Data centres and economic development: Alberta's challenge
There is an excellent long form article in the Globe & Mail today about Alberta’s attempts to attract data centres. There are a couple of important points to be made here for economic development.
I was a fan (and still am) of data centre development in cases where the jurisdiction has surplus available electricity and doesn’t have a great business case for other uses for that power. In other words, if you could use that energy to bring higher value economic activity than data centres, in the end the focus should be on best impact.
If, however; you end up subsidizing data centres through very low rates that push cost onto other rate classes, it is not a good idea at all. As the article states, there are very few jobs associated with data centres - Amazon is indicating it will invest $4.3 billion in Alberta but create only a few hundred jobs. Even the $4.3 billion number is misleading as likely $4 billion of that will be imported kit not manufactured in Canada.
The article talks about how Quebec is moving away from data centres and now requiring company’s who receive the ‘economic development rate’ to show much more impact than data centres. Yes, Quebec has an ultra low electricity rate for ‘economic development’ something New Brunswick has outlawed by legislation.
While the article doesn’t answer the question, if it turns out Alberta taxpayers are subsidizing Amazon through their electricity rates, it could turn out to be very costly.
For me the biggest issue is how Alberta is going to transition to an economy much less dependent on oil and gas revenues. I talked about the province’s strategy to heavily subsidize film production as one of its growth plans.
I suspect the irony of Alberta heavily subsidizing economic development that isn’t based on oil and gas will not be lost on Atlantic Canadians.
Alberta will not be able to transition off its heavy reliance on oil and gas by spending hundreds of millions of taxpayer dollars to subsidize film production, data centres or any other sector. I can’t see either agriculture or tourism doing it either.
So for now the strategy seems to be a few flashy - and potentially heavily subsidized - sectors on the margin to look like there is a plan but, in the end, it’s still all about the oil, baby.
I’m sympathetic, of course. There are few examples of a prosperous oil and gas economy transitioning to a prosperous non-oil and gas economy. This is why Norway and Saudi Arabia are saving up trillions so they can spend it down in the post-oil and gas years. Alberta has its Heritage Fund but at $18 billion that isn’t even enough to cover one third of a single year’s provincial budget. And, according to RBC, Alberta’s net debt has risen from a negative $13 billion in 2013-2014 to just under $60 billion in 2020-21.
The good news is that Alberta oil will likely flow for 3-4 decades or more allowing the current generation to kick the can down the road.