“FUEL AND FIRE” DEVELOPMENT VERSUS ECONOMIC AND ENVIRONMENTAL BALANCE:

WHAT THE ALBERTA CAN LEARN FROM THE GOVERNANCE MODEL

By

ANU CARENA HARDER

Integrated Studies Project

submitted to Dr. Angela Specht

in partial fulfillment of the requirements for the degree of

Master of Arts – Integrated Studies

Athabasca, Alberta

October, 2009 2

TABLE OF CONTENTS ABSTRACT…………………………………………………………………………p 3

SECTION 1: BACKGROUND Introduction……………………………………..………………………………….p 4

Oil Market Overview…………………………….…………………………………p 6

SECTION 2: ALBERTA’S “FIRE AND FUEL” DEVELOPMENT Firing up Development: The Privatization of the Alberta Oil Sands…………..p 9

Adding Fuel to the Fire: Ratification of the North American Free Trade Agreement……….……………………………………………………………….p 11

SECTION 3: ISSUES IN GOVERNANCE OF OIL WEALTH Economic Model …………… ...... p 15

Antidote to Dutch Disease—The Creation of the Sovereign Wealth Fund…p 18

SECTION 4: GOVERNANCE PARADIGMS Alberta Heritage Savings Trust Fund……….…….………………………...p 19

Norway Government Pension Fund………………………………………...p 21

Comparative Analysis of Governance: “Fuel and Fire” vs. Economic and Environmental Balance……………………………………………………...... p 22

SECTION 5: CONCLUSION Conclusions……………………………………………………………..…….p 28 Afterword……………………………………………………………………..p 29

3

Abstract

The Alberta Oil Sands Reserve is one of the world’s largest hydrocarbon deposits ever discovered, second only to . Due to the impact on the environment, the mining of this resource has been mired in controversy. With the onset of the 2008 global fiscal crisis and plummeting world oil prices, many economists and environmentalists alike began predicting a moratorium of further oil sands development. This paper explores the economic and political underpinnings that secure oil sands’ continued development and a comparative case study of oil wealth management contrasting Alberta with another oil economy, Norway.

The Conservative Alberta government has historically favoured privatization of this public resource, resulting in a growing firestorm of Oil Sands development. Adding fuel to the fire of development is the proportionality clause of the North American Free Trade Agreement, ratified in 1993 and presently honoured by the Harper and Obama and administrations. If not managed, these two combustible forces have the potential of leaving hapless Canadian citizens with one of the world’s greatest economic and environmental disasters.

There is a beacon of hope. Sovereign Wealth Funds have become a popular and effective fiscal management tool to shelter domestic economies from recessionary decline, as well as provide returns for future generations, when the non-renewable resource is depleted. Alberta’s sovereign wealth fund has been in operation for 33 years and is worth $14.4 Billion. Meanwhile, Norway’s fund is worth a staggering $374 Billion and is less than 13 years old. As much as it is admired, the success of the “Norway Model” has eluded other economies around the world .1 A comparative case study is undertaken, analyzing similarities and differences in these two distinct political-economic systems.

It is concluded that Norway’s strict fiscal discipline and transparent management of its oil wealth has not only secured its economic future, but also led it to follow an environmentally sustainable policy. Both these management practices can inform the Alberta case, maximizing its long term economic as well as environmental health.

1 Taylor, A. (2006) Klein Fails to Provide Nest Egg. Edmonton Journal. March 25. 4

SECTION 1: BACKGROUND

Introduction Located 250 miles northeast of Edmonton, Alberta, the oil sands have had a colourful and often controversial history. Peter Pond, and his successor, Alexander Mackenzie, discovered the layers of tar sands—later to be named the McMurray Formation—cut into the steep Athabasca River banks in 1776. Both men had been on expeditions for the North West Company, the rival to the Hudson’s Bay Company during the height of the competitive Canadian fur trade industry. Mackenzie had even traded a precious flask of whiskey with aboriginal tribes of the area the Indians to purchase some of this “molasses-like tar substance” to repair his canoe.

Presently, the Alberta Oil Sands contain 175-200 billion barrels of recoverable oil— one of the largest hydrocarbon deposits ever discovered. Its size is second only to Saudi Arabia. Presently it is producing approximately 1.2 million barrels per day and is forecast to be producing

3 million barrels a day by 2020. 2 The Canadian government has stated that this resource alone has the power to transform Canada into an energy superpower. 3 However, there are issues of concern. Due to the complex process of extracting oil from the oil sands, to produce one barrel of oil requires mining 2 tonnes of oil sands using 5 barrels of fresh water and 750-1000 cubic feet of natural gas (that is enough to heat a house for a week). 4 This has caused uproar, especially among environmental groups. The resulting discourse and writings in this area from all sectors has been voluminous and controversial. This paper, is not about the environment. However, the environment has specific economic implications that will be discussed.

There are two components of fiscal policy in the oil sands. There are the revenues, in the

2 Government of Alberta. (2009). “The Oil Sands”. Government of Alberta Website. Retrieved February 3, 2009. Retrieved February 3, 2009http://www.energy.alberta.ca/OurBusiness/oilsands.asp.

3 Richardson, L. (2007). The Oil Sands: Toward Sustainable Development. Report of the Standing Committee on Natural Resources. Communication Canada: Ottawa. March. 39th Parliament, 1st Session.

4 Ibid., p 54 5 form of royalties and leaseholds that the Alberta government, on behalf of its citizens, collects from the oil sand developers. The present royalty framework was designed to encourage development of the private sector. One per cent royalty agreements, as well as one hundred percent deduction of all capital expenditures, in place of Revenue Canada regulations allowing for only depreciation, were achieved with strong lobby efforts by private oil companies. Kevin Taft, Liberals Shadow Minister of Energy, exclaimed that the return of two pop bottles yielded more than the forty-eight cents paid by oil companies for each barrel of oil they extracted from the Oil

Sands. 5 In fairness, the 2006 Royalty Review in Alberta did mandate that oil revenues needed to

be increased. Royalty increases are to be phased in commencing in 2009. 6

This paper focuses on the second component of the government of Alberta’s fiscal strategy that the government employs to ensure that the revenues that it collects are most effectively managed in order to protect its citizens when this non-renewable resource runs out. The concept of “Dutch Disease”, the inflationary cycle that follows the swings from booms to busts to boom again is introduced. As threatening as Dutch Disease’s potential can be resource economies can

survive and even thrive. The key is sound fiscal governance. 7 The fiscal governance tool that is investigated in this paper is the creation and management of the sovereign wealth fund. Sovereign wealth funds are special entities created by countries running large trade surpluses to manage their accumulating wealth. More specifically, in the case of Norway and Alberta, they were created to

5 Taft, K. (2008) “Two Pop Bottles pays more than Oilsands Giant Paid in Royalties. Canadian Press. May 12.

6 Originally, the Alberta government had charged a low royalty, equal to 1 per cent of gross revenue after all costs were factored in to encourage development. Their critics charged that they were “greasing the wheels for an investment that corporations would have made anyway.” As the Oil Sands development emerged as a dominant factor in the 1990’s, the low royalties were still in place. The 2007 federal Canadian budget phased out the accelerated capital cost allowance that was given to oil sand producers. Provincially, a panel of 6 members were appointed to review the Alberta Royalty Policy. The Alberta Royalty Review returned with recommendations of increases to the royalty structure that would be phased in starting 2009.

