia are loath to recognize the condition, the province has been massively bent out of shape by its crippling love affair with petro dollars.

For decades, economists have thoroughly documented that governments that run on oil revenue don’t behave normally. They not only lose their civil discipline, but eventually stop representing taxpayers altogether. The state, in short, becomes oil fettered, oil stained and oil obsessed. Political scientist Terry Karl defines the unhealthy addiction bluntly: “Oil revenues are the catalyst for a chronic tendency of the state to become over-extended, over-centralized and captured by special interests.”

Karl, who teaches at California’s Stanford University, knows what she’s talking about. Thirty years ago, Juan Pablo Perez Alfonzo, the Venezuela lawyer and father of OPEC, advised the budding political scientist to study “what oil is doing to us” because Alfonzo believed the money “will bring us ruin.”

Stirred by Alfonzo’s prescient advice (Venezuela is poorer today than when Alfonzo issued his warning), Karl has been analyzing the fortunes of petro states ever since. Drawing on the seminal work of Canadian economic historian Harold Innis, Karl specifically looked at how a government dependence on income from a single staple such as bitumen or natural gas, can weaken institutions, dumb down policy, concentrate power, cripple the economy and even hinder democracy.“Petro states are not like other states,” concluded Karl in trailblazing 1998 book The Paradox of Plenty: Oil Booms and Petro States.

She discovered that oil left a tell-tale crude imprint on nations as diverse as Algeria, Qatar, Ecuador, Russia, Alaska and Iraq. Oil booms not only engendered spending manias but poor statecraft, pathetic tax regimes, political extremism and long periods of often authoritarian rule. Oil-exporting nations, she wrote in a 1998 essay, The Perils of the Petro-State, “rely on an unsustainable development trajectory fuelled by an exhaustible resource – and the very rents produced this resource form an implacable barrier to change.” She found but few exceptions: Norway and Britain. And even they have oily problems. 2

Karl’s conclusions have been confirmed and buttressed by a legion of scholars. Researchers as varied as Michael Ross at the University of Southern California and the Nobel prize-winning economist Joseph Stiglitz have commented on the peculiar and often destructive character of petro states. In an essay on Russia’s petro rulers, Peter Rutland, a U.S. scholar, recently noted that resource wealth also poses a hefty moral hazard: “The society (and its leaders) start to think that it is richerthan it really is, and fritters away the energy rents in excessive consumption or infrastructure investment. Social inequality and political instability tends to increase."3

By definition petro states, whether Christian or Muslim, earn more than 20 per cent of their revenue from hydrocarbons. That's makes Alberta a bona fide member of the global petroleum fraternity. Oil and gas account for nearly a quarter of the province's GDP as well as one-third of government revenues and more than 70 per cent of all exports. In contrast Libya, a morbidly dark petro state, depends on oil for 90 per cent of its export sales and a quarter of its GDP, too. (Norway offers a similar profile: Oil and gas account for 25 per cent of the GDP and more than half of all exports. And so on.)4

Perhaps the first major symptom of "petrolization" are low taxes. Oil states, such as Wyoming, Alaska and Saudi Arabia run on hydrocarbon revenue and tax their citizens lightly or not at all, notes Karl.

Even Alberta Finance, which can't balance a provincial budget, still proudly proclaims on its website that the province has the lowest personal taxes in Canada and among the lowest business taxes.5 While neighbouring Saskatchewan and B.C. governments collect an average of $1,000 in sales taxes from their citizens, Alberta demands but $141. As a consequence oil profits, not citizens, pay for roads, schools and hospitals.

This reliance on oil, one of the world's most volatile commodities, leads to bust-and-boom government spending sprees. A 2010 report by the C.D. Howe Institute disclosed that Alberta has the most volatile government revenues, with the most predictable of results: "Volatile revenues can lead to the inefficient provision of government services" and "stop-go" fiscal policies.6

A petro state's dependence on petro dollars, changes both the governed and quality of governance argues Karl. Oil revenue not only detaches the government from duly representing its citizenry but produces a citizenry "less likely to demand accountability from and representation in government."

No representation without taxation might also explain why Alberta records some of the lowest voter turn-outs in the country. In 2008, 60 per cent of eligible Alberta voters stayed away from the polls. In the absence of direct taxation, notes Karl, the residents of petro states, "tend to politically inactive, relatively obedient and surprisingly loyal."

