Good morning.
My name is Katherine Mackenzie. I'm a policy analyst with the Pembina Institute, with our Arctic Energy Solutions Program here in Yellowknife. The Pembina Institute is a national sustainable energy think tank. We work on energy issues, from conventional energy to sustainable energy, all across the country.
My brief today is based on an upcoming report that will be publicly available this fall, and I'll be touching on two of the main points.
The current oil and gas revenue system in the Northwest Territories should be reviewed and reformed in order to ensure a prosperous and sustainable future for the north. This is a very timely topic, as the Government of Canada has expressed its desire to see further resource development in the north.
Today I'll present two of our main recommendations to improve the NWT's oil and gas revenue system. The first is that the federal government should review and reform royalty rates and the bidding system for oil and gas leases in order to capture maximum revenue on behalf of Canadian citizens, who are, of course, the resource owners. Once collected--and this is our second recommendation--a portion of this revenue should be placed into a non-renewable permanent fund. These are also known as long-term funds, or heritage funds in some jurisdictions.
Currently, the royalty rate in the NWT is unnecessarily low and does not capture adequate revenue for its citizens. At 30% of net revenue, the rate is lower than rates applied in jurisdictions like Alberta, Alaska, Newfoundland, and Norway. For example, in Alberta the royalty rate for conventional oil is up to 40% of gross revenues and is up to 35% for natural gas. The 30% rate in the NWT is on net revenues, so it's once companies are making a profit. For another example, Norway has a profits tax of 50% on its oil and gas developments.
A work bid system is currently used to award oil and gas leases in the NWT. A work bid states what a company is willing to invest to develop a project. The current system of work bids, therefore, does not result in a transfer of revenue from companies to the government. In contrast to this, a cash bid system requires developers to bid cash for the lease rights. In this way they provide a useful way for the government to capture revenue from developers at the outset of a project.
Our second recommendation is that a portion of the federal government's revenue from oil and gas development should be placed into a non-renewable permanent fund. There are numerous benefits to these funds. For example, they provide us insurance against declining revenues, as non-renewable resources are depleted over time. They can be used to help mitigate boom-and-bust cycles that are often associated with natural resource development. They also encourage economic diversification and can help facilitate a transition to renewable resources. They can also help to ensure that development benefits all residents, both current and future, and they provide a source of revenue for addressing the negative socio-economic impacts from oil and gas development.
Non-renewable permanent funds are used in many other jurisdictions, including Alberta, Alaska, and Norway. Norway's permanent fund is considered to be one of the most successful in the world and is now valued at approximately $339 billion.
This year's federal budget should include funds for a full, transparent, and well-supported public review of the oil and gas revenue system in the NWT. An example of a recent public review process is British Columbia's Citizens' Assembly on Electoral Reform, which cost approximately $5.5 million. Such a review should be made up of a citizens' assembly, an expert resource revenue reform committee, and an avenue for public input, and also include a strong youth component to ensure that all voices are heard.
This year's budget should also include items to promote the transition to sustainable energy in the north, as this is an important part of ensuring prosperity and sustainability. Such an example is the remote community wind energy incentive program, which is described in the one-pager I've provided to you. Alaska, for example, has set up a substantial renewable energy fund by using the revenues from its oil and gas industry.
In conclusion, a public review of royalty rates and the lease bid system, and the creation of a non-renewable permanent fund, are our two recommendations to make the NWT more prosperous and sustainable.
Thanks very much.