With the election of the NDP it appears that the fossil fuel sector’s free ride may be coming to an end in Alberta. The landslide election victory of the NDP has changed the political landscape and shifted the energy picture in Canada’s fossil fuel rich province.
As leader of the NDP, Rachel Notley’s win brings an end to the Progressive Conservatives’ more than 40-year reign. The provincial Conservatives have proven themselves to be as hostile to the environment as their federal counterparts.
Alberta’s Conservatives enjoyed a stranglehold on power due largely to the economic benefits derived from the oil and gas sector. It appears that the provincial Conservatives are paying the price for declining oil prices. Now that the price of a barrel of crude has plummeted the provincial economy is in free fall. In addition to widespread layoffs, home prices in Calgary have declined by 22 percent in recent months.
Notley’s NDP ran on a platform that represents a seismic shift in energy policy. In addition to a two percent increase in the corporate tax rate, the fossil fuel industry is expected to bear the brunt of the burden of new government policies. The changes include a review of oil royalties and a ban on gas drilling in Urban areas.
The NDP campaigned on the promise of a new energy efficiency strategy. This includes a partnership with financial institutions that will extend interest-free loans of up to $10,000 for energy-efficient retrofits to homes and businesses. This program will support the installation of energy efficient furnaces, windows and doors.
During the election campaign the NDP said that they will phase out coal-fired power stations. The most dramatic shift concerns a review of the royalties that the province derives from fossil fuels. Historically Alberta’s oil and gas industry has been charged low royalties compared to other energy jurisdictions. The NDP has said it will review Alberta’s approach to resource development and establish a Resource Owners’ Rights Commission to recommend a royalty structure that rewards value-added processing. Notley has indicated that she will appoint the Commission that would propose a new provincial royalty structure within six months.
Oil pipelines, particularly those ferrying bitumen can also be expected to come under closer scrutiny and lose some of the support that the oil industry has enjoyed in Alberta for the past four decades. Notley has said that she will not promote the TransCanada Keystone XL and Enbridge Northern Gateway pipelines.
The new provincial government attitude toward the oil and gas sector will put downward pressure on dirty energy investment. As explained by Rafi Tahmazian of Canoe Financial, “As an investor in the oilpatch, you’re going to get your teeth kicked in.”
The TSX opened trading on Wednesday morning down by 150 points. Big players in the tar sands have reason to be worried. Dirty energy companies like Cenovus were down nearly 5 percent. While energy stocks were down by 2.75 percent at the end of Wednesday, there was no panic selling.
While oil investors rue the loss of oil profits, this could be a boon for cleaner sources of energy. As Notley said after her win, “it is time to diversify our economy and end this boom and bust cycle in Alberta.” The NDP has promised to create a coherent renewable energy strategy and support interest free loans for the installation of solar panels. Money made from incremental royalty revenue will be used to invest in renewables or diversify the economy. They also promised to reinvest the unused Carbon Capture money for 2015-16 into public transit construction.