Business
Government Subsidies and the Oil and Gas Industry
A look at Strathcona Resources Ltd.
Does the Canadian government subsidize companies operating in our oil and gas sector? According to research by science and technology journalist Emily Chung, between $4.5 billion and $81 billion of public funds are spent each year for assistance to the industry. But Chung notes how ambiguous definitions (what exactly is a subsidy?) mean that those numbers come with serious caveats.
I thought I’d make this discussion a bit more manageable by focusing on just one industry player: Strathcona Resources Ltd.
Strathcona is big. They produce around 185,000 barrels of oil equivalent each day and the company is currently ranked 98th among publicly traded companies in Canada in terms of market cap ($5 billion) and 88th for operating margin (21.59%).
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What Is a Subsidy?
In the context of their report on the fossil fuel industry, the Department of Finance Canada asserts that “subsidies” can include:
- tax expenditures,
- grants and contributions,
- government loans or loan guarantees at favourable rates,
- resources sold by government at below-market rates
- research and development funding
- government intervention in markets to lower prices
The report defines tax expenditures as:
A type of tax measure, such as a preferential tax rate, exemption, deduction, deferral, or credit, with which the government aims to achieve public policy objectives through the tax system.
In the specific context of Strathcona, I could find no evidence that they’d received any direct public funding or “bailouts”. The government did recently announce a billion dollar partnership with the Canada Growth Fund (CGF) to build carbon capture and sequestration infrastructure, but that’s clearly an investment and not a subsidy. CGF is a Canadian arm’s-length crown corporation whose investments are managed by the Public Sector Pension Investment Board.
Strathcona’s 2023 Annual Report includes a reference to only one loan liability, but that had already been paid off and, in any case, wasn’t guaranteed by any level of government.
What Tax Benefits Does Strathcona Receive?
Many. The company’s annual report discusses its $6.1 billion “tax pool”. The pool is made up of deductions and credits that it can’t use this year, but that can be deferred for use in future years. Here’s how those break down:
The “Other Tax Deductions” item includes the Scientific Research and Experimental Development (SRED) deduction. That represents amounts spent on SRED-eligible research that companies can deduct from their payable taxes.
What Grant Funding Does Strathcona Receive?
Open Government data reports that only two federal grants were awarded to Strathcona, both in 2023. The first, worth $3.2 million, came from Natural Resources Canada as part of their Energy Innovation Program. Its purpose was development of Lindbergh Semi-Closed Cycle Flue Gas Recirculation and Carbon Capture.
The second grant was worth $12.5 million. It involved Environment and Climate Change Canada looking for an Orion Organic Rankine Cycle Waste Heat Recovery and Power Generation Project.
What Benefits Do Governments Receive From Strathcona?
Government subsidies don’t exist in a vacuum. As a rule, it’s assumed that subsidies to the private sector work as an investment whose primary payback is in profitable economic activity. Governments can also enjoy direct benefits.
In 2023, for example, Strathcona paid more than $405 million in crown royalties to provincial governments. They also spent $2.4 billion as operating expenses that included labor, energy costs, transportation, processing, and facility maintenance. Most of that money was spent in Canada.
A very rough estimate would suggest that total annual personal income taxes generated by people employed by Strathcona would be somewhere around $14 million. Vendors might pay another $13 million in corporate taxes.
There are also indirect benefits. For instance, those with jobs around the oil patch are, obviously, not unemployed and receiving EI benefits.
We could also take into account the larger impact Strathcona has on the general economy. Think about the food, shelter, clothing, and entertainment spending done by the families of Strathcona (and their vendors’) employees. That money, too, performs important social and economic service.
So does Strathcona receive more from government subsidies than the money they feed back into government accounts? Well, the $405 million in crown royalties are likely annual payments, as are the $27 million paid as income taxes. That’s what governments get. On the other side of the balance sheet, there is the $6.1 billion in deferred taxes and $16 million in grants. Those will probably be amortized over multiple years.
But does the word “subsidy” really describe tax benefits in any useful way? After all, there’s no company in all Canada – my own company included – that doesn’t deduct legitimate business expenses. And each and every Canadian receives similar benefits whenever they file their T1. For illustration, a Canadian whose total income happened to match the national average ($55,600) pays around $5,600 less in taxes each year due to various deductions and credits – including the basic personal amount.
Does that mean we’re all receiving government subsidies? There’s nothing wrong with thinking about it that way, but it does kind of strip the word of any real meaning.
Now you could reasonably argue that $6 billion is an awful lot of deferred tax, especially for a company with a 22% operating margin. And you could look to the tax code’s complexity for answers as to how this could have happened. But that’s not a subsidy in any coherent sense.
Think the tax code should be reformed? The line forms right behind me. However, the problem with playing around with the tax code is that changes apply to everyone, not just Strathcona or some other preferred target. Successfully anticipating how that might play out in dark and unanticipated ways isn’t the kind of thing for which governments are famous.
The Audit does this work in part because paid subscribers share the load. Why not join, too?
Business
Facebook / Meta’s Mark Zuckerberg on the Joe Rogan Experience
Earlier this week Mark Zuckerberg rocked the world of information with the news that Facebook, Instagram, and his other Meta properties would no longer use third party fact checking groups to censor information. As the week wraps up, Zuckerberg sits down for an extended conversation with Joe Rogan. For anyone interested in the world of information, this is a must see / listen.
From the Joe Rogan Experience
Mark Zuckerberg is the chief executive of Meta Platforms Inc., the company behind Facebook, Instagram, Threads, WhatsApp, Meta Quest, Ray-Ban Meta smart glasses, Orion augmented reality glasses, and other digital platforms, devices, and services.
