Thank you.
Good afternoon, ladies and gentlemen. Thank you for allowing us to appear before you today.
My name is Marlo Raynolds, and I am the executive director of the Pembina Institute. I am joined by Dan Woynillowicz, a senior policy analyst and an expert on the oil sands. Normally our senior economist, Amy Taylor, would be here today, but unfortunately she is out of the country. It takes two of us to replace our one senior economist. She did submit a written submission to the committee, and I hope you all have copies of that.
As many of you know, the Pembina Institute is a non-profit organization, often described as a think tank, focused on energy and environment issues. We are a national organization with just over 55 staff across six offices. We grew up in Alberta, and we consider ourselves to be still very much Alberta-based.
Today the focus of our discussion is the tax treatment of the oil sands and specifically, the accelerated capital cost allowance. We respectfully recommend to the committee that the Department of Finance eliminate the 100% accelerated capital cost allowance for the oil sands and return the rate to the standard 25%. We believe that the 100% ACCA for oil sands is an irresponsible use of the taxpayers' money.
The oil sands sector is mature by all measures: by the presence of all major multinational oil companies; by its international recognition; by the scale of capital investment, which was over $40 billion over the past 10 years; by the scale of approved projects and associated capital in the order of $40 billion to $60 billion over the next decade; by today's production of 1.2 million barrels per day, a target that was set for the year 2020 but achieved in the year 2004; by the fact that approved projects today will take us beyond two million barrels per day; and by the fact that all the companies with high stakes in the oil sands are among the most profitable companies in Canada. For all these reasons, it is very clear that the oil sands sector is a mature industry.
There is a clear establishment of the industry and there are strong drivers for continued growth, including continued demand for oil from our neighbours to the south and from our Asian partners. We have the second largest proven oil reserves in the world, second only to Saudi Arabia. We are the single largest oil reserve in a democratic country, and we have highly skilled workers who want to live in our country because it is a modern and safe country. For all these reasons, it's very clear that we have very strong investment opportunities in Canada in the oil sands sector.
In a market-based economy, there will be winners and losers. Given all these favourable market conditions, there will surely continue to be investors who will win. In other words, access to capital and investments in the oil sands will continue to be strong.
Canadians should be equally if not more concerned about developing this resource too fast, without adequate protection of the environment. The oil sands are not only the fastest growing industry in Canada, but are also the fastest growing source of greenhouse gas pollution in Canada. Any subsidy to the oil sands is really a subsidy to the production of pollution.
The 100% ACCA for oil sands, when established, was severely flawed in its original design. Any targeted subsidy to a particular sector should have a sunset clause. It should end when economic conditions have evolved to the point where the industry has matured. Because such a sunset clause was not included, the committee is now having to investigate the matter to ensure that taxpayers are getting value for their investment.
In 1995, the cost of production of the oil sands represented 64% of the value of a barrel of oil. In 2006, only 44% of the value of a barrel of oil was spent on production. Given the profits of oil sands companies--in the order of $2.6 billion in 2006 for Imperial Oil; $2 billion for Shell Canada--these companies no longer need the help of the taxpayer. Clearly, profits are good. It is why individuals invest. You and I no longer need to add to those profits with our tax dollars, especially since a growing number of shareholders are not Canadian. In other words, Canadian taxpayers are subsidizing profits for shareholders outside of Canada.
It is therefore our recommendation that in the interest of the responsible use of taxpayer dollars, we eliminate the 100% ACCA for oil sands and invest those dollars in 21st-century energy sources, such as low impact, renewable energy.
Thank you very much.