Rethinking Royalty Rates: Why There is a Better Way to Tax Oil and Gas Development

36 Pages Posted: 14 Oct 2011

See all articles by Colin Busby

Colin Busby

C.D. Howe Institute

Benjamin Dachis

C.D. Howe Institute

Bev Dahlby

University of Alberta - Department of Economics

Date Written: September 14, 2011

Abstract

When provinces raise royalties charged on oil and gas production, the result can be less, not more tax revenues. The authors show how resource-rich provinces would be better off relying more on auctions for exploration and development rights and relying less on royalties levied on output. Oil and gas taxation in Canada consists of two main elements: an auction payment and royalties that apply to the value of resources extracted. The authors examine the results of Alberta’s short-lived decision, in 2007, to increase royalty rates on oil and gas production. Accounting for differences in bonus bids across provinces in the same geological zones, the authors report that Alberta government revenue, collected through bonus bids, declined by nearly as much as the projected increase in royalty payments.

Keywords: Fiscal and Tax Competitiveness, Province of Alberta, oil and gas royalties, tax revenues

JEL Classification: L71, L78, H23, Q38

Suggested Citation

Busby, Colin and Dachis, Benjamin and Dahlby, Bev, Rethinking Royalty Rates: Why There is a Better Way to Tax Oil and Gas Development (September 14, 2011). C.D. Howe Institute. Available at SSRN: https://ssrn.com/abstract=1943694 or http://dx.doi.org/10.2139/ssrn.1943694

Colin Busby (Contact Author)

C.D. Howe Institute ( email )

67 Yonge St., Suite 300
Toronto, Ontario M5E 1J8
Canada

Benjamin Dachis

C.D. Howe Institute ( email )

67 Yonge St., Suite 300
Toronto, Ontario M5E 1J8
Canada

Bev Dahlby

University of Alberta - Department of Economics ( email )

8-14 Tory Building
Edmonton, Alberta T6G 2H4
Canada
403-492-5437 (Phone)

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