THE BLOG

Help Poor Provinces: Allow Fracking

10/26/2013 06:59 EDT | Updated 01/23/2014 06:58 EST

The recent native protests in New Brunswick against proposed hydraulic fracturing ("fracking") are not only devoid of facts but harm the potential for prosperity and lower personal taxes. Add in the anti-fracking frothing in neighbouring Nova Scotia, and also in Quebec, and it adds up to ill-advised provincial policies, this despite the safety of fracking.

Before detailing the potential for a lighter personal income tax burden, if more resource development was allowed, here are the facts on hydraulic fracturing for oil and gas.

While portrayed as something new and radical, fracking is a relatively straightforward combination of two pre-existing technologies: first, horizontal drilling; second, the use of pressurized liquid to crack underground geological formations to free up oil and gas trapped within those formations. The liquid used in fracking is around 99 per cent water and sand, with a smattering of fairly common chemicals.

Horizontal drilling was developed in the 1920s while hydraulic fracturing dates back to the 1940s in the United States and the 1950s in Canada. More than 174,000 wells have been fracked in Alberta alone.

While some claim that fracking poses a risk to groundwater, or that reinjection of waste water from the process might increase the risk of seismic activity, experience suggests those risks are very low.

As a recent review of the literature in the journal Scienceobserves, "Since the advent of hydraulic fracturing, more than 1 million hydraulic fracturing treatments have been conducted, with perhaps only one documented case of direct groundwater pollution resulting from injection of hydraulic fracturing chemicals used for shale gas extraction. Impacts from casing leakage, well blowouts, and spills of contaminated fluids are more prevalent but have generally been quickly mitigated."

As for the notion fracking causes earthquakes, the U.S. National Academies of Science reports the risk is low. It notes that "very few events have been documented over the past several decades relative to the large number of disposal wells in operation."

So fracking has limited, but eminently manageable risks. But here's another risk to consider, the risk to your pocketbook when misinformed but vocal minorities attempt to kill off energy development.

Residents in New Brunswick, Nova Scotia and Quebec pay a fortune in provincial taxes relative to Saskatchewan and Alberta. In part, that is because the latter provinces have long allowed their resource economies to flourish. That means their treasuries are not overly dependent on personal taxes.

A look at each province's public accounts illustrates the point.

In 2012/13, Nova Scotia's petroleum revenues (the only resource identified in the public accounts) were worth just $3.5 million to the treasury, or just 0.1 per cent of the $6.8 billion in own source-revenue.

In New Brunswick, resource royalties (including a mineral tax) amounted to $98 million last year, or just 2.1 per cent of the $4.8 billion in own-source revenue. Quebec's most recent public accounts show $360 million in natural resource revenue, or just 0.6 per cent of its provincial revenues.

In contrast, resource revenues in Alberta amounted to $7.6 billion in 2012/13, or over 20 per cent of the province's $37.3 billion in own-source revenues; in Saskatchewan, resource revenues were $2.5 billion, accounting for over 23 per cent of the $10.9 billion in provincially-collected revenues.

Why does this matter? Because provinces that allow their economy to flourish, in any sector, have more choices on spending but also on tax rates. (Saskatchewan's resource revenue haul is equivalent to 105 per cent of the money brought in by personal income tax, for example.)

To make this more vivid, according to the Alberta government, a one-income Alberta family with two children and $75,000 in employment income will pay $3,301 in various provincial taxes this year. In Saskatchewan, that family will pay $5,109.

But families in New Brunswick and Quebec will ante up more than double the Alberta bill and pay provincial taxes of $7,849 and $7,986 respectively. (Those provinces have higher rates and also some provincial taxes Albertans do not face.)

In Nova Scotia, a one-income family with two children and $75,000 in earnings pays triple the Alberta family's provincial tax. The Nova Scotia tax bill? $9,943.

The Alberta and Saskatchewan governments can afford to charge taxpayers less in personal taxes because they have resource revenue gushers.

Of course, not every province will necessarily garner resource revenues equivalent to 105 per cent of their existing personal income tax take. But surely Quebec, New Brunswick and Nova Scotia could reap more resource revenue if they overcame the largely irrational opposition to hydraulic fracturing, which experience has proven is quite safe for people and the planet. Where such opportunities exist, such economic development is one part of an equation for a more prosperous economy.

This commentary was co-written by Dr. Kenneth P. Green, Senior Director, Natural Resource Policy Studies at the Fraser Institute.

Elsipogtog Protest