Wednesday, May 21, 2008

Oil rent

From Donald Cameron (my emphasis in red):
"In the last year the price of a barrel of oil has gone up by $45 or 65 per cent. It averaged $70 in 2007, while this year it is looks to average $115.

In Canada, as recently as 2003, the cost of producing a barrel of oil, including royalties, averaged only $5.57. Of course, that year Canadian royalties were again among the lowest in the world, 23 cents a barrel.

For natural resources, the difference between the cost of production, including normal profits and the selling price, represents the resource rent, a one-time benefit to the owners. If we assume the cost of production has nearly doubled since 2003, including small royalties increases in Alberta, the resource rent per barrel this year is $105.

This resource rent money has been treated as a windfall profit and has gone directly into the pockets of the oil producers. As many of them are foreign-owned, the profits go directly out of the country.

Since, under the constitution, the beneficial owners of the resources are the people of the provinces where the resources are located, the rent belongs to the people, and it should have subject to an excess profits tax. Indeed when the price of oil increased in the late 1970s, the Alberta government introduced just such a measure.

The logic is simple. If oil companies are making money at $70 a barrel, and through no action on their part, their price increases to $115 a barrel, why should they get to pocket the difference?"

"The situation is similar to what happens in wartime. Some companies get rich producing war materials, while others pay the ultimate price fighting the war. Proceeds from excess profits taxes are used to pay for spousal veterans benefits."

The oil companies took no extra risk, expended no additional capital, and invented no new technology. It is as if it started to rain gold upon them, with the gold belonging to someone else. Even under the doctrines of the craziest turbo capitalist shill, there is no justification for this profit taking. They are just stealing money that belongs to the people. We need to tax this back, and I see no reason why the tax shouldn't be retroactive (if the companies scream poverty, the government can take payment in equity).

We really need two taxes, a profiteering tax, and the carbon tax (to cover the costs of the externalities that people don't pay when they buy hydrocarbons).