What If Alberta Created a Stronger Heritage Fund from Oil Revenues?

The Actual History

In 1976, under the leadership of Progressive Conservative Premier Peter Lougheed, the province of Alberta established the Alberta Heritage Savings Trust Fund. This sovereign wealth fund was created during Alberta's first major oil boom, with the intention of saving a portion of the province's non-renewable resource revenue for future generations. The initial commitment was to deposit 30% of Alberta's oil and gas revenues into the fund annually.

The Heritage Fund started with an initial investment of $1.5 billion and in its early years, the fund grew rapidly. By 1982, it had reached approximately $12 billion. The fund was designed with multiple objectives: to save for the future, strengthen and diversify Alberta's economy, and improve Albertans' quality of life.

However, after the initial enthusiasm, Alberta's commitment to the fund wavered significantly. In 1982, as oil prices declined and Alberta entered a recession, Premier Lougheed's government reduced contributions to 15% of resource revenues. When Don Getty became premier in 1986, facing another oil price collapse, all regular contributions to the fund were suspended. The government also began diverting the fund's investment income to general revenue rather than allowing it to be reinvested.

From 1987 to 2005, no new money was added to the Heritage Fund. In 2005, with oil prices rising again, the Klein government made a one-time contribution of $1 billion. The Stelmach government later implemented a new framework where surplus revenues above a certain threshold would be allocated to the fund, but subsequent budget deficits meant this rarely occurred.

Throughout much of its history, the Heritage Fund was also used to finance various provincial projects rather than being preserved solely as a long-term investment vehicle. Capital projects including hospitals, universities, and major complexes like the Kananaskis Country recreation development were partially funded through the Heritage Fund.

By contrast, Norway—which established its Oil Fund (now called the Government Pension Fund Global) in 1990, years after Alberta—took a substantially different approach. The Norwegian fund receives nearly all state oil revenue, restricts withdrawals to around 3% of the fund's value annually, and invests entirely outside Norway to prevent domestic economic distortion. By 2023, Norway's fund had grown to over $1.4 trillion (USD), making it the world's largest sovereign wealth fund, while Alberta's Heritage Fund stood at just over $20 billion CAD.

As of 2025, the Alberta Heritage Fund represents a story of missed opportunity. Had Alberta maintained its original commitment and managed the fund with greater discipline, some economists estimate it could have grown to several hundred billion dollars—potentially transforming Alberta's fiscal capacity and economic resilience through oil price volatility cycles. Instead, successive Alberta governments prioritized immediate spending, tax cuts, and balanced budgets over long-term savings, leaving the province still vulnerable to the boom-and-bust cycles of resource prices despite its vast natural wealth.

The Point of Divergence

What if Alberta had maintained and strengthened its commitment to the Heritage Savings Trust Fund? In this alternate timeline, we explore a scenario where Alberta's approach to managing its oil wealth paralleled the Norwegian model rather than gradually abandoning the original vision.

The point of divergence occurs in 1982, when Premier Peter Lougheed faced pressure to reduce the Heritage Fund contributions from 30% to 15% of resource revenues due to declining oil prices and fiscal challenges. In our actual timeline, this marked the beginning of the fund's stagnation. However, in this alternate reality, Lougheed makes a different calculation.

One plausible mechanism for this change would be Lougheed studying international models more extensively, perhaps including Kuwait's Fund for Future Generations (established 1976) and becoming convinced that maintaining disciplined savings during downturns was precisely when the long-term commitment mattered most. In a pivotal speech to Albertans in early 1982, rather than announcing a reduction in contributions, he could have reaffirmed the 30% commitment while making targeted spending cuts elsewhere.

Alternatively, Lougheed might have responded to economic pressure by proposing a constitutional amendment to the Heritage Fund Act that would have made it significantly more difficult for future governments to raid the fund or reduce contributions. This could have included mandatory minimum contribution rates regardless of economic conditions, strict limitations on withdrawals, and requirements for the fund to be professionally managed at arm's length from political interference.

A third possibility involves a stronger global oil price recovery in the mid-1980s providing the fiscal space for maintaining contributions, coupled with Lougheed successfully institutionalizing the fund's independence before leaving office in 1985, perhaps inspired by early discussions with Norwegian officials who were beginning to develop their own fund model.

The most transformative divergence would combine elements of all three: maintaining the 30% contribution rate through the 1982 downturn, establishing constitutional protections for the fund that required supermajorities to change, and creating an independent management structure similar to what Norway would later develop. This path would have required extraordinary political courage, but would have fundamentally altered Alberta's fiscal trajectory for decades to come.

Immediate Aftermath

Economic Impact During the 1980s Downturn

The immediate consequences of maintaining the 30% contribution rate through the oil price collapse of the 1980s would have been challenging but manageable. The Alberta government would have needed to implement more significant spending restraint between 1982 and 1986 than it did in our timeline. This might have included delaying some infrastructure projects, more conservative public sector wage settlements, and potentially modest tax increases.