7 Powell, B. (2008). Curing the Dutch Disease: How Resource-Rich Nations can Unravel the Paradox of Plenty. Time. March. Vol 171. No 12. p41 6 manage their respective oil generated wealth. This report is presented as follows: Section 1 provides an economic, political, social and technological overview of oil in context of the energy industry and then more specifically, the development of the Alberta Oil Sands. It shows how the oil derived from the oil sands, although more labour-intensive and environmentally hazardous than conventional oil, is traded in the world oil . Section 2 describes the unique history and development of the Alberta Oil Sands development, fired up by privatization policies of the Alberta government and fuelled by the 1993 North American Free Trade Agreement (NAFTA). The proportionality clause of NAFTA has made a globally traded product such as oil essentially a continental resource product. Although mired in controversy, further development of the oil sands is not only likely, but imminent. Section 3 explains macroeconomic principles that correlate a resource boom with a long-term negative impact on the economy. Avoidance of this phenomenon, dubbed “Dutch Disease”, will require keen macroeconomic management. The paper focuses on one key fiscal governance tool, the Sovereign Wealth Fund that is implemented to cushion the effects of Dutch disease and build wealth for the future when resources run out. Norway is recognized, by many international institutions such as World Bank, for creating a gold standard prototype for this type of fund, the Norway Government Pension Fund. Section Four examines the philosophy, structure and management of Norway’s fund; and, makes a comparative analysis to the Alberta Heritage Fund. Although these two funds operate under different political-economic structures, Norwegian governance practices that can inform the management of the Alberta Heritage Fund is described. Section 5 makes concluding remarks and recommendations.

Oil Market Overview -based fuels, due to their high energy density and transportability, have become the world’s most significant forms of energy since the early 1900’s. Petroleum-based fuels produce fuel oil and gasoline and are also refined into over three thousand chemical, pharmaceutical and plastic products. With consumption growing around the world, estimates for known reserves vary from approximately 65-100 years, and thus there is a growing concern of an 7

impending energy crisis. 8 There are other complicating factors as well. This potential timeline figure does not take into account new discoveries, using the oil sands, using synthetic petroleum or renewable forms of energy.

Fossil fuels are found in the earth, taking millions of years to develop. Thus, they are classified as non-renewable sources of energy. Crude oil is a naturally occurring liquid in some formations in the earth. Depending on its variation, it differs in color and appearance. For example, the oil in Saudi Arabian oil fields is black and near the surface of the earth. In contrast, crude oil in the Canadian is in semi-solid form mixed with sand, called bitumen. Due to increased refining, oil exploration and developments the production costs are much higher in comparison to conventional oil.

Bitumen is too heavy and viscous to be transported by pipeline. It is an unattractive hydrocarbon as it is low in hydrogen and high in sulphur. It is usually heated and diluted with condensate a form of light oil obtained primarily from natural gas production. The mixed oil is then referred to as “synthetic” oil. The oil processed from the Oil Sands is aligned to the of Western Texan Crude Index, as an official price indexing formula has not yet been

established for synthetic crude due to its relatively new market. 9

As crude oil is a commodity, its price varies daily, depending on the demand. Political pressures, such as wars or economic booms and recessions also create volatile price swings. Further complicating the economic equation is that every barrel of oil extracted is of a different quality. (WTI) crude is the “benchmark” crude or the standard of quality of oil against which all oils are measured. The daily quote for the price of crude oil is a relative number with “value being added to and removed from each barrel of oil depending on its quality, distance from markets, international commodity speculation, and numerous other factors

8 Powell, B. (2008). Curing the Dutch Disease: How Resource-Rich Nations can Unravel the Paradox of Plenty. Time. March. Volume 171. No 12. p41

9 Finch, D. 2008. Pumped. Fitzhenry and Whiteside. Brighton, Massachusetts. p 37 8 including weather projections for next winter, hurricane season, inflation, recessions, the spending and borrowing habits of people around the world, political instability, war, and the sales of SUV’s

(sport utility vehicles). 10 Also, the figure of 65-100 years figure is based on a stable consumption rate. In fact, with the burgeoning economies of India and China, the energy consumption rate is increasing, albeit potentially at a slower rate due to the present global fiscal crisis.

Canada’ economic future is being tenuously tested in this global environment. The fiscal crisis, volatile oil prices, increasing American, Indian, and Chinese energy consumption, commitments to the US through the NAFTA agreement, instability of Middle East Oil due to 911 and the Iraq War have all contributed to an unstable global economic climate. Alberta’s economic landscape is facing a dire picture for 2009. Due to the tight credit conditions and the sharp fall in energy prices, non-conventional drilling is expected to drop by 50 per cent. According to a recent forecast by the Canadian Association of Petroleum Producers, the Alberta economy is

expected to contract and the unemployment rate is expected to increase. 11 Thus, it is more important than ever, to objectively look at the fiscal governance of such a valuable and non- renewable resource such as the oil sands. The Government of Canada released their 2009 Budget, highlighting the high volatility that is expected in commodity prices, “future contracts suggest that crude oil prices will average about US$50 per barrel in 2009 which is about 30 per cent below levels anticipated by private sector forecasters in the November Economic and Fiscal Statement.”

