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Energy Prices and Alberta Government Revenue Volatility
TL;DR: In this paper, the authors propose a resource revenue stabilization fund that collects a fixed proportion of resource revenue each year, and funds the provincial budget each year with a fixed share of the fund's assets.
Abstract: Alberta government needs a revamped resource revenue stabilization fund to overcome the effects of wild swings in resource revenue and spending.Energy prices change substantially and unpredictably, causing revenue planning trouble for the Alberta government. Adjusting to these movements typically involves economic, social, and political costs that need to be factored into the government’s fiscal outlook. The best option for handling this is a resource revenue stabilization fund that collects a fixed proportion of resource revenue each year, and funds the provincial budget each year with a fixed share of the fund’s assets.
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TL;DR: In this paper, the authors examined the feasibility of hydrogen production from underground coal gasification (UCG) in Western Canada, for the servicing of the oil sands bitumen upgrading industry.
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TL;DR: In this paper, the authors show that, if le gouvernement albertain avait cree au debut des annees 1970 un fonds de stabilisation fonde sur des regles, cela aurait permis de reduire l'instabilite et daugmenter le bien-etre.
Abstract: Les recettes que le gouvernement de l’Alberta tire de l’exploitation des ressources naturelles sont tres instables, et l’ajustement des depenses du gouvernement aux variations des revenus implique des couts sociaux et economiques. Dans cet article, nous montrons, grâce a des simulations, que, si le gouvernement albertain avait cree au debut des annees 1970 un fonds de stabilisation fonde sur des regles, cela aurait permis de reduire l’instabilite et d’augmenter le bien-etre. Tous les types de fonds ne permettent pas d’augmenter le bien-etre. Le plus performant est celui ou 50 % des recettes de l’exploitation des ressources naturelles sont deposees et dont 25 % des actifs sont retires chaque annee. Par contre, les fonds ou sont accumules de tres grandes quantites d’actifs et ceux qui fondent les depenses sur la simple moyenne mobile des recettes passees entrainent un bien-etre inferieur.
21 citations
TL;DR: In this paper, a quantitative welfare comparison of several types of rule-based stabilization funds for a petroleum-producing jurisdiction is provided, and the authors find large potential gains from the use of a fund to stabilize revenue, but some fund types reduce welfare.
Abstract: Resource prices, and petroleum prices in particular, are volatile and difficult to predict, so government revenue in resource-producing regions is also uncertain and volatile. Adjusting government expenditure in response to these revenue movements involves economic, social and political costs. Many jurisdictions have established rule-based revenue stabilization funds to address revenue volatility, but there is little evidence on whether these funds improve welfare or if some fund designs increase welfare more than others. Using Monte Carlo techniques, we provide a quantitative welfare comparison of several types of rule-based stabilization funds for a petroleum-producing jurisdiction. We find large potential gains from the use of a fund to stabilize revenue, but some fund types reduce welfare, particularly those that accumulate large stocks of assets or debt. A fund that performs well, and is generally robust to changes in the simulation parameters, has a fixed deposit rate out of resource revenue and a fixed withdrawal rate out of assets.
19 citations
TL;DR: For example, the authors in this article show that Canada can collect more while not harming investment in mining and oil and natural gas extraction if they change their distortive gross-revenue royalties into better designed cash-flow taxes.
Abstract: From coast to coast, non-renewable-resource taxation is a key source of provincial government revenue – and political rancour. Alberta has recently started a comprehensive review of its oil and natural gas extraction tax system. Newfoundland and Labrador is looking at a redesign of its royalty system. And British Columbia has set up a new tax on liquefied natural gas production. These provinces can all improve their current resource tax systems to raise more money without jeopardizing investment. The key problem with current resource taxes in Canada is not the tax rates, but the design of the taxes. Canadian policymakers should be looking at international best practices in resource tax design. Australia and Norway have best-in-class resource taxes that are based on the cash flows of resource production. That better design means that resource companies in those countries pay a high tax rate on cash flows but still have a strong incentive to invest. Western Canadian provinces instead rely on economically distorting gross-revenue royalties for most onshore oil and gas taxation. These provinces should change their gross-revenue royalties to more efficient cash-flow taxes. Cash-flow taxes are a better way of reflecting the cumulative costs that resource companies face to extract energy than are gross revenue royalties. Although Alberta’s oil sands cash-flow tax and Newfoundland and Labrador’s offshore royalty follow many international best practices, both have room for improvement. Those provinces should rethink the rules around how companies pre-pay gross revenue royalties, the limits on the kinds of expenses companies can deduct, and having a royalty rate that fluctuates with oil prices. British Columbia’s mining tax hits many of the right notes. However, the province’s tax on liquefied natural gas exports would be unnecessary if it changed its gross-revenue royalties on natural gas extraction to cash-flow taxes. Likewise, the federal government should consider reforms to its own corporate income tax system to tax cash flows, not profits. Canadian provinces have collected about $79 billion in resource-specific tax revenues from 2009 to 2013. But the provinces can collect more while not harming investment in mining and oil and natural gas extraction if they change their distortive gross-revenue royalties into better designed cash-flow taxes.
17 citations