Carbon quid pro quo

The centrepiece of the Alberta government’s carbon policy announced in November 2015 was a provincewide carbon tax of significant stringency — $ 30/ tonne — on greenhouse gas emissions. Fundamental to the rationale for this tax was the expectation that some “credibility” for Alberta would be achieved with respect to how it contributed to dealing with climate risks. This stringency is greater than most developed economies have yet to impose on their own national emissions, either directly via various carbon- pricing regimes or indirectly via various regulatory mandates.

But for Albertans, what does this “credibility” actually achieve? Or even more bluntly, what does paying more for gasoline, space heating and higher cost structures in Alberta industries actually buy? Sadly, the Notley government chose not to insist on an explicit “quid pro quo” from the rest of the country for imposing this carbon tax on itself. Certainly, there was no demand that opposition to Alberta’s pursuit for greater market access would cease, in all of its various forms. That includes capricious disrespect for existing regulatory decisions, as in the case of federal tanker moratorium i mposed on Northern Gateway after the pipeline received conditional approval, and the dubious extension and re- scoping of existing regulatory processes

THE POINT OF ALBERTA IMPOSING A CARBON TAX ON ITSELF IS THAT ITS EMITTERS GAIN THE RIGHT TO EMIT.

for projects like Kinder Morgan’s Trans Mountain expansion and Petronas’s Pacific NorthWest LNG plant proposal. It also includes the fundamental disrespect of the primacy of federal determinations of national interest, as seen in the recent disruption of the NEB’s Energy East hearings in Montreal.

The Notley government faces no greater economic priority than achieving a breakthrough on market access. It has yet to articulate clearly that the logical consequence of imposing this carbon tax on itself is that provincial emitters have gained the right to emit. Otherwise, what is the point of the tax at all?

But instead of insisting on such a “quid pro quo,” the Notley government persisted with two dubious, if not entirely unnecessary, elements of the November 2015 climate initiative: the accelerated removal of coal from the fuel mix for electric generation in Alberta and the imposition of an emissions cap on the oilsands sector.

For both sectors, simply paying the mandated carbon tax isn’t enough. Certain emissions are to be prohibited by regulation regard- less, even as other Alberta emitters pay the mandated carbon tax. Yet, physically there are no distinctions between one kind of carbon emission and another.

The Notley government is seemingly unwilling to simply allow hydrocarbon prices, cost structure of existing capital stock and carbon taxes to determine the most economic dispatch of electric power within the province. As for the oilsands emissions cap, the same simple logic should have been applied: Let the carbon tax signal be internalized by the owners of oilsands production capacity as part of their investment and operating decisions on incremental production. That would have assured all market participants faced the same set of economic considerations.

It is worth remembering that this notion of a “cap” on future oilsands emissions was not part of the report prepared by University of Alberta professor Andrew Leach that formed most of the justification for the Alberta carbon tax. The Notley government seemingly threw in the cap as a way to gain support from various ENGOs for the overall policy initiative. The demand of ENGOs for an absolute limit on oilsands development is a longstanding one. Their fundamental agenda is to stop any growth in hydrocarbon production in Alberta and the rest of Canada, regardless of carbon-pricing stringency or how much economic cost is imposed on Alberta and Canada’s economies.

Incomprehensibly, the Notley government acquiesced to their demands to confine oilsands growth. It’s even more unbelievable that four private- sector oilsands operators tacitly agreed to back the emissions cap. They should have called Notley’s bluff instead.

It is still not too late for the Alberta industry to stand up for itself. Its co-operation should be conditional on some clear signs from Notley that she’s serious about breaking down the barriers standing in the way of greater market access for Alberta hydrocarbons. First, the industry should demand unequivocal support from the Notley government for infrastructure projects that can provide market access for its existing oilsands and LNG potential, including Keystone XL and Northern Gateway. And second, that the government make clear that there must be a quid pro quo between the imposition of carbon taxes in Alberta and political support from other governments for pipelines. Otherwise, how can any public or private sector party in Alberta credibly contend that they are aligned with Alberta’s most basic of economic interests?