When Don Getty replaced Lougheed as premier in 1985, he would have inherited both tighter fiscal constraints and a constitutionally protected Heritage Fund that was continuing to grow despite economic headwinds. With the fund's constitutional protections requiring a supermajority to change, Getty would have had limited ability to tap the fund for general revenue, forcing more difficult but fiscally responsible decisions.

The most significant economic divergence would have emerged during the severe 1986 oil price collapse, when prices dropped below $10 per barrel. In our timeline, Getty's government completely halted contributions to the fund and began using investment income for general revenue. In this alternate timeline, the constitutional protections would have prevented such measures, requiring Getty to implement a combination of spending cuts and tax measures instead.

Fund Management Reforms

By 1987, with the Heritage Fund continuing to grow but facing criticism about political influence over investment decisions, the Getty government would likely have implemented significant governance reforms. Drawing inspiration from other sovereign wealth funds globally, Alberta would have established an independent investment board with professional managers, clear mandate, and transparent reporting requirements.

These reforms would have professionalized the management of the fund and moved investments toward a more global portfolio rather than focusing heavily on Alberta projects. This shift would have been controversial at the time, with opposition parties criticizing the "exporting" of Alberta capital, but would have improved returns and reduced political interference.

Political Reactions and Public Opinion

Maintaining the Heritage Fund contributions during the economic downturn would have been politically difficult. The Alberta Liberal and NDP opposition would likely have attacked the policy as prioritizing "savings for tomorrow" over "needs of today." Business groups would have been divided, with some supporting the long-term vision while others pressing for immediate tax relief.

Public opinion polling from this alternate 1980s would show Albertans narrowly supportive of maintaining the fund but concerned about immediate economic conditions. Premier Getty's approval ratings would have suffered initially as the province implemented austerity measures to balance the budget while maintaining Heritage Fund contributions.

However, by 1988-89, as global oil markets began to recover and the Heritage Fund's value grew to approximately $20 billion (compared to about $12 billion in our timeline), public support for the policy would have strengthened. The fund would have become a source of provincial pride, with Albertans increasingly viewing it as protection against future downturns.

Relations with the Federal Government

The growing Heritage Fund would have altered Alberta's relationship with the federal government in significant ways. With a larger financial cushion, Alberta would have gained leverage in federal-provincial negotiations. During the Mulroney government's term (1984-1993), Alberta would have had greater ability to resist federal energy policies perceived as harmful to provincial interests.

The existence of a substantial and growing sovereign wealth fund would have reduced Alberta's arguments against federal equalization payments, potentially leading to a different dynamic in federal-provincial fiscal arrangements. Prime Minister Brian Mulroney would have likely pointed to Alberta's growing savings as evidence that the province had sufficient fiscal capacity despite resource revenue fluctuations.

Early International Recognition

By the late 1980s, Alberta's Heritage Fund would have begun attracting international attention as a model for resource wealth management. When Norway began developing its own petroleum fund in 1990, Norwegian officials would have studied the Alberta model closely, potentially creating a collaborative relationship between fund managers from both jurisdictions.

Kuwait, Alaska, and other resource-rich regions would have also looked to Alberta for guidance on fund management and governance. This international recognition would have reinforced domestic political support for maintaining the fund, making it increasingly difficult for subsequent governments to alter its fundamental structure.

Long-term Impact

Fund Growth and Diversification (1990s-2000s)

The most dramatic divergence from our timeline would become apparent during the 1990s and early 2000s. With the constitutional requirement to contribute 30% of resource revenues and reinvest all returns, combined with professional management focused on maximizing long-term returns, the Alberta Heritage Fund would have grown substantially.

By 1995, even with the relatively low oil prices of that era, the fund would have reached approximately $45-50 billion, compared to the stagnant $12 billion in our timeline. This growth would have accelerated during the resource boom of the 2000s:

2000: Approximately $75-80 billion
2005: $120-130 billion
2008: $160-180 billion (before the financial crisis)

The fund's investment strategy would have evolved to focus on global diversification across asset classes:

Approximately 60% in global equities
30% in fixed income
10% in alternative investments (real estate, infrastructure, private equity)

Unlike our timeline where the fund remained heavily invested in Alberta projects, this global diversification would have provided both higher returns and better protection against Alberta's economic cycles.

Fiscal Policy Transformation

The growing Heritage Fund would have fundamentally altered Alberta's approach to fiscal policy. By the late 1990s, with the fund exceeding $60 billion, the province would have implemented a "Norwegian-style" rule allowing it to spend only a portion (perhaps 4%) of the fund's value annually.

This spending rule would have created a stable, predictable revenue stream for the provincial government, reducing reliance on volatile resource revenues for day-to-day operations. During Ralph Klein's premiership (1992-2006), this would have meant:

Less dramatic public service cuts in the mid-1990s
Maintained infrastructure investment through economic cycles
More gradual tax reductions rather than the "Alberta Advantage" rapid tax cutting
The ability to weather commodity price drops without deficit spending

The 2008 global financial crisis would have presented a significant test for the fund, with portfolio values declining temporarily. However, the diversified investment approach would have limited losses compared to many other sovereign wealth funds, and the disciplined spending rule would have prevented panic-driven policy changes.

