Setting the record straight on the day’s top anti-oil and gas media stories
Oil and Gas Taxes Briefing Note
The problem with gas prices is government policy
With the war in Ukraine and a global commodity market in flux, many are quick to point the finger at oil and gas companies for the dramatic increase in price at the pumps. Not to downplay Putin’s invasion of Ukraine, but high gas prices have been an intended policy in Canada and internationally. We have had crises involving oil-producing nations in the past, for example Iran in 1979, or the Gulf War in the early 1990s. None of these brought such high prices to Canadian consumers. With 44% of a fill up going to taxes by 2030, the clear reason for high gas prices for Canadians are anti-oil policies.
Profitability over the cycle is not excessive
Though oil and gas companies are seeing more revenues this year, they also saw nearly 7 years of depressed prices, the low point being $3.50 per barrel in April 2020 during the coronavirus pandemic. Over the last half decade, oil and gas have not been very profitable. While many oil companies have failed during this time, governments are raking in millions per day between excise taxes, increased carbon taxes, and taxes on taxes, even while oil company profits were low.
Windfall taxes are built into the system
Governments are currently seeing a windfall of royalties and corporate taxes coming from oil and gas companies. High commodity prices have led to a 200% increase in revenue for governments and are expected to rise more in 2023. Due to Canada’s current royalty and tax regime, a “windfall tax” is already built in for these high prices. Adding an additional windfall tax on top of this regime would be redundant and would be tantamount to killing the Golden Goose.
Here are some facts to have a reasoned conversation about gas prices and policy:
- Canada’s oil and gas royalty and tax regime already provides for windfall taxes on profits. According to RBC, oil and gas companies will pay $48 billion to governments in 2022, a 200% increase from 2021. Royalties and taxes are estimated to reach $64 billion in 2023.
- Canada’s energy industry paid over $505 billion in federal, provincial and local taxes, and royalties, since 2000.
- This year of “windfall” profits follows half a decade of losses. Between 2015 and 2020, the oil and gas industry lost a collective $137.6 billion.
- Not only is the oil and gas industry a major driver of tax and royalty revenue for the government, it is also a major driver for trade. Oil and gas has driven over $1.9 trillion worth of exports and much needed foreign exchange between 1988 and 2019.
- On average, 44% of the cost of a fill-up will go to government pockets by 2030.
- The federal government is expected to bring in a second carbon tax called the Clean Fuel Standard. This could add up to 13 cents per litre of gas by 2030, in addition to the 40 cents per litre expected from the carbon tax in 2030 at $170 a tonne.
F1. Stats Canada https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1810000101&pickMembers=2.2&cubeTimeFrame.startMonth=01&cubeTimeFrame.startYear=1979&cubeTimeFrame.endMonth=06&cubeTimeFrame.endYear=2022&referencePeriods=19790101%2C20220601
F2. Energy Information Agency