Over time, oil revenue can either strengthen authoritarian regimes or weaken democratic ones. The reasons are simple: oil states can, with petro dollars, buy consensus or marginalize dissidents. With few exceptions (Norway again) most oil-exporting nations tend to be ruled by long-reigning demagogues (even Louisiana had the demagogue Huey Long) or a single governing party for extraordinary lengths of time. Alberta disturbingly supports Karl's analysis. In fact, one highly centralized party has ruled the province for 40 years. No other North American jurisdiction boasts such an unparallelled record of political control except Mexico. The extremely autocratic and corrupt Institutional Revolutionary Party (PRI) governed that country for nearly 70 years with the help of Mexico's formidable oil wealth. Oil dollars also cemented the long reigns of Suharto in Indonesia, Saddam Hussein in Iraq and Hugo Chavez in Venezuela. Oil, too, has kept Col. Moammar Gadhafi in power for 42 years.

To maintain power, petro states invest heavily in public relations and nourish their own brazen propagandists. In Venezuela, American lawyer Eva Golinger has attacked critics of Hugo Chavez's dysfunctional regime as decadent agents of U.S. imperialism. She even helped to write a law intended to limit foreign contributions to political parties and non-profit organizations critical of Venezuela's unwieldy petro state.7

In Alberta, Calgary lawyer and Tory activist Ezra Levant has performed much the same role. The former tobacco lobbyist has attacked environmentalists and non-profits critical of rapid oil-sands development.8 To silence public debate about the pace and scale of the project, he's also declared Alberta's low-grade bitumen as "ethical." Sounding like many Saudi autocrats, he's also called for the jailing of members of Greenpeace. Although the two lawyers represent different ends of the political spectrum, they play the same role in a petro state – deflecting criticism away their inept rulers.

Concentration of power is another hallmark of the petro state. Alberta is a barrel full of centralizing initiatives. In 2008, for example, the Alberta's Tories dissolved nine regional health boards and concentrated all power into one superboard. Although the government assured citizens that the move would bring more standard, accountable and integrated service, the concentration of political power simply produced a crisis in emergency-room care that erupted in widespread public protest. Faced with a basic issue of statecraft, the government elected the daftest of solutions – make it bigger. The government is now contemplating the creation of a super energy board, too.

Alberta's petro rulers have attempted power grabs in other arenas. In the last two years, the ruling party passed three pieces of legislation (Bill 19, Bill 36 and Bill 50) that effectively placed more power in the provincial cabinet; diminished the authority of local municipalities; eroded property rights and prevented the courts from ruling on political decisions. Due to widespread protest, the government has promised to review the wording of the Soviet-like bills.9

Another curse that befalls oil-dependent states is something called "the Dutch Disease." After an offshore natural gas boom rattled the Netherlands in the 1970s, the country experienced a rising currency. The country's "petro guilder," in turn, made it harder for exporting businesses to sell their goods abroad.

As a result, both manufacturers and farmers languished. As Karl notes "persistent Dutch Disease provokes the rapid often distorted growth of services, transportation and other non-tradeables while simultaneously discouraging industrialization and agriculture – a dynamic that most policy makers seem incapable of counteracting."

Alberta (and increasingly Canada) now lives with a sure case of the Dutch Disease, but with total political indifference. 10

A 2009 report on Alberta Industry Sector Performances by PricewaterhouseCoopers deftly described all the symptoms.11 The oil and gas industry now accounts for 33 per cent of the province's gross economic output or its highest share in two decades. As the province ships more and more raw bitumen (nearly 50 per cent of all oil exports) the province's oil industry and transportation have predictably flourished.

But the province's growing dependence on bitumen has paralyzed other sectors. Service employment growth exceeds that of industrial manufacturing, which is almost exclusively bitumen related. Meanwhile primary agriculture has recorded GDP negative growth while the province's agri-food sector "is becoming less competitive" due to rising prices and the petrodollar. Forestry, value-added energy industry (petroleum and chemicals), plastics and farming have all taken a tumble. Makers of wood products hit their lowest production levels since 1996. Spending on research and development has suffered In fact, Alberta ranks last in innovation among four of Canada's largest provinces.

When not hollowing out the economy, petro states also spend great gobs of money. In per-capita terms, the Alberta government, for example, spends 40 per cent more than Ontario or 30 per cent more than British Columbia.12 Much of the money goes to oil-based infrastructure or special interests.

