April 4th saw a spectacular pipeline rupture in Mayflower, Arkansas, spilling heavy Albertan tar sands oil over a suburban street. Unsurprisingly, this has intensified the debate over the Keystone XL pipeline, bringing questions over the environmental safety of pipelines to the fore. At the same time the support is growing for a pipeline to carry oil from the west of Canada to refineries in the east of Canada in places like Quebec and Newfoundland.
Thomas Homer-Dixon, a professor at the Balsillie School of International Affairs at the University of Waterloo in Ontario, Canada, wrote a spot-on editorial for the New York Times about the often unmentioned problem with the oil sands: Alberta—and Canada by extension—is (becoming) a petro state:
There is a less obvious but no less important reason many Canadians want the industry stopped: it is relentlessly twisting our society into something we don’t like. Canada is beginning to exhibit the economic and political characteristics of a petro-state.
Petro states are characterized by economic imbalances, boom-bust cycles and low-innovation economies, something that should be incredibly worrying to anyone living in Alberta. Examples include Venezuela, Nigeria, and Texas. An overreliance on the gift of natural resources destroys incentives to innovate. Regardless of environmental arguments (which there are many) the oil sands represent a bad economic policy, but one that’s been plaguing Alberta for years. They are just the latest development in a province hooked on oil.
This is why Alberta, which is one of the richest provinces in one of the world’s richest countries, regularly manages to have surprise billion-dollar budget shortfalls because the price of oil or natural gas drops. In 2013 Alberta Premier Allison Redford announced a $6 billion dollar deficit—about the size of Alberta’s education budget. Nobody was surprised. Alberta relies heavily on oil revenue to, instead of building a more solid and steady tax base. Andrew Nikiforuk wrote for the Tyee:
Alberta, like many petro states, has a dismal tax problem. The province’s one party state draws, on average, 30 percent of its revenue from oil and gas projects. For more than 40 years Alberta’s Tories have ruinously used these same petro dollars to distort, undermine and degrade a proper taxation system as well as enrich its cronies.
This explains why Alberta Treasury can still advertise Alberta as a fantasy honey pot with “low personal and corporate income taxes, the lowest fuel taxes among provinces, no capital tax, no payroll tax, no health premiums, and no sales tax” while the province chocks up one deficit after another and Redford cries bitumen bubble tears.
Alberta’s spending is tied to the boom-bust cycles of the oil and gas industry. Albertans are proud to not have a provincial sales tax (the only province in Canada not to have one), but it just reflects the misguided idea that Alberta has oil and that is good enough.
If Alberta doesn’t seriously rethink its relationship to oil it will never fully join the developed world. Stopping Keystone is the right call, especially given the highly destructive consequences of a pipeline burst, but it is just the first step.