RNNR Committee Report

Dissenting Report—Conservative Party of Canada
The Oil Sands: Toward Sustainable Development

Background:

The members of the Conservative Party of Canada who sit on the Natural Resources Committee were impressed with the evidence provided by the many witnesses who appeared before the Committee during our study of the Oil Sands.

As expected we heard evidence that was very thought-provoking and in some cases posed more questions in the mind of the Committee. 

As stated in clause #4 of the report, “Alberta’s oil sands are an enormous economic and strategic advantage for this country.  We have only begun to tap into this vast resource.”  In addition, Michael Raymont also stressed that “given the scale by which energy is produced and used in the world today and the infrastructure that is in place, fossil fuels are likely to supply most of the world’s energy for the foreseeable future.” 

The Conservative Party could not agree more.  Canada has tremendous potential to become an energy super-power.  Responsible development of the resource will take an approach that balances three key areas; Energy, Environment, and the Economy.

Policies that are focused on only one of these areas will lead to dire consequences in the others.  For example, policies that effectively lead to the shut-down of the Oil Sands will compromise our Energy future and damage the Economy. 

The committee heard evidence that the value of bitumen and synthetic crude produced over the 2000-2020 period could total over $500 billion.  While the major GDP impact is in Alberta, significant economic benefits also accrue to Ontario, Quebec, and other Provinces and territories.  In addition, oils sands production and development activities generate approximately $123 billion in revenues to government over the course of 2000-2020. of which $51 billion would accrue to the Federal Government. 

Given the potential of this resource to the Canadian economy and the possibility for future development in Saskatchewan, responsible Committee recommendations must reflect this reality.  The other reality is that the Federal government must as a fundamental principle work with the Provinces to achieve responsible sustainable development, and respect Provincial jurisdiction.

In total the Committee report titled, “The Oil Sands: Toward Sustainable Development” proposes 22 recommendations.  For a large number of these recommendations there was general agreement by committee members.  In fact many carried unanimously.

Unfortunately, there are two key areas where there was not agreement.  In the opinion of the Conservative Party members of the committee, recommendations within these two areas that were passed by the committee are in short irresponsible for the Natural Resources Committee to pursue.  For this reason, the Conservative Party members voted against these recommendations.

Areas of Dissent:

The two major areas of dissent are:

• Accelerated Capital Cost Allowance (ACCA)
• Environmental approaches that would implement hard caps on emissions

1.      Accelerated Capital Cost Allowance (ACCA):

In recommendation #17 of the report, “the Committee therefore recommends that the government of Canada eliminate the accelerated capital cost allowance currently applicable to the oil sands industry in order to place it on an equal footing with the broader oil and gas industry.”

Three arguments can be made against this recommendation.  

First, the adoption of this recommendation by a majority of committee members seems to shows that they see ACCA as a form of subsidy to the oil sands developers.  Capital cost allowance as simply a deferral of tax.  It is clearly not a subsidy.  ACCA was provided to the Oil Sand companies as means to encourage investment and development. In addition, the larger scale development in Alberta is done by excavation similar to open pit mining.  Hence, the tax treatment is entirely consistent with mining operations such as for coal.

Second, ACCA for the oil sands is different that for the oil and gas industry in general.  ACCA is limited in that:

·         It is only applicable to new projects or expansions greater than 5% of total revenue,

·         the ACCA deduction can only be applied against that specific asset and not all other assets in a similar pool as in conventional capital cost allowance, to qualify for ACCA,

·         companies cannot deduct the development cost sent until the project is available for use.  This means that oil sands companies could spend dollars over five to six years before anything is actually produced, and

·         higher oil prices mean capital is deducted earlier which leads to higher income taxes earlier as well - - a project is fully taxable once capital costs are written off.

Third, there is only anecdotal information to suggest that the companies are better off from ACCA.  The complexity of analyzing ACCA against conventional capital cost allowance suffers from complexity and a lack of data on the subject making it very difficult at this time to determine with any great level of confidence how a change in tax treatment would impact oil sands development and Federal Government revenues.

Given these factors, the Conservative members of the committee believe that the recommendation of the committee to eliminate the ACCA is not a responsible position and is not supported by sufficient facts.

Recommendation: The Conservative Party members therefore recommend a more responsible position for the committee is for Finance Committee and the Department of Finance to review the current ACCA and its application to the oils sands development.  This review should assess the impact of a change in tax practice to companies pursuing future development and if this has a bearing on investment decisions given current oil prices.  In addition, the review should also assess the potential impacts any policy change would have on government revenues.      