Alberta's spending plans boggle the imagination. According to the Alberta Carbon Capture and Storage Development Council, up to $60 billion of federal and provincial spending will be needed over the next two decades to bury private carbon emissions underground using unproven technology. 13 It has also allotted more than $14 billion to overbuild an electrical transmission system without public-needs assessments.14 Even industry concedes the plan could bankrupt the province. But what often appears as economically inefficient decision making, says Karl, is really "an integral part of the calculation of rulers (in a petro state) to retain their political support by distributing petrodollars to their friends, allies and social support bases." 15

Many petro states are also incapable of saving. They simply spend for today, a philosophy well rooted in Alberta's politicians. In 1976, the visionary Premier Peter Lougheed created the Alberta Heritage Savings Trust Fund and directed 30 per cent of all hydrocarbon revenues to the savings account. But successive governments later capped and then looted the fund to solve their own bad spending habits. Between 1987 and 2006, no new payments graced the fund. Today, the grossly mismanaged account is worth a paltry $14 billion.16 That sum wouldn't even cover the cost of reclamation liabilities ($20 billion) for mining waste in the oil sands.

Based on the political abuse of the Alberta fund, Norway created an ironclad pension fund in 1996. Politicians can't even touch the money. As a consequence it's now worth $500 billion. A 2007 Alberta Finance report titled Preserving Prosperity warned that Alberta could end up looking like a ghost town this century unless it saved $100 billion by 2030. It even pleaded the obvious: "So if we do not save today, it is entirely possible ... that future governments will not have the necessary revenues to pay for core services that Albertans require and expect particularly education and health care."17

In 2008, the Organization for Economic Co-operation and Development (OECD) chastised the Alberta government for having no "framework or long-term" savings plan for oil revenue. It also recommended that Alberta "should save all of its oil revenues in a foreign asset fund, as Norway does, spending only smoothed yearly fund income." Not surprisingly, Alberta's ruling party ignored both reports.

Every oil-exporting state displays some form of "petromania" or the tendency of the government to put "the needs of the oil industry above else." Alberta's petromania is most pronounced in the state's uncritical approach to rapid bitumen development. Since 1996, the government's regulator, which is 63-per-cent funded by industry, has approved nearly 100 projects worth more than $100 billion in the oil sands. It has done so without a risk analysis or cumulative-impact assessment on how the mega-project will unsettle Fort McMurray, the province's water or even Alberta's relationship with the rest of Canada.

Alberta's deference to the oil patch also comes in the form of slipshod environmental monitoring. Even the U.S. Council on Foreign Relations, a non-partisan agency, clearly recognizes that the Alberta government is "skeptical of environmental management." Pollution monitoring on the Athabasca River, which the ruling party has repeatedly defended as "world class," has been found to be negligent and inadequate by five separate national and provincial studies.18

The government's cozy relationship with oil's special interests is best exemplified by the government's disdain for royalties or a fair share of oil profits. Since 1994, Alberta's ruling part has reviewed the state of royalties only twice. A damning 2007 royalty review and a separate royalty study by the U.S. Government Accountability Office both confirmed an ugly truth – that Alberta charged among the lowest royalties on the continent. In fact, it charged less for its hydrocarbons than Wyoming, Louisiana or California.19

In a review of Canada's energy sector, the OECD noted that Norway left companies with 22 per cent of net revenue, while Alberta "generously" allowed companies a haul of 53 per cent.20 One former energy minister, Murray Smith, accurately described the Alberta model in the oil sands as a "give-it-away" formula to a Texas audience in 2006. (Low royalties and low taxes also account for the rapid development of the oil sands says the U.S. Council on Foreign Relations.) 21

In 2010 the Edmonton-based Parkland Institute calculated that Alberta's inept one-party state has failed to capture $37 billion over the last decade due to lacklustre accounting.22 After the auditor general criticized the government for leaving billions on the table by not meeting its own modest collection targets of 50 to 75 per cent, the ruling party commissioned a report attacking the very role of the watchdog. It contained this revealing petro sentence: "To criticize government decisions and even promote alternative policies is contrary to the principles of Alberta's democracy."23

The window for change in a petro state predictably opens when oil prices fall, says Karl. That's when the ineptitude of oil-addled elites becomes most glaring in the form of massive deficits, crazy spending schemes or public prayers for redemption. Almost on cue, two new political movements emerged in Alberta after the oil shock crash of 2008 – the Wildrose Alliance and the Alberta Party. The electoral record also shows that opposition parties such as the New Democrats or Liberals also score significant gains during periods of falling oil prices. Even the province's ruling party notably came to power in 1971 just prior to skyrocketing oil prices.

