Research Report

When the Government is the Landlord: Economic Rent, Non-renewable Permanent Funds, and Environmental Impacts Related to Oil and Gas Developments in Canada

Amy Taylor
Chris Severson-Baker
Mark Winfield
Dan Woynillowicz
Mary Griffiths
Copyright Date: Jul. 1, 2004
Published by: Pembina Institute
Pages: 55
  • Cite this Item

Table of Contents

  1. Front Matter
    (pp. i-i)
  2. Table of Contents
    (pp. 1-1)
  3. 1 Introduction
    (pp. 2-4)

    Oil and gas¹ developments have played a significant role in shaping Canada's energy sector. Canada is the third-largest producer of natural gas and the ninth-largest producer of oil in the world. In 2001, British Columbia experienced record drilling and Alberta's oil sands were recently designated as the second-largest oil deposit globally. Oil and gas production is expected to increase in both Saskatchewan and British Columbia, and there is mounting pressure to develop such resources in Canada's northern territories. In light of the importance of oil and gas resources and developments in Canada presently, and the role they are expected to...

  4. 2 Methodology
    (pp. 5-9)

    Three key avenues of investigation were undertaken as part of our research. First, to investigate economic rent capture in the various regions, in each of the jurisdictions we collected and analyzed data related to oil and gas revenues, the value of oil and gas resources, and the cost of oil and gas production. Second, to investigate the need for and importance of non-renewable permanent funds, we assessed the value of such funds in each of Alberta, Alaska and Norway. Finally, to investigate trends in environmental impacts associated with oil and gas developments in Canada, we collected data on a series...

  5. 3 Background
    (pp. 10-13)

    This chapter presents background information on the oil and gas sectors in each of the regions. Below we demonstrate trends in production, employment and gross domestic product associated with oil and gas developments.

    Table 3-1 shows total oil and gas production for each of the regions included in this analysis. As the figures indicate, Alberta (AB) is responsible for the majority of oil and gas production in Canada, by a significant margin. Saskatchewan (SK) and British Columbia (BC) host similar amounts of oil and gas production, with the emphasis in Saskatchewan on oil and the emphasis in British Columbia on...

  6. 4 Economic Rent
    (pp. 14-31)

    As we explained in the Introduction, economic rent is the difference between the value of a resource and the cost of producing that resource, allowing for a normal rate of return on investment. Thus, the amount of economic rent that is available in a region will depend on the difference between the value of the resources in that region and the cost of producing those resources. Figure 4-1 demonstrates a simple and generic breakdown of the total value of oil and gas resources. The red circle indicates the total value of economic rent (captured by some combination of royalties, taxes...

  7. 5 Non-renewable Permanent Funds
    (pp. 32-40)

    The amount of economic rent available in a region depends in part on the value of the resources in that region. The value of resources, in turn, depends on the amount of production that takes place and the prices associated with that production. Recall the trends in revenue generation between 1995 and 2002 (Table 4-2). For all regions, except the Northwest Territories and Alaska, revenue amounts peaked in 2001. This peak is largely the result of the drastic increases in the price of oil and gas, especially natural gas, that took place during that period of time. Revenue generation in...

  8. 6 Oil and Gas Environmental Impacts
    (pp. 41-47)

    Environmental impacts associated with oil and gas developments in Canada are numerous. These impacts include:

    fragmentation of wildlife habitat due to cutting seismic lines and clearing roads, wellpads and pipeline right of ways;

    emissions of greenhouse gases associated with pipeline compressors, gas plants and oil batteries;

    sedimentation of creeks and streams from road run-off;

    spills and leaks of oil and gas, including the health and safety risk from sour gas69; and,

    issues related to oilfield waste disposal.

    Oil and gas developments also result in the release of acidifying emissions. Deposition of these compounds into terrestrial and aquatic ecosystems can result...

  9. 7 Summary and Future Directions
    (pp. 48-53)

    This research project covered three key areas of investigation. For the period between 1995 and 2002, we explored trends in economic rent capture, non-renewable permanent funds, and environmental impacts associated with oil and gas developments in western and northern Canada. Below we summarize the results for each of these topics.

    To discern trends in economic rent, we investigated not only the amount of revenue obtained by governments from oil and gas developments, but also trends in the value of oil and gas resources and the cost of oil and gas production. We found that relative to Alaska and Norway, Canadian...