12

10 Ibid, p 14

11 Alberta Finance and Enterprise. (2009) Economic Update. Alberta Ministry of Finance Website. http://www.finance.alberta.ca/publications/budget/budget2008/eco_update_feb_2009.pdf Retrieved March 15, 2009

12 Department of Finance. (2009). Canada’s Economic Plan. Publications Canada. Government of Canada: Ottawa. January 27. Retrieved March 15, 2009. http://www.budget.gc.ca/2009/pdf/budget-planbugetaire- eng.pdf 9 10

SECTION 2: ALBERTA’S “FUEL AND FIRE” DEVELOPMENT

Firing up Development: The Privatization of the Alberta Oil Sands Originally owned by the federal government, ownership of the oil sands was given to

the province in 1930. 13 The federal government kept a foothold by reserving 2000 acres of prime oil sand land, primarily to be used for paving roads. However, the provincial and federal government have largely had a tenuous relationship in governance of energy resources. The oil sands are no exception. A political storm erupted in June 1942. Concerned about during the crucial wartime period, the federal Minister of Munitions and Supply, C.D. Howe, advised Alberta that Ottawa wished to explore the possibilities of a large scale plant on the Abasand oil sand site. The Manning government demanded a royal commission charging a “wanton plunder of provincial rights”. Alberta never got its inquiry and Ottawa continued importing 90 per cent of its oil from the U.S. due to setbacks at the Abasand plant, including

two mysterious fires. 14

Dr. Karl Clark, a professor at McMaster, was experimenting with removing the oil from the oil sands. He discovered that hot water and steam were the best extractors. Financed by both federal and Alberta money, Clark built three pilot plants and over the next thirty years, perfected the technology upon which oil sands extraction built.

Dr. Clark urged the province to not allow foreign control. However, by the early 1960’s, most of the acreage in the oil sands were in the control of the major oil companies, such as

Exxon-Mobil and Suncor. 15 The higher required expenditure of the oil sands explained the lack of activity on the part of leaseholders in the 1960’s (due to the production of conventional oil and

13 Plourde, A. (2009) “Oil Sands Royalties and Taxes in Alberta: An Assessment of Key Developments since the Mid-1990’s” The Energy Journal. Volume 30. Number 1. January.

14 Clarke, T. (2008) Tar Sands Showdown. Lorimer and Company Publishers: Toronto p 29

15 Pratt, L. (2004). The Tar Sands. Hurtig Publishers: Edmonton. p 43 11 further conventional oil discoveries). The lack of develop but long-term maintenance of leaseholds were also problematic. These conditions lent credence to the festering suspicions from critics that the oil sand leases held by major oil companies were to shut out competition, and then to be used for their financial gain when conventional oil dwindled. 16 Once the door to private enterprise was opened, it proved impossible to close. Presently, Chinese interest, through a $5.3 Billion investment in a company called Syenco’s Northern Lights Oil Sands Project may compete with the United States for control of this key strategic Canadian resource. The present Alberta premier, Ed Stelmach “shows no sign of veering from his predecessor Ralph Klein’s free market

vision….the money’s too good” 17

The oil shock of 1973, however, turned the Canadian energy picture on its head. Oil cartel OPEC (Organization of Petroleum Exporting Countries) slapped an embargo on western supplies of petroleum because of the US and its allies’ support for in the . Prime Minister Trudeau, announced his National Energy Policy to “increase Canadian self-sufficiency in oil and oil products”. A national company, -Canada would be created to facilitate this transition, and a pipeline from Sarnia to Montreal built to move Western oil, that was now being sold to the US, for the use of Eastern provinces. Also, crude oil exports would be reduced and an export tax applied. Foreign investment in the oil sands would be greatly curtailed by closer monitoring of US investments. Oil companies and Premier Lougheed vehemently opposed the policy. The National Energy Policy, however, died at the hands of lower oil prices with its post- mortem being performed by the election of Brian Mulroney. Mulroney proudly announced that

16 Alberta Finance and Enterprise. (2009) Economic Update. Alberta Finance and Enterprise Website. http://www.finance.alberta.ca/publications/budget/budget2008/eco_update_feb_2009.pdf Retrieved March 15, 2009

17 Marsden, W. (2007). Stupid to the last Drop: How Alberta is Bringing Environmental Armageddon to Canada (and doesn’t seem to care). Random House: Toronto. P 77 12

“Canada was open for business” and repealed National Energy Policy regulations. 18

The conservative political ideology of the Albertan government led to encouragement of the private sector developing the Oil Sands with ownerships of leaseholds and favourable tax and royalty structures. Presently, sixty percent of the investments originate from oil companies based in the United States. Alberta Premier Ralph Klein regularly posed with monster trucks and stated that Alberta had “energy to burn” and bragging that he had never met a pipeline that he didn’t

like. 19 The privatization of this resource by the Alberta government fired up the Oil Sands development. Another emerging factor, the growing energy insecurity of the United States, was to fuel that fire, leading to potentially unfettered development of the Oil Sands.

Adding Fuel on the Fire: Ratification of the North American Free Trade Agreement With the exception of the National Energy Policy era, the energy relationship between Canada and the United States had been an integrated one. The United States remains a net importer of oil with the highest per capita use in the world. To underscore their dependency, the nation consumes 25% of the world’s oil while comprising only 7% of the globe’s population and

possessing a paltry 3.4% of world oil deposits.” 20 Not surprisingly, the country has had a long history of energy “crises” which US policy makers link strongly to national security. This lack of secure oil was a major impetus for the Roosevelt Administration entering into a “quid pro quo” agreement with Saudi Arabia. The US would protect Saudi Arabia from internal and external

18 Canada: opening up; Mulroney woos U.S. trade. Dec 16, 1985 v126 p41(1)Time. p.41. Retrieved March 19, 2009, from Academic OneFile via Gale: http://find.galegroup.com.rap.bibliocentre.ca/itx/start.do?prodId=AONE

19 Nikiforuk. A. (2008) Tar Sands: Dirty Oil and the Future of a Continent. Greystone Books: Vancouver. P 62

20 Aarts, P. The New World Order: Built on Sand?”, Arab Studies Quarterly (ASQ). 16, n2, p1. Retrieved December 28, 2008. http://find.galegroup.com/itx/informark.do?&contentSet=IAC- Document&type=retrieve&tabID=T002&prodId=AONE&docId=A16502933&source=gale&user GroupName=toro15002&version=1.0 13 threats in exchange for access to its petroleum resources. 21 In its quest for energy sources, the United States then began focussing on its largest trading partner, Canada. The Shultz Report, published in 1970 by the Nixon administration, recognized its northern neighbour as a low-risk, strategically important energy partner. Canada was already highly integrated with the US by the time the Shultz Report was released. Prime Minister Diefenbaker had split the country’s in two parts, with prairie oil and natural gas supplying the US market. Meanwhile, Eastern Canada was supplied by the north-

western US states. 22 At present, this integration continues with thirty-five natural gas pipelines, 22

oil pipelines, and 51 electrical transmission lines link between the two countries. 23

The negotiation of the Free Trade Agreement (FTA) ratified in 1987, between Canada and the US forged an even stronger bond between the two countries. Prime Minister Brian Mulroney had agreed to an article in the energy chapter of the agreement that was later dubbed “the proportionality clause. The clause stated that “Canada could not reduce its exports to the United States without reducing its internal consumption of oil and natural gas by the same

proportion.” 24 In 1993, Free Trade Agreement was morphed into the North American Free Trade

Agreement with the proportionality clause intact.

