Canada: pipeline capacity not carbon tax hurting the oil industry

The public policy think tank CD Howe Institute has released a report saying that difficulty getting product to market, not carbon taxes, is hindering the competitiveness of Canadian oil producers.

Although the report cites a number of problems for the industry, by far the largest is the lack of transport infrastructure and its effect on the price of Canadian oil compared to American produce. Taxes at the local and provincial level are also obstacles in the market place, with a wide difference between regionally-mandated levies in the US and Canada. The report concluded that in 2016 an average Albertan well had C$770,000 (€500,000) in policy-related costs, with US producers facing half that number.

Recommendations are made for the streamlining of pipeline approval and the reduction of taxes on both investment and land use. It praised Alberta’s royalty reforms, which were finalised in 2016 and came into effect 1 January 2017.

In a press release accompanying the report, author Benjamin Dachis said, “Canadian energy producers are at a competitive disadvantage relative to producers in the United States,” adding: “Much attention has been paid to carbon taxes, but a lack of market access for oil and taxes on investment – not emissions prices – are the main policy-induced competitiveness problems for conventional energy producers in Western Canada.” Dachis said that the report’s proposed reforms are even more urgent following the US’ new tax plan, passed at the end of 2017.

Reuters reported in December that Canadian oil transport was nearing capacity, but infrastructure operators said that they weren’t confident that the issue warranted the long-term investment necessary for capacity expansion on their part.

Pipeline projects in Canada have received strong opposition from environmentalists and some local governments, delaying progress.

The legislature in British Columbia (BC) has said that they would not allow an increase in diluted bitumen exports until the parties involved are better prepared to handle a spill. Speaking to local press, Alberta’s Premier, Rachel Notley, said that BC’s action will not be ignored: “The government of Alberta will not — we cannot — let this unconstitutional attack on jobs and working people stand.”

1 February, commenting on Kinder Morgan’s Trans Mountain project from Alberta to BC, Canadian President Justin Tredeau said “That pipeline is going to get built”. The pipeline is designed to get Canadian product to port for shipment to Asian markets.

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