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Oil Sands Royalties and Taxes in Alberta: An Assessment of Key Developments since the mid-1990s

Abstract:
This paper examines oil sands royalty and tax systems that have either been proposed or implemented since the mid-1990s. Simulation models of oil sands production projects are constructed and the distribution of ex ante economic rents for various assumed crude oil price paths is calculated. The results suggest that until 2007 changes in royalties and taxes had been favorable to producers. The pattern of estimated real internal rates of return obtained through the simulations supports this conclusion. The recommendations of the provincially appointed Royalty Review Panel were anchored in the view that Alberta�s oil sands industry had matured since the mid-1990s and that a distribution of ex ante rents more favorable to Albertans, as owners of the resource, was thus warranted. In contrast, the changes proposed by the Government of Alberta in 2007 would effectively return the distribution of ex ante rents to what prevailed a decade earlier. However, the role of royalties (as opposed to corporate income tax) as means of capturing rents for governments is more important under the proposals made in 2007.

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Energy Specializations: Energy Investment and Finance – Public and Private Risks, Risk Management; Unconventional Fossil Resources –Synfuels; Unconventional Fossil Resources – Oil and Liquids; Unconventional Fossil Resources – Policy and Regulation

JEL Codes: Q41: Energy: Demand and Supply; Prices, G32: Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill, Q40: Energy: General, L71: Mining, Extraction, and Refining: Hydrocarbon Fuels, Q20: Renewable Resources and Conservation: General

Keywords: Oil sands, royalties, taxes, Alberta, energy policy

DOI: 10.5547/ISSN0195-6574-EJ-Vol30-No1-5


Published in Volume 30, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.