21 Clarkson, S. Does North America Exist? Transborder Governance Under Globalization and the War on Terror, Soon to be Published Manuscript, (Toronto, University of Toronto, 2007), p2

22 Clarkson , S. (2007) Does North America Exist? Transborder Governance Under Globalization and the War on Terror, Soon to be Published Manuscript, (Toronto, University of Toronto, 2007), p2

23 Dobson, W. ( 2002.) “Shaping the Future of the North American Economic Space” A Framework for Action” 162. Commentary-C.D. Howe Institute, (April 2002).

24 Clarkson, S. (2007) Does North America Exist? Transborder Governance Under Globalization and the War on Terror, Soon to be Published Manuscript, (Toronto, University of Toronto, 2007), p2 14

After the 2001 terrorist attacks in New York City, energy insecurity again rose to be a key issue and subsequent priority of the George W. Bush administration. The 2001 Cheney Report stressed US vulnerability as omni-present in the post-911 world. Securing energy resources to lower the potential for the US to be reliant on Middle East Oil supplies was highlighted as a key economic and foreign policy concern by the administration in the Energy Policy Act of 2005. Members of Congress are regularly briefed on developments in the Canadian Oil Sands and strategies to increase development by the Congressional Research Service. Presently, five per cent of the total oil refined in the United States is from the Alberta Oil Sands. Emboldened by Alberta’s political policy favouring private development of the Oil Sands, Congressional Reports predict that the US market will continue to increase its consumption of oil from the Alberta Oil Sands. Furthermore, Alberta’s “favourable tax and royalty treatment are likely to continue to attract the increasing capital expenditures needed for growth in Canada’s oil sands industry” 25

The 2008 election of US President Barak Obama created temporary instability in the oil sands industry due to his strong advocacy of “clean” energy. 26 However, he now appears to have come to the conclusion of many scholars that reality of conversion to green energy is years away

and demand of oil will be formidable in the foreseeable future. 27 Although Obama has been the target of lobbyist and reluctant to endorse anything with a large carbon footprint, President Obama’s continuing dialogue with Prime Minister Harper, coupled with “his lack of criticizing the

25 Humphries, M.(2008) “ North American Oil Sands: History of Development, Prospects for the Future” CRS Report for Congress. Congressional Research Service: Washington D.C. Update for January 17

26 President’s Weekly Radio Address (2009). Keeping Promises.. FDCH Regulatory Intelligence Database. Business Source Complete.http://search.ebscohost.com.rap.bibliocentre.ca/login.aspx?direct=true&db=bth&AN=3 2W1564924795&site=bsi-live&scope=site Retrieved March 2, 2009.

27 Aguilera, R F, Eggert, R G, Lagos, G., & Tilton, J E (Jan 2009). Depletion and the future availability of petroleum resources. The Energy Journal, 30, 1. p.141(34). Retrieved March 19, 2009, from Academic OneFile via Gale: http://find.galegroup.com.rap.bibliocentre.ca/itx/start.do?prodId=AONE 15

Oil Sands signals that he is willing to balance environmental stewardship with economic security. However, Obama’s signing of two memoranda to increase fuel efficiency and reduce tailpipe emissions for the ailing auto sector signals his commitment to his campaign promise of a green economy. 28 Thus, with the complexity of the environmental impacts on business, President’s policy stance on the “dirty oil” may yet have significant governance issues in the Oil Sands in the future.

Economists agree that the oil sand product shares the global market with conventional crude oil. It has been the signing of the free trade agreement and its proportionality clause in particular that has essentially condensed the global nature of the Alberta oil sand product to one

that resembles more of a continental product. 29 The political and economic developments further bolster this premise that the unique continental nature of oil in the North American economy is likely to remain for the near future. President Obama announced in March 2009, that his administration would not seek a renegotiation of the North American Free Trade Agreement, a

key campaign issue that he had originally championed. 30 Thus, the proportionality clause remains intact once again, as does the guaranteed energy supply by Canada to the United States.

Even under the heavy umbrella of the global fiscal crisis, private development is

continuing. More private developments, such as the 2008 Suncor-Petro Canada collaboration31, are forecast for the future. The Conference Board of Canada’s 2009 Economic Outlook predicts

28 Garrett, M. (2009) “Obama Issues Memoranda to Increase Fuel Efficiency, Possibly Let States Decide on Emissions.” Fox News. January 18

29 Atkins, F J, & MacFadyen, A J (Feb 2008). A resource whose time has come? The Alberta oil sands as an economic resource. The Energy Journal, 29, p.77(22). Retrieved March 15, 2009, from Academic OneFile via Gale: http://find.galegroup.com/itx/start.do?prodId=AONE

30 Blanchfield, Mike (2009). “Harper Delighted Obama won’t Open NAFTA”. Windsor Star. April 22.

31 CBC News (March 23, 2009) “Suncor Petro-Canada Announce Merger.” CBC Online. Retrieved April 27, 2009. http://www.cbc.ca/money/story/2009/03/23/suncor-petro-canada-merge.html 16 that the world will rely increasingly on heavier brands of crude—which increases demand for Canada’s unconventional oil industry. Billions of dollars will be invested over the long term to increase capacity. That extra capacity, however, may be small, given the potential rate at which developing countries—particularly China and India—are expected to consume oil. 32

Larry Pratt in his seminal work, The Tar Sands, warned of the dangers of not balancing Canadian economic security with environmental stewardship. - He warned Canadians that they may end up as the “energy-abundant, docile allies willing to supply fuel and diplomatic backing for

America’s struggle to recapture her slipping hegemony.”33 Pratt prophetically warned of this danger in 1969, twenty-four years prior to the ratification of the Free Trade Agreement. It appears that provincial and federal governments did not heed the warning.

SECTION 3: GOVERNANCE OF OIL WEALTH

Dutch Disease Economic Model The term “Dutch Disease” was coined by , after the world watched the Netherlands’ economy go from rags to riches in the 1970’ after a significant gas reserve had

been discovered in the North Sea. 34 Economists studied this paradox of a resource boom that ironically resulted in severe economic hardship for the people of the Netherlands. The increased demand for their gas reserves led to an increased demand for the Dutch , the Guilder. The price of the Guilder, thus, was driven up by world markets. A high currency is beneficial to importers of an economy, as the relative price of the goods that they are purchasing is lower due to their strong currency. However, for exporters, especially those not related to the resource boom, the inflated dollar is an economic disaster. Seemingly overnight,

32 Conference Board of Canada, economic Outlook 2009 Retrieved April 19, 2009. http://sso.conferenceboard.ca.rap.bibliocentre.ca/e- Library/temp/BoardWise2OMGMLELCECBNMADDEHCHJCBK2009427145652/POLT_2009.pdf

33 Pratt, L. (2004). The Tar Sands. Hurtig Publishers: Edmonton. P 60

34 Prashad, P. (2008) Going Dutch, Canadian Business. October 27, p 42 17

the Dutch export-oriented producers found themselves in economic hardship. The Netherlands suffered a painful decade of recessionary high unemployment, plummeting exports and high inflation.

