Emissions regulations will start the ball rolling
Five days before it was to expire, the Alberta government updated the Specified Gas Emitters Regulation ( SGER) on Thursday, effectively extending the program — which will see the province’s carbon levy increase from $ 15 per tonne to $ 30 by the end of 2017 — for another two years.
The good news is that industry has some certainty around the government’s intentions, at least for now.
In addition to extending the SGER — under the existing intensity- based mechanism that also increases from 12 to 20 per cent by 2017 — the government announced it had established an advisory panel to be chaired by Andrew Leach, associate professor and director of natural resources, energy and environment programs at the University of Alberta’s School of Business.
Leach expects to have a preliminary framework ready by the time the Paris climate conference starts at the end of November.
In other words, extending the SGER is an interim measure, pending the outcome of Leach’s panel whose recommendations will likely have a phase- in period that coincides with the expiration of the revised regulations in 2017.
While there is some short- term certainty, there is no denying this is yet one more variable the energy sector has to navigate, on top of a pending corporate tax hike, the soon- to- be announced royalty review and Premier Rachel Notley’s musings about altering the existing regulatory structure.
“We want Alberta to be a competitive jurisdiction and to get the world price for oil and for natural gas.
“When we are dealing in a world market, we need to be competitive on a fiscal basis as well so the changes to the climate file will have an effect and so will the corporate taxes and so will the royalties,” Tim McMillan, president and CEO of the Canadian Association of Petroleum Producers, said Thursday.
“At the end of all this potential change we are hoping Alberta will remain on a solid foundation through which to continue to attract investment.”
Between the coming corporate tax hike and the SGER increases, CAPP estimates industry will take an $ 800- million hit.
The fact the announced climate policy change is tied to market access is a welcome shift from prior provincial governments and, in fact, the current position of the federal government. In the minds of many energy players, the lack of linkage to market access in terms of existing policy was the proverbial elephant in the room.
McMillan said he was pleased to hear the connection made between climate policy and market access since Canadian crude remains subject to a discounted price.
“We are losing as much as $ 15 per barrel because of the challenges relating to market access,” he said.
It could be said that if there are higher costs to industry as a result of changes to Alberta’s climate policy, it’s a price worth paying, if it ultimately results in market access.
The changes announced Thursday also signal the bell is tolling for some electricity players in the province. Alberta has the second- highest carbon emissions per capita in the country — after Saskatchewan — because of its reliance on coal to generate power. The new government appears ready to address this.
All eyes will now be on Leach and his panel. The question is whether the new policy will reach beyond the province’s industrial players and include consumers, says Chris Ragan, chair of the Ecofiscal Commission and an economics professor at McGill University.
“Ideally you want all emitters exposed to the carbon price, not just large industrial emitters or one sector of the economy,” Ragan said in an interview Thursday.
“A principle you definitely want to follow is to have as broad coverage as possible. I think that is true economically and politically, that Albertans know they are all in this together and that what comes out of their tailpipe is just as important as what comes out of an industrial pipe.”
It’s one thing to talk about lowering emissions in the oilsands or from coal- fired power plants and putting in the kinds of incentives needed to achieve that objective, but the SGER singles out industry and effectively gives consumers a bye.
As Jim Dinning said in a panel discussion in May that addressed the issue of carbon policy, consumers will continue to lack awareness and will not change their behaviour if carbon isn’t priced so that they see the impacts of their daily actions.
“If we don’t price it, we won’t change it,” said Dinning, a member of the multi- partisan advisory committee of the Ecofiscal Commission.
And because the SGER is intensity- based, Ragan points out it’s not as transparent as other options on the table, such as a carbon tax or a cap- and- trade system.
“I think the social licence issue is connected to transparency and credibility. To the extent you want transparency and effectiveness I think you want to move away from the SGER over time, so continuing the SGER in its current form and then replacing it with something else strikes me as a sensible way forward,” said Ragan.
What Leach and his group will propose is anybody’s guess at this point, though the theme in his recent publications suggests a preference for cap and trade rather than a carbon tax.
Among the advantages of a capandtrade structure — though not as easy to administer or as transparent as a carbon tax — is that it can be linked to other jurisdictions.
As Ragan points out, Alberta isn’t the only jurisdiction in North America looking at carbon policy. The fact a cap- and- trade system can connect with others is an important consideration. It’s also seen as more adaptable over a longer period of time, better addressing high- intensity emitters and more favourable in the context of rewarding or penalizing companies that are more or less efficient.
Still, it’s hard to argue with the transparency of a carbon tax, not to mention it is less distortionary and would be something everyone in the province would recognize.
Either way, that Alberta is clearly moving forward on climate policy is a relief to many in the energy sector.
There was a tacit understanding the existing policy was anything but robust and no longer credible, despite Alberta being the first North American jurisdiction to move on putting a price on carbon.
It’s difficult to deflect critics with a $ 15 per tonne levy that has translated into an actual price paid of less than $ 2 a tonne. By moving to $ 30/ tonne under a higher intensity target moves the needle to $ 6/ tonne. That’s still well below the $ 30 a tonne paid in B. C. and $ 15 a tonne in Quebec, but definitely a step in the right direction.
The real test remains as to whether what’s ultimately put in place includes consumers or continues to single out industrial players. If it does not, it will be seen as a failed process.