Oil's volatile economics have also unsettled the Progressive Conservatives. In early 2011, a nasty debate about how to deal with deficits and good governance resulted in the abrupt announcement by Premier Ed Stelmach that he would soon resign. But fickle markets can also help petro states keep their grip on power, says Karl. "Ironically, high prices tend to close this window of reform."

Given these startling realities, reforming a petro state is not for the faint of heart. A government flush with petro dollars simply has the financial wherewithal to fight reform or manipulate voters on an unprecedented scale. Karl maintains that there are only three antidotes to the dysfunction of a petro state: Transparency (clear reporting on royalties and 

savings); participation (direct taxation); and good governance (bureaucracies funded by direct taxes as opposed to oil loot.)24

To date, only former Premier Peter Lougheed has presented a coherent reform package for the province. Yet the elder statesman has been marginalized and vilified for doing so. In response to the rapid and ruinous development of the oil sands, Lougheed carefully laid out his radical plan in a series of interviews beginning in 2006.25 Some day Albertans might well refer to his declarations as Peter's Principles. They are elegant yet practicle: Slow down. Behave like an owner. Collect our fair share. Save for the future. Clean up the mess. The first political party that champions these reforms could well rewrite Alberta's oily geography.

But charging higher royalties alone won't change the character of a petro state until the majority of Alberta's oil revenue ends up in a Norwegian-like pension fund. Norway, the poster boy of transparent petro states, tellingly and responsibly runs on carbon taxes. But until Albertans boldly diagnose and openly talk about the real cause of the province's poor political health, the province will continue to be cursed with dysfunction, volatility and incompetence.

(Andrew Nikiforuk is an award winning Calgary-based journalist and author of Tar Sands: Dirty Oil and the Future of The Continent.)

Footnotes

1 www.energy.alberta.ca/Org/Publications/AR2010.pdf

2 http://politicalscience.stanford.edu/faculty/documents/KarlParadox.pdf

3 www.aspe.spb.ru/Papers/25_1.pdf

4 www.finance.alberta.ca/business/tax_rebates/index.html

5 www.cdhowe.org/pdf/Commentary_313.pdf

6 www.revenuewatch.org/files/RWI_Broken_Boom_Esanov_Heller_FINAL.pdf

7 http://thetyee.ca/Blogs/TheHook/Environment/2010/12/09/Ethical-Oil-tobacco/

8 http://thetyee.ca/News/2011/02/08/AlbertaElectricity/

9 http://ideas.repec.org/p/luc/wpaper/09-06.html#download

10 www.albertacanada.com/documents/ABIndustrySector.pdf

11 http://policyschool.ucalgary.ca/files/publicpolicy/albsp2.pdf

12 www.energy.alberta.ca/Org/pdfs/CCS_Implementation.pdf

13 www.aeso.ca/downloads/Long-term_Plan_bookmarked_Final.pdf

14 http://iis-db.stanford.edu/pubs/21537/No_80_Terry_Karl_-_Effects_of_Oil_Development.pdf

15 www.scotland.gov.uk/Resource/Doc/280368/0084457.pdf

16 www.finance.alberta.ca/fipac/fipac_final_report.pdf

17 www.nature.com/nature/journal/v468/n7323/full/468476a.html

18 www.gao.gov/new.items/d07676r.pdf

19 www.oecd.org/officialdocuments/displaydocumentpdf/?cote=eco/wkp(2008)26&doclanguage=en

20 www.cfr.org/canada/canadian-oil-sands/p19345

21 http://parklandinstitute.ca/research/summary/misplaced_generosity/

22 http://www.business.ualberta.ca/Centres/WCER/~/media/University%20of%20Alberta/Faculties/Business/Faculty%20Site/Centres/WCER/Documents/Publications/InformationBulletins/136_electronic.ashx

23 http://politicalscience.stanford.edu/faculty/documents/KarlERC.pdf

24 http://www.irpp.org/po/archive/sep06/lougheed.pdf

25 http://www.irpp.org/po/archive/sep06/lougheed.pdf