The Netherlands had a relatively short experience with Dutch Disease in relation to other countries. With strict wage restraints and strong fiscal governance, the Netherlands emerged from this crisis to become the envy of its European neighbours. Irrespective of the brevity, the Netherlands was the first economy in which the Dutch Disease phenomenon was observed, so the moniker stuck. The economic theory of the Dutch Disease phenomenon was developed by economists Max Corden and Peter Neary in 1982. 35 Their model attempts to explain the relationship between the exploitation of natural resources in an economy to the decline in the manufacturing sector.

Corden and Neary’s model identifies the increase in demand for labour during a resource boom. This demand will shift labour from a lagging sector (e.g. manufacturing) to the booming sector (ie. oil and development). Corden and Neary call this “Direct De-industrialization”. As a result of the extra revenue brought in with the resource boom, increase in the real exchange rate and wage increase damages other sectors. Tradable sectors, notable agriculture and manufacturing become less competitive in international markets. The increasing revenue often

results in higher government spending that increases the real exchange rate and raises wages. 36

During its recent oil boom between 1996 and 2006, Alberta experienced high growth and prosperity. Seven hundred thousand workers poured into the province. The Canadian

35 Corden, W., & Neary, J. (1982, December). Booming Sector and De-industrialisation in a Small Open Economy. Economic Journal, 92(368), 825-848. Business Source Complete http://search.ebscohost.com.rap.bibliocentre.ca/login.aspx?direct=true&db=bth&AN=4531023&si te=bsi-live&scope=site Retrieved March 21, 2009

36 Zhou, S. (1995) “The Response of Real Exchange Rates to Various Economic Shocks.” Southern Economic Journal. Volume 61. Number 4. April 1. p 936 18

dollar, regarded by currency traders as a petrocurrency, rose from sixty-seven cents to eighty- seven cents against the US dollar. In Alberta, prices have sky-rocketed, with prices of an

average lot in Alberta increasing an outstanding 88 per cent. 37 The subsequent macroeconomic effects of the 2008 oil price decline resulted in the type of ‘direct de-industrialization” that Corden and Neary describe. It happened more swiftly, perhaps in part in relationship to the global fiscal crisis occurring at the same time. Presently, the once booming province is dealing with a sharp and nasty downturn precipitated by the collapse in oil prices. Finance and Enterprise Minister Iris Evans recently announced the provincial government will post a $1- billion deficit in the year ahead after projecting an $8.5-billion surplus just six months ago. . Housing starts plunged an amazing 67% in January, compared with the same month in 2008.

Fifteen thousand jobs are expected to disappear completely. 38 In January 2008, Canada posted a negative trade balance, led in great part by a decline of 28.7 per cent export decline in Alberta. Dutch Disease has infected the Albertan economy and the infection appears to be spreading.

Scholars have argued that the word “disease” is misleading. For after all, these factors

may be a natural economic cause of a major discovery or development of a resource. 39 Whatever the terminology, there is agreement among scholars that Dutch Disease is not an inevitable outcome. One key fiscal tool that has emerged to manage an economy’s oil wealth is the creation of sovereign wealth fund.

37 Wells, L.(1998) “The Dark Side of the Boom: Alberta's Housing Crisis”. The Post. Volume 2. Number 2. Summer Issue

38 Sanford, J. (2009) “Even Cowboys Get the Blues”. Canadian Business.. Volume 82. Issue 4. March 16. p19-20

39 Van Wijinbergen, M. (1999). The Dutch Disease—A Disease After All? Economic Journal . p 41 19

Antidote to Dutch Disease: The Creation of the Sovereign Wealth Fund When Sheikh Abdullah Al-Salem Al-Sabah first established the Kuwait Investment Board in 1953 to invest in his country’s surplus oil revenues, he hoped to generate earnings for future generations and diversify the economy away from its dependence on oil.

The sheikh was a farsighted leader. But even he would not likely have foreseen fifty other economies around the world following in his footsteps. 40 “By the end of 2007 sovereign wealth funds had around $2.6 trillion under management, more than all the world’s hedge funds, and not far behind government pension funds and central bank reserves.” 41 Not only had sovereign wealth funds increased in size, but they were growing exponentially. The International Monetary Fund forecast that total assets of the world’s sovereign wealth funds could climb to a staggering

$10 trillion by 2013. 42

Sovereign Wealth Funds are essentially pools of money derived from a country's reserves, which are set aside for investment purposes that will benefit the country's economy and citizens. The funding for a sovereign wealth fund comes from government bank reserves that accumulate as a result of budget and trade surpluses such as revenue generated from the exports of natural resources. 43 The general purpose is to protect the domestic economy from the inflationary effects of Dutch Disease while creating a future nest egg for its citizens when a non-renewable resource

40 Sovereign Wealth Fund Institute. (2009). Fund Listings. Retrieved April 1, 2009. http://www.swfinstitute.org/funds.php

41 Fergusson, N. (2008). The Ascent of Money Penguin Press: New York. P 337

42 . Editorial. (2008) “A World of Wealth.” Institutional Investor. September Issue. Business Source Complete. http://search.ebscohost.com.rap.bibliocentre.ca/login.aspx?direct=true&db=bth&AN=34853991& site=bsi-live&scope=site Retrieved March 1, 2009.

43 Investopedia. “Definition of a Sovereign Wealth Fund”. Forbes Digital Company. Retrieved February 3, 2009. http://www.investopedia.com/terms/s/sovereign_wealth_fund.asp 20 like oil, runs out.

