Energy sector competitiveness: United States breaks new ground, Canada loses ground
Montreal – The drop in oil and gas investment and the abandonment of projects like the Energy East pipeline may well get worse in Canada due to the erosion of our competitive position relative to the United States. This is the main conclusion of a Research Paper published today by the MEI.
“We are less and less competitive. This year alone, four large projects worth a total of $84 billion were abandoned,” notes Germain Belzile, Senior Associate Researcher and author of the publication. “Investors are shunning Canada and choosing the United States. American oil and gas investments are expected to increase by 38% this year compared to 2016, while in Canada the expected increase is just 19%.”
Indeed, many American policies are more welcoming for companies, and could become even more so. Whereas the U.S. government continues to reduce regulations in all sectors, including the oil and gas sector, it is estimated that the cost of the regulatory burden in Alberta will have increased by between 12% and 21% by 2023.
“After only ten days in power, the Trump administration had already issued 37 different resolutions through Congress aimed at repealing dozens of regulations. This topped what the House of Representatives had undertaken in any of its two-year mandates during the Clinton, Bush Jr., and Obama presidencies,” explains Mr. Belzile. “This shows how urgent it is for Canada to act.”
Moreover, our American neighbours are planning a major reform of corporate taxation, which would change the situation significantly, especially for Alberta, which is already experiencing a slowdown of investment.
“The only big advantage that Canada has is its tax regime, but if the Americans reduce their federal corporate income tax rate from 35% to 20%, it will end up hurting us,” adds Mr. Belzile. “To keep from lose more ground, Canada should adopt a proportional tax rate of 10.5% for all businesses, instead of this rate being reserved for SMEs. This reform would allow us to maintain this advantage.”
Other solutions should be pursued in order to raise the competitiveness of the country. The federal and provincial governments should among other things agree upon the maximum duration of project assessments and delimit the notion of social licence by limiting consultations to the communities directly affected by a project.
The oil and natural gas sector is central to Canadian prosperity, with annual production valued at $100 billion and employing nearly 200,000 people.
“The federal government has taken the threats to the North American Free Trade Agreement very seriously. It is distressing to see that this is still not the case when it comes to the threats that are already undermining the essential oil and gas sector. It is high time to get back on track,” concludes Michel Kelly-Gagnon, President and CEO of the MEI.
The Research Paper entitled Canada’s Oil and Gas Sector at Risk? How Excessive Taxes and Regulations Undermine Our Competitiveness was prepared by Germain Belzile, Senior Associate Researcher at the MEI. Access this publication.
The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its studies and its conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.
Source: Montreal Economic Institute