Business
Facebook’s New Free Speech Policy Shows Business Getting Back to Business
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Big tech seems to be getting out of the censorship business, and it’s about time. After years of increasingly awkward attempts to placate demands from activist groups and the government to suppress allegedly hateful speech and an amorphous category of “disinformation,” Facebook owner Meta is joining X (formerly Twitter) in substituting user-generated community notes on contested posts for top-down muzzling. There’s no doubt that political shifts in the U.S. heavily influenced the rediscovery of respect for free speech. But whatever the reason, we should celebrate the change and work to make it permanent.
Succumbing to Pressure To Censor
“After Trump first got elected in 2016, the legacy media wrote nonstop about how misinformation was a threat to democracy,” Meta CEO Mark Zuckerberg announced in a January 7 video. “We tried in good faith to address those concerns without becoming the arbiters of truth. But the fact-checkers have just been too politically biased and have destroyed more trust than they’ve created, especially in the U.S.”
“What started as a movement to be more inclusive has increasingly been used to shut down opinions and shut out people with different ideas, and it’s gone too far,” he added.
The implication here is that Zuckerberg and company succumbed to pressure to suppress speech disfavored by the bien pensant class, but rather than satisfying critics, that just fed demand to memory-hole ever more discussion and ideas. The ranks of those demanding that Facebook act as a censor also expanded and became more ominous.
“Even the U.S. government has pushed for censorship,” Zuckerberg noted. “By going after us and other American companies, it has emboldened other governments to go even further.”
This isn’t the first time the Meta CEO has cited government pressure to act as an end-run around the First Amendment’s protections for speech. In an August 26, 2024, letter to the House Judiciary Committee, he revealed that “senior officials from the Biden administration, including the White House, repeatedly pressured our teams for months to censor certain COVID-19 content, including humor and satire.” He also admitted to suppressing reports about Hunter Biden’s laptop at the FBI’s request.
Succumbing to Pressure for Free Speech
By the time of that letter, the backlash against social media censorship was well underway. Elon Musk’s purchase of Twitter (now X) led to the publication of the Twitter files, revealing government pressure on the platform to suppress dissenting ideas. The Facebook files revealed the same of Zuckerberg’s company. U.S. District Court Judge Terry Doughty wrote that government pressure on tech platforms “arguably involves the most massive attack against free speech in United States’ history.” These revelations vindicated complaints by critics of pandemic policy, conservatives, libertarians, and other dissenters that their efforts to communicate were being deleted, shadow-banned, and otherwise censored.
As early as 2020, Pew Research pollsters found “roughly three-quarters of U.S. adults say it is very (37%) or somewhat (36%) likely that social media sites intentionally censor political viewpoints that they find objectionable.”
Which is to say, tech companies’ efforts to escape pressure over allowing users to publish “misinformation” wildly backfired. They came under more pressure than ever from those who objected—often rightly—that they were just trying to share information that others didn’t like.
If pressure led to censorship, it has also led to its reversal. That’s especially clear as Republicans pushed to allow lawsuits over online muzzling and then-candidate (now President-elect) Donald Trump thuggishly threatened Zuckerberg with “life in prison” for his company’s activities.
Zuckerberg even acknowledges bowing to shifting political winds, saying, “the recent elections also feel like a cultural tipping point towards once again prioritizing speech.”
Whatever Mark Zuckerberg’s actual beliefs about freedom of speech, having once given in to political pressure to censor, he’s now succumbing to political pressure to end censorship. As journalist and date-cruncher Nate Silver puts it, “perhaps it’s the right move for the wrong reasons.” It’s quite likely that the Meta CEO’s motivations are pragmatic rather than principled. But at least he’s making the right move.
Zuckerberg now says he’ll follow in the footsteps of Elon Musk, who was the first tech tycoon to push back against pressures for censorship, first in public statements and then in his acquisition of Twitter.
“First, we’re going to get rid of fact-checkers and replace them with community notes, similar to X, starting in the U.S.,” he noted in his video statement. He also promised to get rid of restrictions on “topics like immigration and gender” that were previously subject to scrutiny for alleged wrongthink, focus the attention of automated filters on explicitly illegal content rather than general discourse, and stop deemphasizing political content. Facebook will also move its moderation teams out of the ideological hothouse of California to Texas—arguably just a different ideological hothouse, though one better aligned with a country that just voted as it did and generally favors free speech over Big Brother.
Meta Joins Other Companies, Steps Back from Political Alliances
In backing away from a default affiliation with one faction of American politics as well as the government, Zuckerberg joins not just Musk but also executives at other companies who are jettisoning brief flirtations with trendy causes.
“Walmart is ending some of its diversity programs, the latest big company to shift gears under pressure from a conservative activist,” The Wall Street Journal’s Sarah Nassauer reported in November. The article attributed the shift to public pressure which “has successfully nudged other companies including retailer Tractor Supply and manufacturers Ford and Deere to back away from diversity efforts and other topics.”
That report came after the election put Republicans back on top, but the cultural winds had already shifted direction. Bloomberg reported in March that “Wall Street’s DEI retreat has officially begun.” A few months later, the financial news service noted a decline in interest in environmental, social, and governance investment guidelines associated, like DEI, with the political left.
As in Zuckerberg’s case, it’s not obvious that the business executives in question had a sincere commitment to the causes they now reject, or that their principles, should they have any, have changed. Instead, they seem to belatedly recognize that allying with one faction in a divided society inevitably alienates others. That’s dangerous when the fortunes of factions inevitably rise and fall, and when potential customers can be found across the political spectrum.
By taking their companies out of the political fray and acknowledging their customers’ right to disagree with one another and with the government, Mark Zuckerberg and other business leaders can leave us room to work out our differences in a free society without worrying so much whether the people to whom we give our money are friends or foes.
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