The oil-rich Norwegian and Albertan economies’ sovereign wealth funds both strive to

achieve these general purposes. 44 The differences between the funds, however, lie in their respective results. While the Alberta Heritage Fund (Alberta Fund), created thirty-three years ago, teeters at $14.4 Billion dollars, the Norway Government Pension Fund (Norway Fund) boasts a balance of $384 Billion. Not only is the Norway Fund the largest sovereign wealth

fund of a western democracy, 45 it has also been honoured by prestigious institutions such as the World Bank, as one of the most fiscally disciplined and transparent funds with regard to its

management practices.46 47

SECTION 4: GOVERNANCE PARADIGMS

Norway’s Government Pension Fund The discovery of oil on the North Sea’s continental shelf off Norway led to a massive exploration and production effort after the . The discovery experienced peak

production in 1999 with subsequent declines in the years that followed.48 Norway, like Mexico,

44 Ansari, M. (1991) “An Econometric Model of Structural Change: A Case Study of Canada. Applied Economics. Volume 23. p 791

45 The largest are Middle Eastern states of Abu Dabai, Qatar and Kuwait.

46 Smith, A. (2008, June 23). Caring Capitalists. Time South Pacific (Australia/New Zealand edition). Business Source Complete.http://search.ebscohost.com.rap.bibliocentre.ca/login.aspx?direct=true&db=bth&AN =32740377&site=bsi-live&scope=site Retrieved March 1, 2009

47 Economic policy. (2008, March). Country Report Norway. Business Source Complete.http://search.ebscohost.com.rap.bibliocentre.ca/login.aspx?direct=true&db=bth&AN=31521435&site=b si-live&scope=site

48 Kumar, k. et al. (2007). “When the Oil Runs Out” Strategic Direction. Volume 23. 21 has a strong tradition of nationalism and consistent mistrust of foreign capital which made the creation of the state oil company, Statoil a desired policy initiative as soon as North Sea petroleum potential became obvious.

Statoil was created to operate under Norwegian corporate law, with its main objective being profit. Its functions were conservation of petroleum resources via slowing depletion rates while cooperating with Norwegian industry to build up an integrated private sector. While Norway’s nationalization policies came under attack after the OPEC oil crisis, as did Canada’s, Statoil survived. “The hegemony of social democratic ideas, including the legitimacy of a strong and active state” 49 won over the critics.

The Norwegian government created the Norway Petroleum Fund in 1996 “to support a long-term management of petroleum revenues and facilitate the government’s accumulation of financial assets in order to help cope with large, future financial commitments associated with an

ageing population.”.50 The fund invests parts of the large surplus generated by the Norwegian petroleum sector, generated from corporate taxes, payment for licenses to explore, as well as the State’s Direct Financial Interest and dividends from a partly state-owned Statoil Hydro. A maximum for four per cent is allowed for any government or domestic spending, while the remaining ninety-six per cent is invested abroad.

It is comprised much like a regular mutual fund, of bonds, equities and mortgages. There is role division between government and the Norway Fund. It is managed by Norges Bank Investment Management which reports to the Ministry of Finance and managed by a separate board and separate government entity named Folketrygdfondet. The Norway Fund reports to the Norwegian people on a monthly basis on performance, present portfolio holdings and its ethics

Number 1. p 22

49 Visner, M and Remoe, S. (1984). “A Case of a Cuckoo Nestling: The Role of the State in the Norwegian Oil Sector”. Politics and Society. Volume 13. p 295

50 Norway Post. (April 30, 2009). “Historic Lows for the Government Pension Fund.” Doorway to Norway Publications. http://www.norwaypost.no/content/view/21748/44/ Retrieved April 30, 2009. 22 policy.

Alberta’s Heritage Savings Trust Fund The Alberta Heritage Savings Trust Fund Act was given Royal Assent in 1976. Premier Peter Lougheed created the Alberta Heritage Savings Trust Fund (Alberta Fund) “to provide prudent stewardship of the savings from Alberta’s non-renewable resources by providing the

greatest financial returns on those savings for current and future generations of Albertans.” 51 The Minister of Finance and Enterprise is responsible for establishing the investment policy for the Fund. The Finance and Enterprise department provides portfolio analysis, research and investment strategy advice to the Minister. Department staff, along with the Alberta Investment Management Corporation (AIMCO) makes recommendations to the Minister of Finance and

Enterprise with respect to the business plan and investment policy statements of the Fund. 52

At the time of its creation, thirty per cent of non-renewable resource income was dedicated to be invested in this rainy day account. To propel a strong start, $620 million was infused into the fund from Alberta’s general revenue account. 53 The Alberta government stressed its transparency in governance by conducting public surveys such as, Can We Interest you in an $11 Billion Dollar Decision. The results of the four questions were almost split. The four questions asked respondents to weight their preference of funds being used for an endowment fund, a reserve for sustainability, capital projects, or debt repayment. No clarification of the questions or definitions of the terms were given. By a small margin, most Albertans favoured leaving the

51 Alberta Finance and enterprise. Mission of the Alberta Heritage Fund. Ministry of Alberta Website. Retrieved January 15, 2009. http://www.finance.allberta.ca/business.ahstf/faqs.html

52 Alberta Trust Fund Saving Fund. “Business Plan 2009-2012. Alberta Finance Website. Retrieved March 23, 2009. http://www.finance.alberta.ca/publications/budget/budget2009/heritage.pdf

53 Nikiforuk, A. (2008) “Slip Sliding Away” Alternatives Journal Volume 34. Nov-Dec. p 14 23

Alberta Fund as an endowment fund. 54 The Alberta government responded by disallowing any further use of the fund for social investment or economic development purpose. Touted as a “transparent management” initiative, the Alberta government, ironically, would not keep its promise.

As the political and economic landscape changed, so did the fiscal practice of the Alberta government. In the late eighties, the Alberta fund paid for education, health, energy and medical research programs via the Alberta Heritage Fund. In 1987, with the recession wreaking havoc on Albertans, cash infusions were abruptly halted. The next thirty years would see the government transferring out a percentage of the fund’s returns to general revenues, and that’s where things

stood for nearly thirty years. 55 This reaction by Alberta contrasts the strict fiscal discipline that the Norwegians display with their fund. As a result, the Alberta Fund teeters at a mere $14 Billion in comparison to Norway’s Fund presently valued at $384 Billion.

Comparative Analysis: “Fuel and Fire” versus Balanced Governance To apply realistic best practices in a comparative case study, the underlying structures of the two cases must be studied. Although the Norway and Alberta share have similar demographics, economic size based on gross domestic product and are both functioning democracies, there are fundamental differences that must be considered. Although not a panacea, applicability of Norway’s governance practices of high fiscal discipline and transparency in management can inform the Alberta model of sovereign wealth.

