Economist EXPOSES the hidden cost of Carney’s carbon tax
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Summary
In this episode, we talk to Jack Mintz, the President of the School for Public Policy at the University of Calgary and a Fellow at the Fraser Institute, about the impact of Alberta's Industrial Carbon Tax on the extraction and production of natural gas, oil and natural gas.
Transcript
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Welcome to The Fighter. I am your host, Chris Sims. We have got a very insightful interview
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for you coming right up in a second. Why? Well, because to put it in plain English,
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if we continue along this path with strangling our natural resources, with having a huge
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industrial carbon tax, with our current taxation plans that we have here in the heartland of the
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economy known as Alberta, it will have a ripple effect on affordability. How well, to put it in
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layman's terms, it will make our cost of production for things like natural gas, a barrel of oil,
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and even electrical power cost too much. Costs too much in comparison to places like Texas and New
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Mexico. Bottom line, this would increase costs for businesses, things like mining, things like
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forestry, things like farming, things like fuel refinery, not to mention the direct oil and gas
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industry. And it would increase costs for consumers. So when you're paying your power bill,
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okay, if we stick with this ever-increasing industrial carbon tax that's embedded within
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the Memorandum of Understanding, the MOU, the one that Prime Minister Mark Carney is pushing
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really hard, okay? If we stick on our current track, it's gonna cost us more. Don't take my
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word for it. Dr. Jack Mintz said this himself in a deep dive, far-ranging report. Let's listen.
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Joining me now is Dr. Jack Mintz. He is the President's Fellow of the School for Public
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Policy at the University of Calgary. He is also with the Fraser Institute and that's where I took
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a look at this report that he wrote. It's more than 40 pages long. I strongly recommend people
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go check this out. Dr. Mintz, what jumped out at me was the potential increased production costs
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of everything from oil sands, oil, all the way through to natural gas. But before we get going,
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some of the language in here, it wasn't just industrial carbon tax or carbon capture. It
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includes things like business taxes. Can you explain to us what all things you considered
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here as factors? Well, first of all, for years, in fact, it goes way back to 1984 when I first
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went up to the Department of Finance. One of my tasks was to help the department develop what's
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called effective tax rate analysis on new investment or marginal effective tax rates,
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which is now commonly used. In fact, the department still uses that methodology for looking at how
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taxes can impact investment and for comparing Canada to other jurisdictions. And so that
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analysis includes, and I've been doing this for quite a long time, but we include corporate
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income taxes not just the rate but also the base in terms of how you depreciate capital investment
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tax because it's all the different aspects of the corporate income tax and we also include sales
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taxes on capital inputs which is which you get with things like the retail sales tax on capital
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inputs some jurisdictions have other types of sales taxes as well then we have then we also
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look at taxes that are related to using assets you know for example canada one time had capital
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taxes it still applies to financial institutions but other companies no longer pay it but you'll
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find that also in a number of countries and an economy model also is a property tax which
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we tend not to use a property tax not because we don't think it shouldn't be used it's just that
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it's very hard to get data for canada on taxes paid by different sectors of the economy when it
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comes to property taxes municipal property taxes particularly but generally all you know and it
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includes a whole gambit of taxes on on capital inputs the trouble however is that when you're
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doing analysis and you want to go beyond just taxes on capital you want to include something
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like taxes on energy like fuel taxes which have been around a very long time uh we um
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you really have to use a different type of analysis you don't just try to measure the
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tax on capital but you also try to measure the tax on on energy and you can also measure the
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tax on labor if you wanted to do that as well so there's a broader sense of how taxes can affect
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what's called cost competitiveness and that's what we do and so we include uh in just the base case
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fuel taxes we compare texas and new mexico with with alberta in terms of the taxation of
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the resource sector oil gas sorry oil oil sands natural gas but also the power industry that
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tends to use a lot of energy and produces energy as well and so we look at how these taxes
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impact on on the cost and cost competitiveness and and that is really critical if you want to
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understand how taxes impact on production decisions of businesses and of course the
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higher the taxes the less production you're going to get which is which is what you would normally
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think will happen so business taxes include not only the taxes like the corporate income tax but
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also includes other taxes and capital and includes fuel excise tax on energy and then we add in
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carbon taxation on top of that can you get into the industrial carbon taxation uh because to
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paraphrase because i can't put it the way you put it um to paraphrase your report you said the the
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current one, the current industrial carbon tax rate before the MOU was still competitive. It's
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still allowed for our price of a barrel of oil or production cost of a barrel of oil to be
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competitive. And then from what I'm understanding from your report is going forward, the new