2.      Environmental approaches that would implement hard caps on emissions:

In Recommendation number 14, 15, and 16 the Committee voted to endorse the Pembina Institute goal of making the oils sands carbon neutral by 2020, emissions credit trading, and meeting Canada’s Kyoto obligations through the introduction of hard emissions caps  based on absolute levels and not based on intensity.  These caps would be in place for 2008, 2012, 2020 and 2050.

The Conservative members of the committee believe that this recommendation is again irresponsible given the situation faced by Canada who has made no progress towards reducing GHG’s during the term of the previous Liberal government and in fact saw emissions rise by 37%.

The Conservative members support a responsible approach to development of the oil sands that respects the Environment and our Energy needs, but also ensures that our economy is not crippled by implementing poorly thought out policies.

As stated in the Commissioner of Environments report in 2006, the previous Liberal government spent over $6 billion dollars on climate change programs with little regard for measuring progress.  Hence we can see why Canada faces the situation we see today.  These recommendations are purely a means to grand-stand and an attempt to assign blame for their poor record on the environment.

There are a number of arguments against the Committee on Natural Resources adopting such recommendations.

First, the estimated costs to achieve a carbon neutral oils sands using the Pembina estimates is between $1.76 and $13.54 per barrel.  The committee only heard evidence from the Pembina Institute on this subject, so we do not have other data points to clearly make an informed recommendation of this magnitude.  We certainly support the concepts of carbon sequestration as well as other new technologies to combat green-house gases and government can have a role to play in assisting companies to achieve a carbon-neutral footprint.  However, endorsing one special interest group recommendation in the absence of all the facts supporting the cost and timing to meet such an objective is not a responsible position by any committee of parliament.

Second, the recommendations totally ignore the other major determinant of human health and that is emissions that cause smog and poor air quality.  The Governments proposed Clean Air Act will attempt to address both the GHG issues we face in Canada as well as the negative health impacts of smog causing emissions.  As responsible Parliamentarians we must ensure that we adopt policies that that deal with the key issues versus focusing on one issue to the detriment of progress on other topics.

Third, the Conservative party members of the committee believe that recommendations on emissions reduction strategies including intensity based and absolute targets are under the responsibility of the Department of the Environment and hence the Environment Committee.  Currently, an all party committee is reviewing the Clean Air Act and will make recommendations that will come back to the House of Commons for debate and vote in the spring.  In addition, the Minister of the Environment is working with Industry to implement realistic emissions reduction strategies that will lead to concrete progress on the environmental file.  For the Natural Resources committee to adopt a recommendation to achieve Kyoto obligations when nothing has been achieved for the last 13 years flies in the face of common sense.  Also, we must remember that our study was focused on the oil sands.  Any recommendations must be part and parcel of negotiations with all industry groups that fall under the large final emitter group.  The Conservative members of the committee believe that this recommendation is pure politics on behalf of the opposition parties when they know full well the deplorable track record of the Liberals on this file.

Fourth, it is instructive to note as reported in the March 1^st edition of the Globe & Mail that the Liberal and NDP MP’s, along with the leader of the Green Party are considering embracing the concept of a carbon tax.  This $100 billion proposal to meet the 2012 Kyoto requirements would raise $20 billion per year over 5 years through new carbon taxes on industry and consumers.  “On the consumer side, taxes such as a 10-cent increase in gas prices would be used to fund incentives such as tax breaks for the purchase of hybrid cars.”  Such a Kyoto plan would cost every Canadian in the order of $25/week or in excess of $1,300 per year or over $5,000 for a family of four.  Cost aside this also seems to hint of another National Energy Program. 

Fifth, the Conservative government is the first to undertake regulating greenhouse gas emissions and air pollutants in every single sector including the oil and gas sector.  We also want to transform the way energy is produced and used in Canada by committing to programs such as the ecoENERGY Technology Initiative to clean up conventional energy.

Recommendation: The Conservative Party members therefore suggest a more responsible position for the committee by replacing the current recommendation numbers 14, 15, and 16 with: The committee recommends that any future expansion of the oil sands reflect a balance of the Environment, Energy and the Economy.  We encourage the Minister of the Environment to negotiate emissions reduction strategies with large final emitters including companies involved in oil sands development, in order to achieve immediate intensity targets and also ensure that large final emitters achieve absolute reductions in line with Federal targets and future International commitments.  We also encourage industry and government to pursue strategies that will allow for the oil sands to become carbon neutral by developing technologies such as carbon sequestration.