Good idea for Canada? How Norway captures oil revenues to benefit Norwegians

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The idea of using oil and gas revenues to benefit citizens is not new to Canadians. As noted in 2010 by Green Party leader Elizabeth May, the big irony is that Norway’s pension fund was actually modeled on the Alberta Heritage Fund, launched by Conservative Premier Peter Lougheed in 1976. That fund sits at just over $15 billion. Within the same timeframe, Norway has managed to collect over 35 times that amount.

Peter Nemetz, an economics professor from the University of British Columbia’s Sauder School of Business, told the Vancouver Observer last year that Canada’s current stance on royalties and regulation is to blame for this drastic difference.

“The Norwegians...have insulated their economy from the 'Dutch Disease' by investing this money in foreign assets and financial instruments. In contrast, Alberta has built up only a modest fund, largely because of their timid approach to royalties,” said Nemetz.

He recalled a “blue ribbon panel” of experts commissioned by Premier Ed Stelmach in 2007, which at the time recommended that the province boost the fund to $110 billion by 2030. Jack Mintz, who led the panel four years ago, recently told the CBC that saving that money makes even more sense now than it did at the time. With business thriving in the tar sands and oil prices on the rise, critics and economists say the government needs to seriously consider increasing royalty rates for resource extraction.

“As I remember, the government started to implement these rates but backed off because of industry threats to take their business elsewhere,” Nemetz said. “This strikes me as a hollow threat, because the energy resources remain in Alberta and are highly prized.”

Government vs. oil companies: who gets the upper hand?

Even if Canada were to hike up royalties and put more resource revenues into pension funds, there’s still a broader issue at play that separates our case from Norway’s. In Norway, the state has the upper hand—they ultimately retain control of the resources and oil companies generally play by the government's rules. Here in Canada, however, industry players appear to have an increasingly dominant role in determining policy.

“I think it is reasonably clear that the oil and gas industry in Alberta and Canada have a great deal of influence. It also appears likely that this influence has grown under the current Conservative government in Ottawa given the Prime Minister's political background in Alberta,” said Nemetz.

“This influence has been evidenced more recently in the federal government's domestic and international campaign on behalf of the oil sands, as well as the recent initiative to ‘neuter’ the Fisheries Act, which has played a critical role in protecting water quality in Canada for several decades. It has been posited recently that one of the motivations for the proposed changes to the Fisheries Act is the desire to facilitate the Enbridge pipeline across BC.”

Sovereign wealth fund and the Dutch disease

Peter Jarrett of the Organization for Economic Co-operation and Development sees Norway’s sovereign wealth fund as a cure to Canada’s Dutch disease. “Norway is the prototypical example [to look to] because they have oil coming out of their ears,” Jarrett told the Globe and Mail. “Oil to the Norwegian economy is much bigger than oil to the Canadian economy. If they didn’t do anything, then the Norwegian krone would have shot through the roof. They would have had Dutch Disease galore.”

By putting money away for the future on a decent size scale, the dollar would be weaker and the pressure on manufacturing would be less. The Dutch disease would not be a problem.

A version of this article appeared in The Vancouver Observer on March 21, 2012.

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