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increasing industrial carbon tax costs combined with the cost of carbon sequestration and carbon
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capture etc all in the mou would help make the production cost of a barrel of oil too high in
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alberta compared to places like you said new mexico and texas have i got that right um not quite
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that's why i had you on the show yeah so the exercise is uh first of all uh to understand
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tax competitiveness what we and this is very commonly done uh by by analysts including myself
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and others is you try to try to see whether your tax system is tax competitive which is a little
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different than just competitive and the reason i say that is that we isolate the tax system by
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assuming the same type of other economic variables for production in in in the various jurisdictions
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so in other words they're using the same uh structure of debt versus equity they're using
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the same uh you know they have the same sort of costs that would otherwise be there um you know
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uh you know in producing the product so uh so in that sense uh what we're the focus is on what's
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called tax competitiveness and so not just competitiveness but tax competitiveness in
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other words which jurisdiction tends to tax more heavily um you know an industry or sector uh
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compared to other jurisdictions and so uh what we do is we do that with the with the concept that
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all else is equal now of course all else is not equal you can get different costs and for example
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wage costs in canada would be less than the united states uh and so it's possible to for the system
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to be not competitive um let's say in alberta relative to texas but it doesn't mean that the
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whole industry is not competitive it may be that there's some other advantages that you know that
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is possible that that still maintains competitiveness what's important about tax
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competitiveness is we want to know how the tax system including subsidies by the way how that
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can impact on on consumers and on the decision where to produce between jurisdictions and of
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course if all else is equal but your tax system tends to make costs higher in the jurisdiction
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then that's a tax disadvantage that has to be considered but there could be other advantages
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that might be relevant but that's not what's the point of the analysis the point was to look at
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whether the tax system is still advantageous in canada relative to the united states and is it
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well i mean this is the issue that i've been very interested in for a number of years actually
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um in fact you know i've done a lot of work on comparative analysis lately uh philip bezell who
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works with me uh quite closely we've been doing a lot of work for the inter-american development
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bank on mining taxation around the world and comparing canada with that and uh it's typically
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you know the work that you know we've done in the past you know where we include royalties
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and taxes just like we've done in this study but i've always sat and wondered uh what about
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carbon taxation because carbon taxes are levied in canada but they're not levied in the united states
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and the question is like you know to what extent is that putting us offside relative to the united
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states or not and that's the reason i was very interested in this topic was to was to see how
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you can introduce carbon taxes into modeling uh cost competitiveness between jurisdictions and
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and so the results that we got i think are quite interesting i mean if you first of all forget
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about the industrial carbon tax for a moment and you just look at fuel excise taxes on the energy
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and you look at the other taxes on the capital what we found actually was that actually there
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was a tax advantage for investments in alberta relative to texas and and and new mexico which
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is the other major producer of oil in the United States. Of course, there's other states too,
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but we focused on two of them. And that's kind of interesting, and of course, the question is why.
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And one of them is, first of all, Alberta lowered its corporate income tax rate,
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its provincial one to 8%, the federal one is 15%, it's 23%, which is roughly in keeping with Texas,
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which is at 21, and New Mexico, which is a little bit higher, close to the Alberta rate.
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But the key point is that when you look at other things, like other taxes,
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They have these very high severance taxes on the oil and gas sector.
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And they also have retail sales taxes, which are very significant taxes on business inputs.
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and the interestingly not it's not a major factor but i was surprised i actually feel excise taxes
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they're a little higher in new mexico and texas compared to alberta so when you put it all
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together actually alberta had a tax advantage relative to texas and new mexico and i think
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that's that's quite interesting so then the big question is okay what happens if you put in the
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industrial carbon tax and there we found that actually at 95 dollars what happens oh first of
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well, I should backtrack, with the case of just looking at these taxes
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and ignoring the carbon taxes, there is one sector that is more heavily taxed
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compared to Texas and New Mexico, and that's conventional oil.
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And that's because of the very high royalty rates in Alberta.
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So that was one factor that's disadvantaged from a tax perspective in Alberta
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obviously, since there's no carbon tax in the United States,
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conventional crude is even worse off relative to Texas and New Mexico.
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Well, we found actually there was a tax advantage
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for oil sand investments without the carbon tax.
