moved that Bill C-221, An Act to amend the Income Tax Act (oil and gas wells), be read the second time and referred to a committee.
Mr. Speaker, I am really pleased to speak about my private members bill, Bill C-221, the environmental restoration incentive act, which I introduced on February 25, earlier this year.
Although the world has changed in many ways over the past nine months, the Canadian oil and gas sector continues to face a state of uncertainty. The families whose livelihoods depend on the sector still face what many say is an unprecedented struggle, with major anxiety about their futures and complete financial despair. Entire communities are at risk because of the steady decline of oil and gas activity and historic levels of bankruptcies and investment losses in Canadian oil and gas, and that damage has rippled across the country.
Since 2015, more than 200,000 jobs have been lost in the Canadian energy sector. It has devastated families and entire communities. There are many social consequences. A recent study from the University of Calgary’s school of public policy said that for every 1% increase in unemployment, 16 Albertans will die by suicide.
Never has a Canadian industry faced such a severe triple threat: global oversupply and demand drops, a collapse of global prices and a lack of market access. Even before COVID-19, a combination of economic policy and legislative and regulatory factors in Canada led to a historic and major collapse in investment, small businesses and jobs, while energy sectors in the United States and across the country were thriving. COVID-19 only exasperated what energy workers in my backyard of Lakeland would characterize as “carnage”, a dire situation shared by energy workers across Canada from B.C. to Ontario to Come By Chance in Newfoundland and Labrador.
Canadian oil and gas producers are world leaders in environmental remediation and reclamation, but one consequence of this perfect storm of challenges is that the record numbers of business bankruptcies have caused the number of orphan wells to increase by over 300% since 2015. It is an urgent economic and environmental challenge for rural municipal governments, for landowners, on Crown land and in indigenous communities.
Mark Dorin’s family farm in Didsbury, Alberta, is at risk. He said that the value of the land is at stake and is rendered literally worthless. Michelle Levasseur, economic development officer for the Town of Calmar says that it is a financial burden that is “not fiscally responsible…to ask our current residents to fund”.
Normally, orphaned wells become the responsibility of the provincial orphan well associations and funds. In strong economic conditions, they are remediated on schedule through levies on all the other active producers, but these orphan well funds are being overwhelmed, putting taxpayers at risk of eventually having to bear 100% of the cost for decommissioning, closure, remediation and reclamation. Between 2015 and 2018 in Alberta alone, the number of orphan wells skyrocketed from 768 to over 3,400. Today there are a total of 97,000 inactive wells in Alberta. The Alberta Orphan Well Association has an inventory of 2,983 orphan wells for abandonment and 3,284 sites for reclamation.
In B.C., there are over 300 orphan wells that need to be decommissioned. Half of those wells are on protected farmlands and there are over 7,000 more inactive wells. B.C.'s auditor general estimates that it could cost up to $3 billion to reclaim all the orphan wells and facilities in B.C. By percentage, B.C. actually has the largest increase of orphan wells since 2015, at 600%. Saskatchewan has more than 600 orphan wells and 30,000 inactive wells. The province’s auditor general estimates that it would cost $4 billion to decommission all of their existing wells. In Ontario, there are almost 900 inactive wells that could become orphaned if more companies go bankrupt, mostly throughout the southwestern part of the province.
Overall, there are more than 130,000 inactive, orphaned and abandoned wells in Canada. It is estimated that it could cost between $30 billion and $70 billion to fully decommission all current active and inactive oil and gas wells in Canada. That is why it is so crucial for the federal government to lead and to continue to take action on this national environmental and fiscal challenge. There is no doubt that it is complex and it requires a multipronged effort from provincial and federal governments and, importantly, from the private sector.
This year, the Alberta government announced an additional $100 million loan to the provincial orphan well fund to remediate 1,000 wells. In April, the federal government announced $1 billion for Alberta, $400 million for Saskatchewan and $120 million for B.C. for abandoned and orphaned wells.
I supported that one-time funding as a first step, but I think the government must adopt a permanent fiscal incentive to enable the private sector to raise funds dedicated solely to reclamation and remediation. Such an initiative recognizes the financial and economic reality that Canadian oil and gas producers face, while it emphasizes the primary role of the private sector to fulfill the environmental duties inherent in their responsible development of oil and gas resources in Canada.
What Bill C-221 proposes is a non-refundable tax credit that could eventually enable a flow-through share provision to encourage small and medium-sized producers to take action on the pressing challenge of suspended and inactive wells, and immediately create service jobs in communities and regions that need them most. I hope Canadians will note that my bill applies only to small and medium-sized producers that are struggling the most, which are responsible for about one-quarter of total Canadian oil production. These producers have, on average, one well for every 10 wells of the large multinational operators, which will not qualify for this tax credit. In 2017 and 2018, more than two-thirds of those small and medium-sized companies lost money, so it is urgent.
The first part of Bill C-221 creates a non-refundable tax credit that will help small and medium-sized oil and gas producers right away. The second part makes the case for this credit to qualify for the flow-through share provisions of the Income Tax Act, which is the government's part to do, so that when a producer wants to raise money from private investors, the producer can attach the value of this tax credit to a share of the company, which is sold to an investor.
The investor buys the share and the tax credit, and in this way the value of the tax credit flows through to the shareholder. What this means is that the tax credit the producer gives up becomes the profit margin for the investor who purchases these shares. That is a big incentive for outside private investors to contribute funds and capital to companies specifically for the purpose of decommissioning wells, even when the company's share price is not expected to increase.
