ENERGY DEMAND AND COMPETITIVENESS
As world energy demand increases, Canada is well-placed to become a key global supplier of sustainably produced oil, while driving job creation and economic growth here at home and ensuring our nation’s prosperity for the future.
While capital investment in other oil producing countries like Norway, Brazil and the U.S. has increased, investment has decreased vastly in Canada since 2014.
Competition for capital investment in the global market is fierce and if Canada wants its industry to be a major player internationally, a number of factors need to be considered.
- Environment Social and Governance (ESG)
- Indigenous relations and economic reconciliation
- Regulatory costs;
- Tax and fiscal responsibility;
- Liquefied natural gas industry capital cost allowance; and
Environment Social and Governance (ESG)
By prioritizing Environment, Social and Governance (ESG) principles the energy industry in Canada demonstrates to both investors and government that our sector is serious about the environment.
Carbon pricing mechanisms, when implemented properly, can be an effective means to reduce emissions. The natural gas and oil industry has experience with carbon pricing. CAPP and member companies support climate policies that efficiently and effectively manage GHG emissions while protecting competitiveness to maintain a vibrant natural gas and oil sector.
CAPP will continue to work with government and other stakeholders to accelerate the adoption and deployment of technology to lower emissions and enable Canada to drive global action by exporting our resources and solutions to the world.
By collaborating and working together, we can accelerate innovation and develop technology that reduces emissions while delivering responsibly produced energy to meet growing energy demand.
Indigenous Relations and Economic Reconciliation
Canada’s upstream natural gas and oil industry has a long history of interaction with Indigenous peoples and has made great strides toward learning, developing relationships, and sharing benefits from resource development.
According to Indigenous Works the resource sector is “…the most engaged sector of the Canadian economy.” The industry acknowledges the importance of Indigenous reconciliation in Canada, and believes natural resource development is linked to the broader Canadian reconciliation process.
The industry’s strongest role is through ‘economic reconciliation’ — identifying feasible ways to share economic opportunities arising from resource development, while continuing to improve and grow relationships based on trust and respect.
Responsible development contributes to overall reconciliation and Indigenous self-determination by supporting the growth of sustainable Indigenous communities. Industry works with Indigenous communities in a variety of ways to meaningfully engage and to share in the economic opportunities arising from development. These activities include consultation, procurement, equity partnerships, consultation capacity funding, business and other agreements, community investment, and training, skills development and employment.
Shared economic opportunities are only part of industry’s engagement with Indigenous peoples — both industry and Indigenous peoples place high value on environmental stewardship, including the role traditional Indigenous knowledge can play to inform environmental management.
Rising government costs, the burden of inefficient regulations, and the lack of infrastructure to move Canadian energy to growing markets are all undermining investor confidence in Canada and negatively affecting the country’s ability to attract the capital needed to create jobs and national prosperity.
Current policy and regulatory initiatives proposed by the federal and provincial governments, along with market access challenges are undermining investor confidence and negatively affecting Canada’s ability to attract capital and remain competitive. Despite its relative size to other industries within Canada, the upstream Canadian natural gas and oil industry competes for investment, labour, and capital in an increasingly globalized world.
TAX AND FISCAL RESPONSIBILITY
In order for Canada’s natural gas and oil industry to successfully compete for investment capital, and to maximize the economic benefits provided by industry to all Canadians, we need to have a competitive tax and fiscal environment.
To ensure industry remains competitive, CAPP continuously anticipates and responds to federal and provincial government priorities and stakeholder initiatives.
Liquefied Natural Gas Industry Capital Cost Allowance
As part of its 2015 federal government budget submission and advocacy efforts, CAPP recommended that the federal government change taxation for Liquefied Natural Gas Industry (LNG) liquefaction facilities from Class 47 (8% declining balance) to Class 43 (30% declining balance) tax depreciation rate. This was to help address inherent Canadian competitive disadvantages relative to competitors such as the United States and Australia.
That year, the federal government announced changes – for capital assets acquired between February 19, 2015 and 2025, equipment and structures used for natural gas liquefaction would be eligible for an accelerated capital cost allowance (CCA) rate of up to 30% (up from 8%).
Non-residential buildings at LNG facilities would be eligible for a CCA rate up to 10% (up from 6%). The lifetime taxes paid by LNG projects would remain the same regardless of the depreciation policy applied. The federal government estimated this change would reduce federal corporate income tax revenues by less than $50 million between 2015-16 and 2019-20.
Since this change in policy has been announced, additional competitiveness concerns have emerged with respect to LNG projects. CAPP continues to work with federal and provincial governments on measures to ensure the BC LNG industry is economically competitive with other jurisdictions.
In Canada, all businesses can deduct certain expenses and the natural gas and oil industry is no different. Tax measures of the natural gas and oil industry are not subsidies. These measures are included to ensure the neutrality of the tax system between sectors that differ in their capital intensity, revenue stream generation, and production/life cycles thereby removing the tax bias against them.
Alberta Scientific Research and Experimental Development
The federal government provides tax incentives to encourage Canadian companies of all sizes and in all sectors to conduct scientific research and experimental development (SR&ED). These tax incentives consist of three components:
- An income tax deduction
- An investment tax credit
- A tax credit refund (in certain circumstances)
Tax incentives modify the after-tax cost of SR&ED investment, thereby lowering the company’s initial costs and making SR&ED activities more attractive.
Similar to the federal program, the province of Alberta employs its own SR&ED program. Alberta’s Scientific Research and Experimental Development Tax Credit program provides a refundable tax credit to corporations for SR&ED expenditures spent in Alberta by corporations.
In Alberta this program is administered by a provincial department of finance.
CAPP has advocated for some improvements to this program on behalf of its members since 2015.