OTTAWA - The federal government should cancel its generous tax treatment of the Alberta oil-sands industry, putting it on the same footing as the rest of the oil-and-gas sector, says a draft report by a House of Commons committee.
The tax break, estimated to be worth $1.4 billion annually, has been a point of growing controversy as oil-sands operators reap record revenues. Known as the "accelerated capital cost allowance," it was introduced when the oil sands technology was still considered experimental.
That preferential tax treatment has been criticized for years, and Environment Minister John Baird recently said he has questions about it. There is speculation the tax break may be revoked in the federal budget set for March 19.
The 93-page draft report, obtained by The Canadian Press, is the result of more than three months work by the Commons natural resources committee, and likely represents the most comprehensive review to date of policy issues raised by the oil sands.
Sources say the release of the report has been delayed by Conservative members who disagree with some of its recommendations. Conservatives are expected to issue a dissenting report, while New Democrats and Bloc Quebecois may also issue separate but complementary reports.
The document says the rapid expansion of the oil sands provides an enormous economic and strategic advantage to Canada, projecting $123 billion in revenues for provincial, federal and local government, but that important environmental, economic and social issues have yet to be addressed.
"In particular, greenhouse gas emissions from oil sands activities are of increasing concern and have yet to be tackled head on. As one witness from the Pembina Institute put it, Canada risks becoming known 'not as an energy superpower but as a superpolluter.'"
It says the Alberta government owns the oil sands and should determine the pace of their development, but Ottawa also has jurisdiction to intervene through legislation such as the Fisheries Act and the Canadian Environmental Protection Act.
"The committee recommends that the federal government, specifically the Department of Natural Resources, base all of its actions in the area of oil sands development on sustainable development and polluter pays principles."
It recommends a firm limit on greenhouse gas emissions from the oil sands, saying they should be developed in a way that doesn't jeopardize Canada's obligations under the Kyoto Protocol.
The Alberta government is likely to react strongly to any suggestion of a stronger federal role in the development of the oil resources.
The report raises concern about the use of natural gas in oil-sands processing, saying the gas is too valuable to be used that way. It recommends against using nuclear power, saying much more study is needed.
It also proposes a major increase in research to determine the impact of the oil sands on the Athabaska River system, and deplores the fact that aboriginals in the area are living in poverty despite the massive revenues being generated.
And the report criticizes the oil and gas industry for not investing enough in research and development, saying it allocates 0.36 per cent of its revenue for that purpose, less than a tenth of the Canadian industrial average.
"The committee is concerned that the public sector has borne too great a proportion of oil sands research and development in comparison to the private sector.
"The committee heard experts say that the industry already has all the technology needed to produce non-polluting energy. What is really missing are the conditions that would encourage the private sector to invest in that technology."
The report estimates that Alberta holds at least 1.7 trillion barrels of bitumen which, according to some, is "equal to or exceeds the conventional oil deposits in the world."
The oil sands sector has been expanding much faster than expected: in the mid-1990s a task force predicted production would reach a million barrels a day by 2020, but that level was in fact achieved in 2004.
It's expected production could triple by 2015, making Canada the fourth- or third-largest oil producer in the world. But production could outstrip pipeline capacity as early as this year.
"Additional sustainable investments in upgrading and refining, both value-added activities, should be encouraged, with a view that such investments would provide substantial economic benefits to Canada.
"Mounting environmental and social costs associated with oil sands activities in particular make it increasingly clear that it would be irresponsible to continue on a 'business-as-usual' course. It is time to begin the transition to a clean energy future."
