There is a finite amount of oil to be found in Alberta. With a royalty, Alberta gains a certain portion of the profits. Now they will have a smaller portion of the profits on that finite amount of oil. That is the downside. The upside is that there will be more investment in the short term.
More investment means that their oil resources will run out faster. They'll make more money in the short term as investment goes up, but less money overall, and they'll run out of it sooner.
Stupid, stupid, stupid. Why is it so difficult for people to understand that oil is non-renewable? They talk about oil "production". The word really should be "extraction". No one produces it. They just find it, and remove it from the ground. Then it is gone. The Alberta government will get royalties from the oil, once. They have just settled for a smaller royalty.
It shouldn't make a difference to Alberta how fast oil extraction occurs, because they'll get their royalty whenever it does get pumped. The oil that is economical to be pumped will get extracted sooner or later. Now they will get a smaller royalty.
*caveat: There is one way this could possibly make sense. If the world ever gets around to banning fossil fuels, then obviously Alberta will have been at an advantage if they manage to pump more of their oil out of the ground before that happens. But I don't expect that to happen anytime soon, if ever.
I doubt the Alberta government does either. This is just about short term politics. Bizarrely, a policy design to give less money to Albertan citizens over the long run, and more to the oil companies, seems to be popular.
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