Welcome to Oslo, Alberta!

My Petroleum Geology students have gotten into the spirit of the Provincial Budgeting season, and many of our EAS 364 tweets have involved comparisons with Norway. You know, that Norway $1,000,000,000,000 oil trust fund. One of the better articles that was tweeted was written by CBC’s Susan Ormiston. Therein she noted “They [the Norwegians] are lucky and Norway was smart. So smart that decisions made decades ago to bank the taxes from rich oil fields are now paying for their future at a time when oil-rich Alberta faces a multibillion-dollar deficit.”

A part of me is happy to agree with the idea that taking greater royalties and higher levels of corporate taxation. But, there are major differences between Alberta and Norway that suggest it is not as simple as Alberta doing it the Norwegian way. For example, nobody ever mentions that Norway’s level of personal (income tax) taxation is about the highest in the world. And one beer costs $20 (I am not kidding). Their non-oil cash-flow is a large part of what allows Norway to divert oil revenue straight into the bank.

There is also a great difference in profitability in Alberta versus Norway. In Alberta, the resource is commonly low yield and widely dispersed, so infrastructure is not always concentrated and the resource generally low-grade. Also, heavy oil is differentially (i.e. lower) priced. And to make matter worse, the heavy oil is quite a bit more expensive to produce. So… you can raise royalties on heavy oil, but not nearly as much as you can with light offshore crude.

Finally, some of Alberta’s producer’s are on royalty breaks aimed at encouraging start-ups and to help capitalize the infrastructure required to produce heavy oil. Really, there is far less room to move than people believe. Long-story short: if you want to live like Norwegians, you need to pay taxes like Norwegians. I don’t think there are very many Canadians keen on that idea.

6 thoughts on “Welcome to Oslo, Alberta!”

  1. I agree that there is no real comparison between the Alberta and Norway. Norway is very much more socialist and had high taxes long before they even discovered oil. The majority (over 80%) of oil production is owned by the government and so revenue is kept by the government. In Alberta, the entirety of oil production is owned by private companies. While a good portion of these companies are domestic, there are still foreign companies that capitalize on the wealth from the oil sands. With the royalties as they are, most of the profit (that isn’t taken from the domestic market) is held with Albertans themselves. Albertans love having money in their own pocket. Remember those cheques from Klein when business was booming? So, while government funding remains low because profits are funneled back to the individuals and we want to keep taxes low, we cannot expect to have public services, schooling, health care, and infrastructure. We made a choice, now we have to deal with the consequences.

  2. I feel, as a student, the economic aspect of geology is something not well addressed for undergraduates, despite the fact that it has a large effect on ours views and ideas on how natural resources should be controlled.
    The comparison of natural resource management ultimate boils down to a lesson in economic; private vs public enterprise. It is easy to sit on one side of the fence and complain how much nicer the other side is, regardless of what side one is on.
    Sure, it amazing that Norway has nearly 1 trillion dollars in a government pension fund, but as a trade off, there is aggressive taxation, a lack of competition-driven economics and a high cost of living (the highest as demonstrated by the Big Mac Index!).
    I’m sure there is an opposite discussion occurring somewhere in Norway, where a cute little infographic compares tax rates.
    Reform is an unlikely outcome, as it fundamentally challenges ideologies of which countries are built on. However, it is still important to make changes, and maybe we can all learn something from each other.

  3. I think the Norwegians are doing it right. According to this article: http://www.theglobeandmail.com/report-on-business/economy/canada-competes/what-norway-did-with-its-oil-and-we-didnt/article11959362/
    the high Norwegian taxes are encouraging companies to innovate. New technological innovations have allowed Norwegian petroleum extraction rates to rise to ~ 50%! This is a remarkable achievement, as it means that fewer wells are being drilled (relative to Alberta). Fewer wells drilled translates to reduced environmental impact. So all of Norway gets to reap the rewards of its oil trust fund, without destroying other natural resources. Norway is doing it right.

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