Canada vs. Norway: The Petro Path Not Taken

January 17, 2013

Momentum is building across Canada on the need to develop a sustainable national energy strategy.

On this front, Canada and Alberta, its main petro-province, has much to learn from another major petroleum producing and exporting country, Norway.

Canada and Norway are advanced industrialized countries with highly developed political, bureaucratic and economic institutions.

Norway and Alberta have similar population size, similar production profiles, and similar levels of dependence on petroleum exports and government petro-revenues.

During my recent trip to Norway, I found they have taken very different paths, and with very different outcomes.

In Norway, there was from the outset, a societal consensus that the government should play the dominant role in the petroleum industry, both as owner and regulator.

The Norwegian government owns 80% of petroleum production, and retains roughly 85% of the net petroleum revenues mainly through a 78 percent company tax and through direct access mechanisms.

In Alberta and Canada, ownership and control have been controversial issues. At present, virtually the entire industry is owned by foreign and domestic private interests, which have taken the lion’s share of the petroleum wealth.

According to one estimate, the Alberta government has averaged just 9 percent of the economic rent from the oil sands over the last 15 years; and the federal government now takes (after tax breaks) a paltry 7 percent of oil company revenues through the general corporate income tax.

The Norwegian government has been very effective in distributing the benefits of oil wealth both regionally and throughout its population, thanks to a generous social welfare system, an equitable labour relations system and a progressive tax system. It has maintained one of the lowest levels of income inequality in the world.

Inequitable petro-dollar recycling mechanisms explain, in large part, why inequality is substantially higher in Alberta than the Canadian average (which in turn is amongst the highest in the OECD), and why it has grown dramatically the over the last decade.

Alberta’s rich­est one per cent have a much larger share of the provincial income pie than the one percenters’ share of income nationwide. And Canada’s super-rich are increasingly concentrated in Alberta.

Norway, which had very high taxes even before the discovery of oil, chose not to reduce them. Norway has maintained a steady 42 per cent of GDP tax level, among the highest in the industrial world. 

Canada, on the other hand, has lowered overall taxes levels since the late 1990s from 36 per cent to 31 per cent of GDP, placing it in the bottom third of OECD countries.

Alberta has lowered its non-petroleum taxes to the point where they are by far the lowest in Canada.

Interprovincial disparities are growing in the wake of the petro-boom. Alberta’s revenue raising, or fiscal capacity, will likely exceed 180% or more of the national average over the next eight years even as federal provincial redistribution measures have been weakened.

Norway’s Petroleum Savings Fund has amassed over $664 billion in assets, all invested abroad, with only the return used for domestic spending. It not only ensures the future of social welfare benefits, but also helps to offset upward pressure on its currency and mitigate potential Dutch Disease effects.

Alberta’s Heritage Savings Fund now contains $16 billion, just 2% of Norway’s fund, and a miniscule share of the petroleum revenue that has flowed into Alberta over the last 36 years.

Canada has not been able to maintain a stable dollar during the petro-boom. The 60 per cent rise against the U.S. dollar has wreaked havoc with manufacturing and other non-commodity exports, resulting in a huge loss of output and jobs. 

As two of the world’s largest petroleum producers and exporters, Norway and Canada-Alberta have major a responsibility to reduce greenhouse gas emissions that are threatening the planet. 

Norway is a leader in carbon emissions reduction, both at home and internationally. Under the Copenhagen Accord, Norway’s carbon reduction targets are the most ambitious in the industrial world. 

In contrast, Canada’s federal government and its counterpart in Alberta are climate skeptics. Their actions show they do not view carbon emissions reduction as a high priority, especially when compared to development of its oil sands. Canada has broken its Kyoto commitments and will likely not even meet its much weaker Copenhagen commitments. It refuses to put a price on carbon and its regulations are weak. 

Notwithstanding the differences between the two countries, lessons can be drawn from the Norwegian experience. 

First and foremost, the federal government needs to take the lead, collaborating with provincial, territorial and first nations governments, in building public consensus around a national energy strategy.

One that addresses concerns about economic development, energy security, inequality, interprovincial disparities, and climate change; and outlines a plan for the transition to a low carbon economy.

Failure to do so will only heighten existing tensions within the Canadian federation. 

Bruce Campbell is Executive Director of the Canadian Centre for Policy Alternatives. His study, The Petro-Path Not Taken: Comparing Norway with Canada and Alberta’s Management of Petroleum Wealth, is available on the CCPA website. This op-ed was originally published in the Toronto Star.