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Opinion

For Notley, Eight Steps to Reform the Broken Petrostate

It may be tricky to tread, but Alberta's path forward is clear.

By Andrew Nikiforuk 9 May 2015 | TheTyee.ca

Andrew Nikiforuk is an award-winning journalist who has been writing about the energy industry for two decades and is a contributing editor to The Tyee. Find his previous stories here.

This coverage of Canadian national issues is made possible because of generous financial support from our Tyee Builders.

The Alberta Spring has arrived and it heralds opportunities as profound as the protest movements that rocked the Middle East after oil prices collapsed in 2008. After 44 years of stultifying one-party rule, the citizens of Alberta voted for historic change this week.

In the process, they threw out Prime Minister Stephen Harper's power base: a cadre of Tory politicians rendered visionless in the face of powerful hydrocarbon interests. Albertans replaced them with a largely young bunch of ordinary, working Albertans led by Rachel Notley, a labour lawyer.

Yet Notley's merry band of fresh-faced democrats have inherited a government that, despite its much-lauded oil wealth, couldn't balance a budget, let alone run an accountable health care system.

In fact, the Alberta government suffers every ailment a petrostate can muster: a crippling addiction to hydrocarbon revenue, an eroded tax system, appalling statecraft and policy atrophy, binge spending, and minimal transparency.

The New Democrats must approach the task ahead systemically. To restore democracy, rebuild accountability, and put the province on a more Scandinavian path, Notley will have to decisively address these following issues.

Behave like an owner: Alberta's oil and gas resources belong to Albertans. The Tories' ''strip it and ship it'' approach was not only wasteful, but also environmentally destructive. Real owners determine the pace of development, and on that front, Farouk al Kasim, one of the architects of Norway's oil experience, offers the best advice: ''Go slow and save the money.''

End the government's addiction to oil revenue: The Alberta government currently gets about 30 per cent of its revenue from oil and gas extraction, and that's not sustainable. Volatile oil and gas prices invariably kill government budgets and fiscal accountability -- not only in Alberta, but in Russia, Nigeria, Texas, Alaska and Louisiana. Given its finite nature, no revenue from non-renewable fossil fuels should be used to pave roads, operate schools or buy votes with the promises of low taxes.

Governments that run on taxes raised from the general population represent their people. Governments that run on resource revenue represent the resource and its multinational extractors. Albertans now know that the decoupling of taxation from representation impairs the ''fiscal social contract'' between citizens and state leaders with the result, as even Deloitte puts it, that the ''normally tax-paying public exerts less scrutiny of how tax revenues are raised and spent.''

Restore representative taxation: Alberta's Tories, just like their copy-cats in the Harper government, have long argued that low taxes for the rich are an advantage, but they are merely a way to take advantage of average Albertans. Smart governments not only run on sustainable revenue from their populations, but also redistribute wealth because inequality erodes democracy and breeds social unrest. As a consequence, Notley will have to replace the current flat tax system with graduated corporate and personal income taxes, and introduce a new sales tax or provincial consumption tax.

Transparent reporting on royalties and income from hydrocarbons: The Tories consistently avoided transparency on bitumen revenues, and the impact of volatile prices or mining of unconventional resources on royalties. They gutted their own expertise on the subject under Ralph Klein and became highly dependent on industry numbers and analysis. This move has been disastrous for the province. As royalty expert Jim Roy recently noted, the Tories vowed to increase royalties by $2 billion a year in 2009 but delivered an annual $2-billion loss instead, for a total shortfall of $13 billion over the last five years. Notley has promised a needed royalty commission that delivers timely and yearly reports to Albertans.

Save for the future: Norway has saved 90 per cent of its hydrocarbon revenue in a fund that is now worth $1 trillion. Norwegians of both the left and the right have planned for the day when oil runs out, while Alberta's Tories proposed to turn the province into a ghost town. As a consequence, Notley must restore the province's Heritage Fund using Norway's Pension Fund as a model. She should openly solicit help from political scientists such as Terry Lynn Karl and Norway's Rolf Wiborg. Over a five-year period, her government should systemically increase the amount of resource revenue being saved for the future by 20 per cent a year, until it reaches Norwegian levels.

Review the energy regulator: Industry has had a long, deep hand in energy regulation in Alberta. The Alberta Energy Regulator is run by former energy lobbyist and former Encana executive, Gerard Protti. Even though Protti chairs the regulator, he still sits on the board of Calgary-based Petromanas, which wants to fracture oil and gas formations in Australia and parts of Europe.

Notley's path here is plain: She must review the regulator's accountability. She should also review energy legislation such as Bill 2, which limited public involvement in energy hearings, granted the energy regulator control over water resources, and subtracted any notion of ''public interest'' from the regulator's mandate.

Restore transparency: Alberta's Tories, just like Harper's government, cultivated secrecy. As the journalist Sean Holman has repeatedly noted, Alberta has one of the worst freedom of information laws in the country. A 2012 report found that the law's loopholes gave ''enormous amount of wiggle room for recalcitrant public officials who would seek to avoid disclosure of embarrassing information.'' Notley needs to change this law.

Depoliticize the civil service: The Tories operated as though the government was an extension of a Soviet-minded party. The government's Public Affairs Bureau, for example, didn't inform Albertans about government affairs but routinely attacked critics. Restoring integrity, honesty and the notion of public service to the province's civil service may well be one of Notley's most challenging tasks.

Notley has a difficult road to tread. But the path for reforming a petrostate is clear: she must restore accountability, rebuild public institutions, and reintroduce a representative taxation system. She must embrace more economic openness, and invest in human resources and greater transparency. Last but not least, Notley must also address the province's glaring environmental deficits and pathetic record on climate change.

She might well tack this warning from political scientist Terry Lynn Karl above her office door: ''Utilizing petroleum wealth effectively is not easy.''  [Tyee]

Read more: Energy, Elections,

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