Industrial Policy in Alberta: Lessons from AOSTRA and the oil sands
This paper examines the record of industrial policy in Alberta and on this basis proposes principles for future innovation focused industrial policy in the province. I find that the development of the key technology in unlocking the majority of the Canadian oil sands, Steam Assisted Gravity Drainage (SAGD), is an example of industrial policy in Alberta responsible for disruptive innovation and economic development. Under strong political leadership and against the wishes of the incumbent industry – which preferred path following innovation in enhanced oil recovery – royalties were raised on the conventional oil industry to fund the Alberta Oil Sands Technology and Research Authority (AOSTRA), an extensive research and development project in what was seen as an “alternative” industry. While much of the research and testing was conducted in partnership and with matching funds from industry, after the initial $854 million (2019 dollars) government investment failed to demonstrate significant results, the pivotal investment in SAGD was purely government led in the face of opposition from industry that viewed the construction of the Underground Test Facility as a boondoggle. Once SAGD was proven it was the private sector, made up of personnel trained under AOSTRA, and with continued financial support from government, which grew SAGD into a significant industry. Over time the pivotal role of the $1.4 billion (2019 dollars) government investment and the original opposition the investment faced has been largely forgotten.
There is growing interest in the potential for mission oriented innovation or industrial policy to address major social and environmental challenges and spur economic growth. As the Government of Alberta addresses the dual challenges of diversification and decarbonisation in the province, AOSTRA’s past success holds important lessons for future government policy. I explore these lessons and set out an industrial policy approach for the role of government in industry creation. Alberta’s economic development history shows the important role of industrial
policy in disruptive innovations and economic growth, and how careful policy design can minimize rent-seeking and minimize the costs of the necessary mistakes in the process – the “losers” that end up picked in the necessary process of finding the “winners”.
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