Disciplined fiscal management has been a cornerstone of the Norway Fund since its inception. The Norges Bank Investment Board has taken extraordinary measures to avoid

54 Alberta Finance and enterprise. Mission of the Alberta Heritage Fund. Ministry of Alberta Website. Retrieved January 15, 2009. http://www.finance.allberta.ca/business.ahstf/faqs.html

55 Sheppard. R. (2006) “You Think Alberta’s Rich? You Should See Norway’s Bank Account.” CBC New Online. March 24. 24

“dipping” beyond an annual four per cent for domestic expenditures. For example, in the early 2000’s, political pressures started simmering to increase the fund’s domestic expenditure. The management of the Fund took the unusual step of changing its name, to the Norway Government Pension Fund in 2006. The name was a misnomer, since it did not comprise of pension funds. However, the name change, which utilized the word “pension”, and branded itself as a long-term savings tool helped it in accomplishing its goal. The strategy worked at staving off pressure to increase its spending. 56 In contrast, the Alberta government has dipped deeply and regularly into the coffers of the Alberta fund to finance provincial expenditures. This “dipping” has been to the tune of $30 billion, an amount, that if left in the fund, would be worth multiples more today for its citizens and environment.

Yvgne Slynstad, has played a large role in the Norway Fund’s high fiscal discipline and transparent management style. Slynstad is a disciplined and thoughtful man who holds graduate and post-graduate degrees in law, business, political science and economics. When he arrives by train to his Oslo office, the first thing that Slynstad does is to check and coordinate the performances of his portfolio managers, each of whom handle an average of $850 million. “We

have a lot of small wheels moving independently.” 57 Thoughtful adherence to the Fund’s fiscal and ethical guidelines is his mantra. Yvgne Slynstad’s efforts have been rewarded. With the exception of 2006, the Norway Fund has outperformed its financial benchmarks every year since its inception.

The Norway Fund’s assets are invested overseas, in Europe, North America and Asia for purposes of economic diversification and protection of its domestic currency from inflationary

56 Hua, T. (2007) Norweigan Leader Calling it Quits. Pensions and Investments. Volume 35. October 1 p 2. Retrieved April 10, 2009. http://web.ebscohost.com.rap.bibliocentre.ca/bsi/detail?vid=4&hid=105&sid=f39da662-74d4-48f0-9c9e- cf86af2bd31f%40sessionmgr102&bdata=JnNpdGU9YnNpLWxpdmUmc2NvcGU9c2l0ZQ%3d%3d#db=bth&AN=27 080472

57 Wrighton, J. (2008) “Force for Change”. Institutional Investor. September. Volume 42. Issue 8. p 70 25 pressure. In contrast, the Alberta Fund invests thirty per cent of its assets in the US and Canada. In 2008, a prestigious international institution weighed in on the Norwegian-style of fiscal governance. The Organization for Economic Cooperation and Development (OECD) was quoted in Oil and Gas Magazine urging Canada to invest in financial and physical assets abroad, to curb the oil-inflated dollar. As for Alberta, they recommended changing its Heritage Fund into an oil- based foreign asset fund, as Norway does, smoothed yearly fund spending income. ” 58 Norway has also has a highly centralized wage system that allowed the government to stabilize wages during their oil boom, and avoid wage inflation. Meanwhile, increase in wages in

the oil sands have been rampant in Alberta, 59 with hundreds of thousands of workers migrating from the Eastern and Western provinces to earn double, and at times, triple the wages of their home provinces. The increasing populations put tremendous strain on housing, transportation and services. Wage inflation has led to inflationary costs for housing, transportation and services. Migratory workers in oil booms also leave drugs and alcohol abuse in their wake. The 63 highway that leads to Fort McMurray is fraught with death from an overused narrow road and inebriated workers tearing recklessly during their week end party rampages.

Differences in Norwegian and Albertan culture may explain the some of this discrepancy. More specifically, differences in political philosophy and social norms have affected the sovereign fund structures and respective fiscal policies. The Norwegians have often been described by scholars as an egalitarian society, in which distribution of wealth is not highly contested. For example, tax payments and taxable income is public information, published in newspapers and accessible on the Internet. This creates not only a sense of monitoring, but also a sense of common destiny and team spirit, which few in Norway desire to challenge or are dissatisfied with.

60

58 Editorial. (2008) “OECD to Canada: Build a Norwegian Oil Fund.” Oil and Gas Magazine. June 13.

59 Ansari, M. (1991) “An Econometric Model of Structural Change: A Case Study of Canada. Applied Economics. Volume 23. p 791

60 Larsen, E. (2006) Escaping the Resource Curse and the Dutch Disease. American Journal of Economics 26

Norway is best known for its “go slow” depletion policy through limited and discretionary award of exploration licenses. In contrast, Alberta employs the auction system by which government attempts to maximize its capture of economic rent, through the award of licenses, with little regard for the depletion of the resource. The “go slow” policy may be easier to implement as the government of Norway has enjoyed a stable population, lower energy usage, comfortable balance of payments. As well, although Alberta is classified by the Sovereign Wealth

Institute as the twenty-ninth largest sovereign wealth fund in the world, 61 it is not a sovereign state. As a provincial entity, its focus on matters that detrimentally affect other provinces, such as inflation of the , may not be as highly prioritized. The unitary nature of the

Norwegian state and its ideology has resulted in its increased freedom and policy design. 62

The economic rent structures in both Norway and Canada are similar, with oil production subject to corporate tax and royalties. The strong political influence in fiscal governance of the oil sands has been and remains formidable. Even with the resulting decision to increase royalties in 2006, many critics, including the creator of the Alberta Fund, ex-Premier Peter Lougheed, charge that they are still too low. 63 Adding to the confusion is the coordination of economic rents between the federal and provincial government which can be complex and sometimes contradictory. For example, the federal government is lowering corporate income taxes and encouraging the provincial governments to do the same. This measure, without proper coordination, could offset any fiscal measure of the royalty increase. 64

and Sociology. Volume 65 Number 3. July.

61 Sovereign Wealth Institute. (2009) “Fund Listings.” Sovereign Wealth Fund Institute.

62 Edwards. M. (1987) “Public choice and Petroleum Policies in Canada, Britain and Norway.” European Journal of Political Research. Volume 15. p 371

63 Byfield, T. (2007). “Oh Canada!” WorldNet Daily Online. Retrieved January 4, 2009. http://www.worldnetdaily.com/news/article.asp?ARTICLE_ID=50967

64 Plourde, A. (Jan 2009). Oil sands royalties and taxes in Alberta: an assessment of key developments since the mid-1990s. The Energy Journal. , 30, 1. p.111(29). Retrieved March 19, 27

Alberta, with its backdrop of the harsh rugged frontier settled by brave pioneers, is a more individualistic and less socialist in its ideology than Norwegian society. Also, Alberta, being a younger state, it has legitimately required greater infrastructure investment. This partially justifies the higher domestic expenditures of its sovereign wealth fund. However, cultural differences can affect lifestyle choices, and thus public policy options. Conservative political values have allowed the Alberta government to privatize the Oil Sands. Low taxation and “Ralph Bucks”, a rebate from sovereign funds demonstrated Alberta as living for today while Norway, with its balance of economic and environmental factors as electing to save for tomorrow.