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most of the, at a $95 per ton carbon tax, most of that tax advantage is gone. So, at least under
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the 2025 system, as we called it. And so that, I think, is important to understand. Natural gas
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still has an advantage, mainly because of these very high severance taxes that are in Texas,
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particularly. So, you know, that part stays the same. The one industry that is really out of
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whack is the power industry it had a tax advantage without carbon taxation but once you introduce
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carbon taxation even the the one that we currently had in alberta uh it it put uh power investments
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offside now utility companies aren't going to move very quickly so i don't think that's a key issue
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but it does mean that our tax system in alberta once you put in the carbon tax means that
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you know probably consumers and businesses that are going to buy electricity
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and you know electricity that are going to be taxed more heavily and will have face higher
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prices as a result which goes right through the whole economy so it's a it's a bit of a concern
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when you have that happening and then we looked at the old system by the way the paper was
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originally written before the mou came out so we had something at the very end about the mou
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which of course attracted a lot of the interest um but when we when we looked at the 170
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dollar carbon tax that was due in 2030 um uh and uh and further uh reductions in you know in
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allowances um although assuming that there would still be a low credit rate uh um you know for
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selling carbon credits uh to companies that need to buy them to satisfy their their carbon uh
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require you know uh their the carbon regulation in alberta uh what we found actually was that
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the oil science loses its good tax advantage altogether not to it's not too badly off relative
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to to the uh to the u.s uh but um uh obviously conventional crude is worse off natural gas
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starts losing its tax advantage too although still has some tax advantage under that system
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then the mou came along and we decided to look that now it wasn't easy because you didn't have
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the same amount of time before this paper coming up but after going through it what we found is
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that by 2040 after the carbon price moves up from 95 to 140 dollars and uh and the car and there's
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this minimum credit price which is going to be make the carbon tax even higher as a result plus
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further reduction in allowances that would be available to the companies that what we found
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actually is pretty well in every sector there'll be a tax disadvantage for them and as a result
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to and in particular the power industry was going to be most effective and so that would suggest
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that you know that certainly the you know that certainly the industrial carbon taxes
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was going to create a now a tax disadvantage for alberta while previously without carbon taxation
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there wasn't a tax advantage so that's the basic story of the whole report is it okay if i bring up
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this graphic now and we can talk about that a little bit yes we can perfect sean if you can
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pull this up uh dr mince uh these are some big numbers that i'm looking at here um so we've got
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a 19.6 increase in the cost of production for oil sands oil 25.6 increase for conventional oil
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this is a wowser 35.9% for electrical power and 39.1% for natural gas. So we're talking electrical
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generation here at 35.9 and then almost 40% for natural gas. Now, can you break that down for us?
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I don't know if we need to keep the graphic up while you describe it. Is this how would this
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increase costs to consumers if this is an increased cost of production?
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well we have to remember that uh before the carbon taxation came in place we did have taxes on on
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these businesses and in fact uh you take like the case of natural gas and i don't have the numbers
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in front of me right now but uh you know the effect of tax rate was around 23 24 percent
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so the carbon tax actually adds something on but they started a very high high rate in the first
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place um part of a part of the issue is that uh the carbon tax is paid no matter what your
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profitability is um you know you could have high profits or low profits and and one of the issues
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around with natural gas is that prices are relatively low you know very relative to what
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you can get in the united states so that's uh so that carbon tax really bites more heavily
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in that case uh because the because of that um and so that's you know that's something to uh
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you know it has to be kept in mind um but with the uh uh and power you know obviously is another
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area where we've had actually low prices for consumers in alberta at least relative to number
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of jurisdictions around the world uh but uh again uh those taxes tend to pile on uh more heavily
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when your prices are low and your costs are low in other words you know because it's a fixed tax
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it doesn't it's not related to the actual cost per se and so and so that's why that's one of
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the reasons why those sectors tend to get more heavily impacted but i think the other graph if
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would be the op-ed i put out today in the in the national post where you where there's a table
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comparing texas and new mexico under the mou for 2040 compared to alberta for the oil sands and
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conventional crude natural gas and power and you can see quite clearly there that
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the tax advantage is really quite significant in fact it's much higher in alberta it's almost
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twice higher than what you now find in in new mexico and texas more than twice higher except
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for the oil stats it's not too far off the the texas and the and the new mexico tax rates
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and so you're getting you're you really see some significant differences now of course that's by
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2040 the world's going to change a lot between 2025 and 2040 most likely but it does tell you
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the direction and of course when companies are making investment decisions they're they're
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looking at the long run they're looking at many many years in terms of profitability and if they
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see that in 15 years they're going to be you know much higher taxes in canada relative to the united
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states it's going to probably put a just you know probably discourage investment in in canada uh as
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a result because the the future looks more gloomy at least from a tax perspective it doesn't mean
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that there's other things that will be positive for the industry in canada is it fair to say and
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i don't want to put words in your mouth is it fair to say then under the current system if things
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don't change looking into the future down a railroad track that this would increase cost
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of production of various forms of energy and increase cost to consumers is that fair to say
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yes and to increase cost to businesses that are buying energy right i mean we have to remember
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you have forest companies that have to use uh you know uh fuel that they they buy the energy sector
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You have even, you know, high-tech industries that depend on electricity, et cetera.
