Scrap oil sands tax breaks, MPs' report urges

BILL CURRY
Globe and Mail
March 3, 2007

OTTAWA — The Conservative government should scrap the generous tax breaks for the oil sands that some say are worth hundreds of millions annually, recommends a draft report by the Commons natural resources committee.

The report has been debated for weeks behind closed doors as MPs from the four parties in the House wrestled with the politically thorny issue of federal policy on Alberta's oil sands.

The document calls for an end to the accelerated capital-cost allowance program, brought in by the Liberals in the 1990s to encourage development in the oil sands, which, at the time, was seen by some as a high-risk and expensive way to produce oil.

The incentive allows companies to depreciate the full cost of equipment, such as the giant dump trucks and other machines needed to mine the oil sands, in the year it is purchased.

The Pembina Institute, an Alberta-based environmental group, has estimated that federal tax breaks for Canada's oil and gas industry are worth $1.4-billion a year. The institute has said the oil sands receive a significant share of those tax breaks but exact figures are impossible to find.

Environmentalists have long argued that the spike in oil prices since the allowance was introduced means there is no longer a need for such an incentive, particularly for an industry that is a large source of greenhouse-gas emissions and is a drain on Alberta's fresh water supplies. They have called for federal incentives to be redirected toward production of cleaner energy sources.

The report is complete and was scheduled for release yesterday, but that was pushed back by last-minute calls from the Conservatives and NDP MPs on the committee for a delay so that each party could write supplementary reports.

The Conservatives are expected to disagree with some of the recommendations; the NDP is expected to say some do not go far enough.

The desire of Conservatives and New Democrats for a delay could be linked to the timing of the federal budget. With Parliament now on a two-week recess, the postponement means the report will be released after the March 19 budget.

In outlining its demands to the Conservatives for the budget and climate-change action, the NDP has said the $1.4-billion in oil and gas subsidies should be scrapped and redirected to new climate-change programs.

Environment Minister John Baird has questioned the value of the oil sands subsidies. However, Natural Resources Minister Gary Lunn has defended the allowance. He has said it only defers the paying of tax and is not a $1.4-billion tax break as the NDP says.

Marlo Raynolds, executive director of the Pembina Institute, said he was pleased to hear of the coming recommendations. Canadians who have been observing the large profits of oil and gas companies in recent years would want any tax breaks to be dropped from the budget, he said.

“I think they would be very disappointed if it was not removed.”