Energy Transition Planning

Perhaps the most significant long-term impact would have emerged after 2010, as global conversations about climate change and energy transition accelerated. With a Heritage Fund exceeding $200 billion by this point, Alberta would have had both the financial capacity and long-term perspective to begin strategic planning for post-oil economic development.

This might have included:

Strategic Investments: Using a portion of the fund to invest in emerging energy technologies, positioning Alberta at the forefront of both traditional and renewable energy
Education and Research: Establishing world-class research facilities and educational programs focused on energy transition technologies
Infrastructure Development: Building the physical and digital infrastructure necessary for economic diversification while oil revenues remained strong
Tax Structure Reform: Gradually implementing a more diverse tax base less dependent on resource revenues

In contrast to our timeline where Alberta often resisted climate initiatives as existential threats to its economy, this alternate Alberta with substantial financial reserves would have been more confident in navigating the energy transition, potentially positioning itself as a leader in developing both cleaner fossil fuel technologies and alternatives.

Global Financial Influence

By 2025, the Alberta Heritage Fund in this alternate timeline would have grown to approximately $380-400 billion (assuming continued contributions and average annual returns of 6-7%). This would make it one of the world's largest sovereign wealth funds, though still smaller than Norway's (which would be around $1.6-1.7 trillion in this timeline).

With this financial heft, Alberta would have become a significant player in global financial markets. The fund would likely hold meaningful ownership stakes in major global corporations, real estate in key markets worldwide, and infrastructure assets across several continents.

This financial influence would have provided Alberta with both soft power internationally and greater economic stability domestically. The province's credit rating would have remained AAA throughout economic cycles, and its borrowing costs would be among the lowest of any sub-national government worldwide.

Political Culture and Identity

The existence of this massive Heritage Fund would have altered Alberta's political culture in subtle but important ways. The boom-and-bust mentality that characterized much of Alberta's political discourse in our timeline would have been tempered by the fund's stabilizing influence.

Political debates would focus less on short-term resource revenue fluctuations and more on long-term investment strategies, diversification efforts, and intergenerational equity. The fund would have become central to Albertan identity – a source of pride and security that differentiated it from other Canadian provinces.

Conservative governments would still likely have dominated Alberta politics, but with a different emphasis – focusing on prudent management of the province's substantial wealth rather than populist tax-cutting and spending during booms followed by austerity during busts.

Federal-Provincial Relations in 2025

By 2025 in this alternate timeline, Alberta's relationship with the federal government would be fundamentally different. With a $400 billion sovereign wealth fund providing financial security, Alberta would have significant independence in policy choices while remaining firmly within Canada.

The equalization program would likely have been reformed to account for Alberta's substantial financial assets, but the province's economic strength would make this less contentious than in our timeline. Federal climate policies would still create tensions, but Alberta would be negotiating from a position of financial strength rather than perceived vulnerability.

In this alternate 2025, Alberta might be leading national conversations about establishing a Canadian sovereign wealth fund for resource revenues from other provinces, positioning itself as a model for long-term resource management rather than as an outlier.

Expert Opinions

Dr. Anita Ramaswamy, Professor of Public Finance at the University of Toronto, offers this perspective: "The decision to maintain and protect Alberta's Heritage Fund contributions in the 1980s represents the most consequential economic policy counterfactual in modern Canadian history. Had Alberta followed this alternate path, it would now possess financial assets approaching half a trillion dollars, fundamentally altering both provincial finances and intergovernmental fiscal relations. The compounding effect of maintaining those contributions through multiple oil cycles demonstrates how pivotal those early decisions were. This alternate Alberta would still face challenges from energy transition and climate policy, but would do so from a position of remarkable financial strength rather than fiscal vulnerability."

Mark Henderson, former Deputy Minister of Finance for Alberta, provides a more nuanced view: "While a larger Heritage Fund would have provided significant benefits, we shouldn't romanticize this alternate path. Maintaining 30% contributions through the deep recession of the 1980s would have required painful spending cuts and likely tax increases that would have been extremely difficult politically. The trade-offs would have been real and contentious. That said, the long-term payoff would have been transformative. Alberta would today be less dependent on resource revenues for current spending, less vulnerable to oil price shocks, and better positioned for the energy transition. The most significant benefit might have been psychological – breaking the boom-and-bust mentality that has characterized Alberta politics for generations."

Dr. Olav Bjørnestad, Senior Researcher at the Norwegian Institute for Energy Economics, draws comparisons with Norway's approach: "The crucial difference between Norway's path and Alberta's actual history wasn't just about contribution rates or investment strategies – it was about creating institutional structures that could withstand political pressure during downturns. Had Alberta established similar constitutional protections and independent management, the outcome would likely have paralleled Norway's success. The most fascinating aspect of this counterfactual is how it might have changed Alberta's approach to the energy transition. With hundreds of billions in financial assets, Alberta could have been investing aggressively in diversification while still supporting its traditional energy sector, potentially creating a more gradual and less politically divisive transition path."