Another reason this federal leadership is necessary is the 2019 Redwater Supreme Court decision, which was the right ruling but at a very challenging time. It says that when an oil and gas company goes bankrupt, the assets from that company have to go toward paying for the company’s environmental liabilities first, such as oil and gas wells, before lenders and investors are paid back. One consequence, of course, is that the ruling dried up private sector sources of investment, compounding all the other challenges that are harming small and medium-sized producers in Canada. Oil and gas producers are cutting spending and capital investment plans aggressively just to try to survive.
I want to stress that, from my perspective, the growing number of suspended and inactive wells awaiting decommissioning is not evasion nor neglect by small and medium-sized oil and gas producers in Canada. It is in fact a stark reality of their precarious economic positions. It is a consequence of all of the damaging policies that have undermined competitiveness and tanked Canadian oil and gas investment. Therefore, it is the duty of the federal government to help figure this out. Smaller producers simply do not have the money left in their businesses, and if the status quo continues, they simply cannot raise the money needed to proactively address their inactive wells in the current conditions.
In 2009, the previous Conservative government committed to ending inefficient and wrong-headed subsidies to oil and gas. Despite the rhetoric from others, the current Liberals removed any remaining, as well as some benchmark industry tax treatment from oil and gas, but not other industries. I support those measures.
The previous Conservative government advanced the polluter-pay principle in Canadian law. Bill C-221 reinforces the standard of polluter pay and protects taxpayers from the potential burden of billions of public dollars needed for remediation and reclamation. The federal government’s finance department confirms that this proposal is not a subsidy. The department defines a subsidy as “federal tax expenditures that provide preferential tax treatment that specifically supports the production or consumption of fossil fuels.”
The International Energy Agency does not consider this measure to be a subsidy either. Its definition of a subsidy is “any government action that lowers the cost of energy production, raises the revenues of energy producers or lowers the price paid by energy consumers”.
It is not unprecedented. For example, in the mining sector, flow-through share financing contributes over 65% of the funds raised for mining exploration across Canada, a measure Conservatives have always supported and the Liberals recently extended. Provinces have called for action on the growing challenge of orphaned and abandoned wells, but the $1.7 billion from the federal government is, unfortunately, a drop in the bucket compared to the overall up to $70 billion liability in active and inactive wells in Canada right now.
Alberta is calling for flow-through shares in order to allow the private sector to accelerate oil and gas well reclamation. Premier Scott Moe of Saskatchewan has also made similar calls.
Premier Jason Kenney advocates it to get the oil field service sector back to work while reducing an environmental liability. Alberta finance minister Travis Toews supports the proposal. He says, “Bill C-221 builds on the work Alberta has undertaken,” and “Flow-through shares are a game-changer for helping producers raise money from the private sector to decommission oil and gas wells.”
The industry wants to do its part to continue being a world leader in environmental stewardship and innovation.
Mark Scholz, the president and CEO of the Canadian Association of Oilwell Drilling Contractors also supports the environmental restoration incentive act. He said, “Programs designed to incentivize private investment in well reclamation, for instance, would help provide consistent work over time, which is the foundation for building a steady labour force again in the oilfield services sector.”
The Canadian Association of Petroleum Producers says, “Tools to temporarily or more permanently find ways to encourage these companies to raise capital would be exceptionally welcome at this point in time. Things such as flow-through shares...to help assist with reclamation and remediation are...tools”.
The Lloydminster Oilfield Technical Society in Lakeland says that it believes Bill C-221, combined with changes to share structures within Canada, will represent another avenue for the oil and gas industry to repair the damage with which it has been inflicted, and that any positive environmental impact, in the form of asset retirement, will always be looked upon favourably by its group and by the industry. The ability to achieve multi-party support of this initiative is indicative of Canadian society’s aim to maintain our oil and gas industry as the world leader in responsible development.
In my view, the solution to this environmental and financial challenge must prioritize the private sector and should not be solely dependent on taxpayers through big government programs. As a federal MP, this is just one thing I can do to bring forward a solution now.
It would not fix every issue overnight, but Bill C-221 is good for the environment, would help struggling small and medium-sized producers and would build an opportunity for immediate job creation for experienced, highly skilled workers in the oil and gas service sector now.
In order to make the greatest impact and to actually implement the flow-through shares part, I am asking all members to partner with me. This must be a collaborative effort with all members of Parliament to succeed.
During the last Parliament, I had the opportunity to bring forward Motion No. 167, which called for action to combat rural crime. I worked with all parties and secured support from hundreds of organizations and thousands of Canadians across the country. We accepted amendments and ultimately it passed the House of Commons with unanimous support.
My first goal is always to do what is in the best interests of the people I represent, for Alberta and for all Canadians. What ultimately matters most to me is doing the right thing and helping to advance meaningful initiatives for people, not politics and not partisanship.
Similarly, the current situation with orphan wells is escalating with many different impacts in western Canada, but I believe the objectives of Bill C-221 are important to all Canadians. The choice members of Parliament from all parties will have to make is whether the federal government creates a path for the private sector to address the surge in inactive and suspended wells to prevent adding to the number of orphaned wells, or leaves it to the Canadian taxpayers to foot the bill.
I want to close by saying Alberta has a long history, an unmatched history, of leadership on environmental stewardship and innovation in Canada. This is just another small but creative way to generate jobs, address environmental concerns and protect taxpayers in Alberta and across the country.