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So yes, what this is saying is that you're going to have prices going up for consumers,
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but it's also going to make other businesses in the economy less competitive.
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Are you getting traction with the Alberta government, if you don't mind me asking?
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Because I've brought some of this stuff up myself with the Alberta government and it just kind of
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seems to be glossed over and they say the mou is worth it and we'll work it out later
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um whereas some of these numbers i'm looking at here like 35.9 increase in the cost of production
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for electrical power in alberta you know like that's alarming um and for folks who are outside
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of alberta who are used to hydro um our power is generated using natural gas largely here in alberta
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so that is why those two things would be connected i would argue these are alarming numbers like are
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you are you getting some feedback from the alberta government with their mou and their industrial
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carbon tax and all this stuff uh well they certainly know this work uh let me put it that
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way um yeah but i think uh i think the more interesting thing and i've heard this from not
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only you hear it publicly but i've heard this from a number of people privately including people who
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reacted to the study that came out yesterday who are in the industry it basically confirms what
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they've been trying to tell the alberta government as well now but you have to be really careful is
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those those numbers there don't say that the price of prices are going up 35 percent just
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the carbon tax correct what it means is that taxes are adding on to the marginal cost of production
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for um for the for that industry and and adds another third to the cost so for example if you
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can sell electricity let's say at 10 cents a kilowatt uh taxes are adding three cents on to
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that 10 cents you know three point three point five cents onto the 10 cents and and so that that's the
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way to look at those numbers okay well dr jack mince i sincerely appreciate your work on this
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i hope that you're ringing some bells up there in edmonton and that people are paying attention to
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this because uh at the end of the day people are strapped they can't afford to spend more for
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energy and i really appreciate your insights especially on business so the big business in
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oil sands or oil and gas electricity energy something like that mining um is looking to
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come to Alberta and they're looking 10, 15, 20 years down the road and they're doing a comparison
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shot between Alberta and Texas. From this report, what I'm reading is Alberta would be at a
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disadvantage, correct? A tax disadvantage. It doesn't mean there may not be some other advantages
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that goes Alberta's way. Including our charming personality. Dr. Mintz, thank you so much for
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your time today my pleasure thank you take care once again that is dr jack mince he is an obviously
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an economist super smart gentleman and he is the president's fellow of the school for public policy
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at the university of calgary and it's really important that we speak with documents because
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a he's obviously very smart b he does a lot of completely non-partisan deep dive look at the
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numbers look at the future look at all these variable rates and he puts it all into a report
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that ding ding ding government can't ignore and industry reads so while you're often going to get
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a 10 second clip somewhere else we think it's important here in independent journalism to do
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long-form interviews with very intelligent people like dr mints please head on over to the fraser
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Institute's website. It's one of the first links you can find on their website. If you just Google
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Jack Mintz report, it'll usually be one of the first things that pops up. I think the C.D. Howe
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Institute has also posted it. It's on many different websites. And take a look at the
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executive summary. And that's where you can see charts like this, okay, where they're talking
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about tax disadvantages. And then talk to your friends, especially those who plan long-term in
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business, who want to create jobs here in Alberta and Canada, and who ultimately, from the Taxpayers
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Federation perspective, want lower taxes. Like Albertans, a huge chunk of Albertans are fighting
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to afford everyday life. The idea of making something as simple as oil and gas, fuel refineries
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cost more, power production costs more, ultimately trickling down to you spending more on your power
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bill. We can't afford this, folks. And that's the message that the Alberta government needs to hear
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in clear playing language like Dr. Mintz just gave us. Thank you so much for watching. If you
00:25:51.840
haven't done so yet, be sure to head on over to Juno News. Subscribe to Juno News because that's
00:25:57.140
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