Petro-Provinces at Risk

A number of Canadian provinces – particularly Alberta, but also Saskatchewan, British Columbia, and Newfoundland and Labrador – have generated significant tax revenue from oil and gas over the years. The new federal government has signalled stronger support for the sector, seemingly based on expectations of continued strong demand. However, the energy transition presents a long-term threat to the sector: provincial governments need to prepare for a future of lower oil and gas demand and shrinking fossil fuel revenues. 

This report evaluates how the energy transition could affect provincial government revenues, outlining key policy developments and sectoral risks. It also examines challenges in scaling up CCUS and highlights opportunities to diversify tax bases through transition-resilient sectors. 

“Rising deployment of clean energy and electrification of transport threaten to wipe out future tax-take, as high-cost Canadian production struggles to compete globally. Diversification into transition-resilient sectors is the safest route to maintaining fiscal stability.”

Key Findings

• The energy transition could wipe out over 80% of Canadian provincial governments’ expected revenue from upstream oil and gas in the 2030s.  

• Canada’s high-cost oil and gas production will increasingly be squeezed as clean energy and transport electrification curb demand and put downward pressure on global prices.  

• Carbon capture, utilisation and storage would not insulate the sector from demand substitution, even if successfully deployed.  

• At both a provincial and federal level, Canada needs to diversify its tax base. Clean energy and critical minerals are major growth sectors which will generate long-term revenues. 

• Several proposed oil and gas upstream projects would likely be uneconomic in a moderate-paced transition, and incompatible with the Paris Agreement goals, which risks failing to generate expected government tax-take.  

What the data shows

Provincial oil and gas revenues collapse in a Paris-aligned world – total cumulative upstream oil and gas revenues to provincial governments in 2030–39 fall from an expected C$218bn to C$39bn, an 82% reduction.  

Both existing and new projects are vulnerable – pre-FID upstream oil and gas projects are projected to deliver around C$100bn in combined royalty and income tax payments between now and 2040 under a business-as-usual scenario, but only about C$20bn in a Paris-aligned transition.

Recommendations 

• Provincial and federal governments need to consider the likelihood of declining oil and gas revenues in their budgeting forecasts.  Particular scrutiny should be placed on  new, standalone upstream developments.
• Canada’s oil- and gas-dependent provinces have significant potential to scale up clean energy, creating a more diverse energy mix and strengthened energy security. 
• Critical minerals, both in terms of extraction and processing capacity, also present a major growth opportunity. 
• Provincial governments – particularly Alberta – should consider building up fiscal reserves from oil and gas while they still can.   
• They should also develop a robust decommissioning plan that requires operators to set aside sufficient reserves, to avoid taxpayers being burdened with responsibility further down the line.

Download the report

Dive into the full report for detailed analysis of how the global energy transition could impact Canadian provincial budgets, and what policymakers can do to manage the fiscal risks. Use the download button at the top of this page.

This report is one of a two-part series analysing the value of Canadian oil and gas amid the unfolding energy transition. The second report explores whether investment in new upstream projects risks eroding Canadian oil and gas value. It benchmarks Canadian firms against global peers to determine relative positioning and provide a view on risk exposure in a worldwide context. Read Fading Fortunes here.