CARBON TAX WILL CLEAN AIR, BUT WITH COST TO INDUSTRY
New NDP rules will punish biggest polluters, reward top performers in specific industries
Two things are apparent coming out of the provincial government’s big announcement Wednesday about changes to overhaul its carbon tax on big industrial operations. No. 1: The shift should lead to less greenhouse gas emissions from these large players. No. 2: There will be a cost to industry.
Environment Minister Shannon Phillips was quick to make the first point while talking to reporters in Calgary, but a little more reluctant to acknowledge the second.
“The costs — the compliance obligations on the one hand — (by) industry are offset by the benefits,” she said, when asked about its potential effect on industry competitiveness.
“We expect on balance there is going to be a positive economic effect from this,” Phillips added, citing new pipeline approvals as a big win coming from the government’s climate plan.
Without getting into the murky merits of social licence, Wednesday’s move is the product of almost two years of complex policy development intended to revamp Alberta’s carbon levy on large industrial facilities.
Alberta is the largest generator of greenhouse gases in the country and this fact is tied to the very structure of Alberta’s energy-powered economy.
For example, oilsands operations alone account for about one-quarter of all provincial emissions.
Instead of measuring emissions and GHG reductions on a facility-by-facility basis, as the old provincial program did, the new system will benchmark each major industry — such as cement, fertilizer and oilsands — on their emissions.
Under this “output-based allocation system” — a name only a policy wonk could love — the province will impose its revamped carbon tax on these larger emitters, beginning Jan. 1.
In short, the most efficient firms with the lowest emissions within their sector will receive credits; less-efficient producers will end up paying more.
This should lead to a “race to the top,” Phillips said.
The idea is to give heavy polluters an incentive to invest and make improvements to reduce their GHG levels.
The government estimates the new regulations will lower emissions in Alberta by 50 million tonnes by 2030. That’s the equivalent of taking 11.5 million vehicles off the road.
But let’s be clear: it won’t be free.
In 2016-17, the existing carbon levy on industrial facilities raised $160 million in revenues for the province.
Under the new plan, that figure is expected to grow to about $600 million in 2018-19.
The total compliance costs for all sectors will increase steadily over three years as the new carbon tax regime is phased in.
Such costs will reach $1.2 billion by 2020-21, according to Environment Department officials.
This doesn’t mean industry will be cutting an equivalent cheque to government, as there are other ways to lower carbon costs, such as buying cheaper offsets.
Government officials expect program revenues will be in the neighbourhood of $800 million.
It should be noted the province is also offering money through grants and other programs to trigger investments in innovations to curb emissions.
Other mitigation measures are being introduced to soften the blow on companies hit hard by the changes.
But what will it mean for Alberta’s large industries and big employers?
The United Conservative Party predicted the new system will lead to job losses and a drop in investment.
They point to an internal government analysis from earlier this year that predicted between six and 15 oilsands projects may be at risk of seeing a significant drop in their sales or profits due to the shift.
The Canadian Association of Petroleum Producers said it needs to see all the gritty details to understand how it will affect the oilpatch.
“We think it looks like about a five-times increase over the current costs and that is substantial to our industry,” said CAPP president Tim McMillan.
“Any time that we see increased costs on our production, it means somewhere else is more attractive.”
According to the province, the average carbon cost for oilsands miners would be relatively modest, reaching 18 cents a barrel by 2020. For thermal oilsands producers, the number would hit 50 cents a barrel.
After the announcement, Imperial Oil issued a statement saying “there is no question that any increased cost on industry impacts our competitiveness, particularly in the current challenging overall business environment.”
Canadian Natural Resources also said the new system will affect the industry’s competitiveness and stressed it doesn’t adequately recognize investments the company made in thermal oilsands projects that use cyclic steam stimulation.
There’s little doubt the new structure is a vast improvement from the existing levy put in place a decade ago. Economist Trevor Tombe at the University of Calgary said the old program “really penalized” more efficient operators. The new system will provide a strong incentive within the sector to shift investment and production toward more efficient firms and resources.
However, he agrees there is room for a debate on the competitiveness front.
“Every policy change has winners and losers — there are beneficiaries and there are those who end up paying higher cost,” Tombe said.
“The changes today benefit some facilities and, yeah, lead to higher costs on others. But for the sector as a whole, roughly the same amount of carbon revenue is going to be recycled.”
It’s a complicated process and the industry will be hunting for more details in the months ahead.
It will drive emissions lower in Alberta, which is a worthy goal. But let’s not pretend it won’t come with a cost for some players.