The Parliamentary Budget Officer (PBO) today released an independent estimate of the cost of cleaning Canada’s orphan oil and gas wells. The wells are mainly located in Alberta and Saskatchewan. Plugging wells protects underground and surface waters and avoids greenhouse gas emissions.
Provincial regulators require oil and natural gas companies to close inactive well sites. In cases where there is no known, financially viable operator capable of addressing the environmental liabilities associated with closing their wells, these wells are deemed orphaned. In Alberta, the number of orphaned wells has increased from 700 in 2010 to more than 8,600 in 2020, while in Saskatchewan it has increased from roughly 300 wells in 2015 to 1,500 in 2020. Most of this growth occurred in the last 5 years, with an average growth rate of 35 per cent per year. We estimate that more than 10,000 wells could become orphaned over the next five years, resulting in a total of almost 18,000 wells that would be deemed orphaned.
“As the number of orphan wells increase, so does the expected cost for cleaning up environmental liabilities. Our estimated cost of cleaning oil and gas wells, on a national level, is expected to rise from 361 million in 2020 to 1.1 billion by 2025” says Yves Giroux, PBO. “
In 2020, the federal government provided $1.7 billion to the governments of Alberta, Saskatchewan and British Columbia to fund the clean-up of inactive oil and gas wells, which suggests there should be sufficient funds to cover the liability. However, recent experience indicates that close to half of the funds in Alberta were disbursed to clean up wells owned by companies that are financially viable. If this trend of helping viable companies persist, existing funding could be insufficient to clean up wells that are orphaned.
The Parliamentary Budget Officer (PBO) today released his report on the Government’s 2021 Economic and Fiscal Update. The report highlights key issues arising from the Government’s Update published on December 14, 2021.
The Government released its Update on the same day that it tabled its audited financial statements for 2020-21—close to nine months after the close of the fiscal year (March 31st).
“The delay in the Government’s release of its audited financial statements has undermined parliamentarians’ ability to meaningfully scrutinize proposed Government spending,” says PBO Yves Giroux.
The PBO report notes that Canada falls short of the standard for advanced practice in the International Monetary Fund’s financial reporting guidelines, which recommends that governments publish their annual financial statements within six months.
“Consistent with the PBO’s mandate to promote fiscal transparency, I am recommending that Parliament consider legislative amendments to require tabling of the Government’s financial statements no later than September 30, which would avoid a repeat of the long delay experienced in 2021,” adds Mr. Giroux.
The PBO report includes several recommended amendments to the Financial Administration Act for consideration, including moving the required release date of the Public Accounts by three months, from December 31st to September 30th, as well as requiring Departmental Results Reports to be released no later than September 30th.
Fiscal measures since the start of the Pandemic
“Our report shows that since the start of the pandemic, the Government has spent, or has planned to spend, $541.9 billion in new measures—almost one third of which is not part of the COVID-19 Response Plan,” says Mr. Giroux.
Of the non-pandemic spending, the report identifies $69.2 billion in stimulus spending, $49.9 billion related to “building a better economy”, $24.2 billion in compensation to First Nations children and their families, and $33.3 billion in “other” measures.
The new measures announced in the Update are largely in addition to the measures included in the Liberal Party of Canada’s 2021 election platform. “We estimate that remaining platform measures would amount to $48.5 billion in net new spending over 2021-22 to 2025 26,” adds Mr. Giroux.
The Update continued to track selected labour market indicators (“fiscal guardrails”), highlighting the fact that Canada has recovered 106% of the jobs lost at the start of the pandemic.
The fiscal guardrail indicators in the Update showed that the employment rate, total hours worked and excess unemployment effectively returned to their pre-pandemic benchmarks by November 2021, well before the end of the 2021-22 fiscal year—the first year of the Government’s stimulus plan initially announced in its 2020 Fall Economic Statement.
According to Mr. Giroux, “the Government’s own fiscal guardrails indicate that stimulus spending should be wound down by the end of fiscal year 2021-22. It appears to me that the rationale for the additional spending initially set aside as ‘stimulus’ no longer exists”.
The Parliamentary Budget Officer (PBO) today released his fiscal analysis of the Government’s proposal to reduce mortgage insurance premiums charged by the Canada Mortgage and Housing Corporation (CMHC).
“We estimate that the 25% decrease in CMHC’s mortgage insurance premiums will result in a net cost of $1.4 billion to the government over five years”, says Yves Giroux, PBO.
PBO also estimates that Canadian households will have a one-time average savings of $5,341 in 2022-2023.
If implemented, it is also expected that private sector insurers will also reduce their premiums to closely match those of the CMHC, given the structure of the mortgage insurance market.
The Parliamentary Budget Officer (PBO) today released his fiscal analysis of an independent cost estimate of the Government of Canada’s procurement of two new heavy icebreakers.
The Polar Icebreaker Project, initially launched by the Government of Canada in 2008, aims to replace the Canadian Coast Guard’s existing fleet of heavy icebreakers with two new heavy icebreakers built to modern specifications.
