Enough of Alberta's roller-coaster. Let's save every cent of resource revenue

This column is an opinion by Geoff Salomons, a PhD candidate at the University of Alberta researching provincial resource wealth. For more information about CBC's Opinion section, please see the FAQ.

Alberta's revenue roller-coaster continues.

During the pandemic in 2020, history was made when oil prices went into negative territory. Then they rose and peaked above $122 US per barrel in June 2022 — only to be nearly cut in half shortly thereafter, before a surprise overseas production cut brought prices back to the $80 range.

Within two years, the province's books swung from a $17-billion deficit to a $10.4-billion surplus, and now more modest surpluses are forecast. A ride this wild will push even Alberta's comfort levels. 

This recent volatility perhaps offers a moment to reconsider how Alberta manages its resource revenue. 

Outgoing Finance Minister Travis Toews recently said he'd like to see a more in-depth review of Alberta's "volatile revenue structure." Meanwhile, the Alberta NDP have released a plan, authored by former ATB Financial economist Todd Hirsch, that recommends capping the amount of resource revenue used for government operations.

While this conversation is overdue and welcome, there is a fundamental issue that must be part of it. The Hirsch report rightly notes that "income from natural resource royalties are not, in fact, income. They are the conversion of an asset in one form (physical molecules) into another (dollars)."

Or to put it another way, it is the conversion from natural capital to financial capital. As such, this revenue should be viewed differently than just another income stream the government relies on.

In the mid-1970s, when then-premier Peter Lougheed first made the case for why the Heritage Savings Trust Fund was needed, he compared the spending of resource revenue to selling the house to pay for the groceries. 

Alberta should maximize resource revenue's value over time because, as a form of capital, it is finite. Alberta has a century's worth of oil and gas reserves. But technological obsolescence as we move toward a net-zero world is a concern for our high-cost and high-carbon resources. 

What the value of those resources will be in 30 years is anyone's guess. 

If Alberta is going to truly manage this capital for the long term, the province must get to a point where it can save 100 per cent of the resource revenue it receives. All of it.

This is needed for a few reasons. First, because Alberta did not historically do a lot of saving — even in the Lougheed era savings were capped at 30 per cent of resource revenue, and then shrank to zero — it has some catching up to do. This approach would allow Alberta to save what it can, while it still can. 

Second, saving 100 per cent would dramatically reduce the volatility in the budget. Alberta could still rely on the interest from the Heritage Fund for spending — because in this case, it would be an actual income stream.