Privatizing a resource that has public interests has its implications. In Alberta, there is a tremendously high and contentious level of discourse among the stakeholders; citizen groups, private industry groups. Websites for environmental groups such as Pembina Institute, Parkland Institute, Greenpeace and Aboriginal Groups continue to challenge Oil Sands development. These and other groups note that research and development lags are occurring while the industry makes record profits. Indeed, between 2004 and 2006, the most recent year Statistics Canada has statistics for the entire industry's research spending grew by 65 per cent to $515-million. But compared to other industries, and to their own outsized earnings, energy companies are well

behind on research spending. alone pulled in $3.9-billion in profit last year. 65 Critics, charge that even with the 2006 royalty review and increase, the economic rents are far too low to realistically replenish of the boreal forest and fresh water. Since very little land directly is affected by oil sands operations has yet to receive a reclamation certificate from the Government

2009, from Academic OneFile via Gale:http://find.galegroup.com/itx/infomark.do?&contentSet=IAC-t Documents&type=retrieve&tabID=T002&prodId=AONE&docId=A193035977&source=gale&use rGroupName=toro15002&version=1.0

65 Vanderkliippe, N.(2009) “Can Science Save the Oil Sands? Globe and Mail Report on Business. April 24. 28 of Alberta 66, environmental sustainability is threatened. A go slow” approach may have served Alberta better as more likely to maximize the resource while protecting social and environmental interests.

Application of Norway transparency of management may clarify and assist the Alberta government in asking for higher commitments from private industry in two ways. The development of the North Sea itself has been a “go slow” strategy of depletion. This philosophy, combined with strong ethical guidelines that include environmental sustainability, has also been applied to the governance of the Norway sovereign wealth fund. For example, the Norges Bank Investment Management team works with companies that they invest in to improve work conditions, environmental standards, and child labour laws. A separate governance arm, the Norwegian Ministry of Finance, assesses the performance of these companies and delists the ones that do not practice sustainable environmental policies according to the Norwegian Fund’s Ethical Guidelines. The logic, according to the Norwegian government, is supported by economics. Company performance will suffer in the long run with a substandard environmental policy, and thus, such organizations are not strong investments. Once delisted by the Ministry of Finance, the collaborative task of working to improve these companies ceases and Norges Bank Investment Management then moves onto other investments. Utilizing this example, not only would the dismal reclamation efforts of the oil companies in the Oil Sands be considered unethical, their lack of environmental sustainability, they would be considered as economically unviable in the long term. Furthermore, its transparent governance style would publish this information with all stakeholders. Although, this kind of public knowledge may bring simmering tensions to the surface, the high level of transparency in governance may improve the longer term collaboration and goals between the stakeholders in the Oil Sands.

The Washington think-tank, the Peterson Institute ranked the Norway Fund as the second best sovereign wealth in areas of transparency fiscal governance and ethical guidelines,

66 Government of Alberta. When the Government is the Landlord-Regional Details. Alberta Ministry of Finance Website. Retrieved May 1, 2008. 29 next to its own Alberta Permanent Fund. The US endorsement is not only significant, it is vital for the survival of sovereign wealth funds in the future. Post-911, US foreign policy has shifted deeply and perhaps forever. The United States congress is investigating the merits of limiting the investments of sovereign wealth funds for national security purposes. The US’ concern is particularly with Japan and Middle Eastern countries, but could affect regulation for all countries.

67 “Sovereign wealth funds that have higher level of transparency, and that are able to demonstrate that their investments abroad are motivated by the rate of return on investments rather than a desire to increase foreign influence or forward a political agenda, will be in a better position to

fend off protectionist legislation” 68

SECTION 5: CONCLUSIONS AND AFTERWORD Conclusions The Norway Government Pension Fund may not have the potential to be a governance panacea for the Alberta Heritage Savings Trust Fund, even if Albertans want it to be. Alberta has a more complex political-economic structure than the sovereign state of Norway. Required coordination of provincial and federal legislation, as well as management of a historically tenuous relationship between the two levels of government over the years, can constrain some options, such as nationalization of natural resources, or corporate taxation. Social norms of the society are also different, with Albertans sharing a more individualistic, capitalist ideology that the egalitarian Norwegians.

67 Lavelle, K C (Fall-Winter 2008). The business of governments: nationalism in the context of sovereign wealth funds and state-owned enterprises. Journal of International Affairs. Volume 62, Number 1. p.131(17). Retrieved December 28, 2008, from via Gale: http://find.galegroup.com/itx/infomark.do?&contentSet=IAC- Documents&type=retrieve&tabID=T002&prodId=AONE&docId=A189796234&source=gale&use rGroupName=toro15002&version=1.0

68 Badian L.and Harrington, G.. (2008) “The Politics of Sovereign Wealth” The International Economy. Winter Issue. P52 30

Nonetheless, Alberta can adopt practices, such as higher fiscal discipline to maximize future economic security and environmental stewardship. Even though Albertans placed a high ideological value on saving for the future, Albertan politicians have been successful at dipping into the coffers of the Alberta Fund over the years. If fiscal constraints were imposed more rigidly, such as in the Norway Model, it would be much more difficult to make withdrawals as easily as the Alberta government has in the past. Also, fiscal discipline encourages the “go-slow policy” of development that Norway had adopted. In this manner, reclamation guidelines would be an example of transparent governance that Alberta could adopt. Publishing these and other ethical guidelines could become an effective conduit for greater communication and collaboration on sustainable development among the diverse Oil Sands Stakeholders. With the threat of greater regulation for sovereign funds by the United States, this transparency in governance may be more crucial than ever for all sovereign funds in the future.

Afterword The past can’t be changed, but the future can. Four months ago, Alberta Finance Minister Iris Evans flew to Norway for the first time to specifically learn about the management of their sovereign wealth fund. Facing a severe recession, Alberta’s realization that they could use a few new ideas from Norway is encouraging news. Although, no policy changes have yet been made, with the wealth of knowledge that Norway has to share, there is no doubt that Evan’s $35,000 trip

could pay for itself many times over. 69 That is, if it is already not “too little, too late” for effectively managing Alberta’s resource wealth.

69 Edtiorial. (2009). “Evan’s Norway Trip Long Overdue.” Sherwood Park News. May 4. Retrieved May 4, 2009. http://www.sherwoodparknews.com/ArticleDisplay.aspx?e=1380973 31

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