The last Government estimate dates to 2013, at which time the cost of procurement for one ship was estimated at $1.3 billion. The Government of Canada has not yet released an updated cost estimate.
“We estimate the total cost of the icebreaker project at $7.25 billion, inclusive of project management costs of $346 million, design costs of $820 million, and acquisition costs of $6.1 billion”, says Yves Giroux, PBO.
Based on the recent experience of the Government of Canada’s shipbuilding procurement initiatives to date, as well as competing priorities at the partner shipyards, PBO assumes that construction activities for the first of the two ships will begin within the 2023-2024 fiscal year, with the second beginning in the following fiscal year. Deliveries of these vessels are anticipated for 2029-2030 and 2030-2031, respectively.
“A sensitivity analysis suggests that delays of either one or two years in the start of the construction for both vessels at each partner shipyard would increase total project costs by $235 million or $472 million, respectively”, added Mr. Giroux.
The Parliamentary Budget Officer (PBO) will be offering election campaign proposal costing services for the 2021 election. The service, available to all recognized parties represented in the House of Commons as well as parties without official recognition, is being launched today and will enable Canadian voters to make informed choices when they go to the ballot box.
The Parliamentary Budget Officer (PBO) is preparing to provide costing services for campaign proposals for the 44th Canadian federal election. The election will mark the second time the PBO has offered this optional service since the Parliament of Canada Act was amended in 2017 to introduce a role for the PBO during federal elections.
The Parliamentary Budget Officer (PBO) today released his assessment of the cost for implementing House of Commons Motion-77, tabled by Mr. Paul Manly from the Green Party which proposes several changes to long-term care for seniors.
Changes proposed in Motion-77 include providing long-term care to all persons who need such care, requiring an average of four hours of care per resident per day, increasing spending on home care to 35% of public spending on long-term care and increasing average employee pay and benefits for private long-term care providers.
The PBO’s Cost Estimate for Motion 77: Improvements to Long-Term Care found that implementing these changes would require increasing public spending by $13.7 billion per year.
“We estimate that approximately 52,000 people are on wait lists for long-term care, including those in hospitals”, says Yves Giroux, PBO. “Meeting the needs would require a 26% increase in the number of long-term care beds in Canada at a cost of $3.1 billion.“
Motion 77 also includes an increase in average wages and benefits for persons providing long-term care in the private and non-for-profit sectors to $25/hour, which represents a 15% increase in hourly wages, at a cost of $1.1 billion.
In addition, this motion is intended to ensure that seniors in long-term care receive an average of at least four hours of direct care per day. According to Mr. Giroux, “This increase in the number of hours of care provided to residents in long-term care facilities would cost $4.3 billion per year.”
The final change proposed in Motion 77 would increase spending on home care to 35% of public spending on long-term care. To reach the motion’s target an additional $5.2 billion would have to be spent each year on home care.
The Parliamentary Budget Officer (PBO) today released his assessment of the long-term sustainability of government finances. The assessment reflects all measures in recent federal and provincial-territorial budgets.
The PBO’s Fiscal Sustainability Report 2021 finds that current fiscal policy, if maintained over the next 75 years, is not sustainable over the long term for the government sector as a whole. Increasing government indebtedness is primarily driven by the provincial-territorial sector, which will more than offset the fiscal flexibility at the federal level.
“Relative to the size of the Canadian economy, total net debt would ultimately rise above its initial level over the long term”, says Yves Giroux, PBO. “That being said, government indebtedness is projected to remain well below its peak observed over the last 30 years.”
Based on the PBO’s latest assessment, the federal government, and the provinces of Quebec, Nova Scotia, as well as Ontario, all have some fiscal room to increase spending or reduce taxes. Status quo fiscal policy is not sustainable in the remaining provinces and the Territories in light of the demographic projections.
The assessment identifies Canada’s ageing population as a key pressure for all provinces and territories. “Healthcare makes up a large share of provincial and territorial spending and it will continue to outpace growth in the economy as the population ages,” adds Mr. Giroux. “In most jurisdictions, the Canada Health Transfer will not keep pace with rising healthcare spending.”
According to Mr. Giroux, “Given their temporary nature, federal COVID-19 support measures do not have a material impact on long-term fiscal sustainability.” The estimate of federal fiscal room is effectively unchanged from the PBO’s November 2020 assessment and reflects an improvement in the medium-term outlook for nominal GDP and revenues.
The PBO’s Fiscal Sustainability Report is designed to identify whether changes in current fiscal policy are necessary to avoid unsustainable growth of government debt and estimate the magnitude of those changes using the fiscal gap.
The Parliamentary Budget Officer (PBO) today released his estimate, under various scenarios, of the cost of firearm compensation as part of the Government’s proposed firearm buy-back program.
The Parliamentary Budget Officer (PBO) today released his assessment of the impacts of the Government’s plan to exceed the 2030 target for Canada’s greenhouse gas emissions under the Paris Agreement.