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Kept election promise an encouraging sign

Posted on February 11, 2016 by Vauxhall Advance

Encouraging more value-added processing was one of the election campaign nuggets put forth by Alberta NDP Leader Rachel Notley. Last week, Notley’s NDP government followed through by unveiling the Petrochemicals Diversification Program.

The government hopes to create thousands of jobs and attract billions of dollars in investment by providing $500 million in royalty credits to Alberta’s petrochemical sector to produce value-added products such as fertilizers and plastics instead of simply shipping raw materials to other markets.

The announcement was welcomed by Alberta’s Industrial Heartland Association — not surprisingly, since the association encouraged a value-added strategy in its October 2015 report, “Optimizing the Value of Alberta’s Natural Resources.”

“Alberta is blessed with a wealth of natural resources,” states the report. “Given our current abundant and cost-advantaged supply of oil and natural gas, expanding the province’s energy value adding sector is ideal and realistic.”

“New investment in petrochemicals, refining, and bitumen upgrading could total over $25 billion. This investment would create 24,000 construction jobs and 1,750 long-term operations jobs. Millions of dollars in increased gross domestic product and provincial income taxes would benefit both government and citizens.”

Notley had promoted a royalty structure that rewards value-added processing during the election campaign.

Turning Alberta resources into products with greater value and marketing those, thus keeping the value-added benefits here at home, seems to make good business sense.

Of course, building the facilities to produce those value-added products is expensive, and that’s why the province is providing the royalty credits as incentive to the petrochemical industry to diversify beyond basic energy extraction. The government believes that investment will pay dividends for the province and its economy.

Not everyone agrees, however. In a Canadian Press story, University of Calgary economist Trevor Tombe suggested this form of government subsidy isn’t justified.

“If a facility is not able to compete in the market on its own grounds, then — absent a market failure — a subsidy will actually lower GDP. It will actually harm the economy,” Tombe said.

The expense is doubly questionable considering the province is facing a big budget deficit at present, Tombe added.

Tombe’s point is well taken. That said, the idea of a value-added strategy for Alberta’s resource industry seems like a wise one.

Particularly now, with the oil and gas sector continuing to suffer from plummeting prices on the world markets, simply shipping our resources to other markets is allowing other economies to enjoy the value-added benefits.

Perhaps taking the leap — admittedly a costly one — into turning the raw materials into value-added products ourselves will help Alberta’s economy gain some ground. And once the oil sector begins to rebound, Alberta will be well positioned with a more diversified resource industry.

At least, that’s the theory the province is banking on. Time will tell if it’s a wise investment.

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