IT COULD CURTAIL ELECTRICITY EXPORTS BY SIMPLY ADDING A CARBON TAX.

on B.C. rates by curtailing both imports and exports, Alberta is particularly important to B.C. because the different types of generation in their respective electricity systems complement each other so well.

B.C. relies almost completely on hydroelectric generating stations while Alberta, with its different geography and weather patterns, has had to rely primarily on coal- and gas-fired “thermal” generation. Each and deficiencies in both provinces that result in the arbitrage trading opportunities. Each province has a monoculture in electricity generation and interprovincial trading creates economic value through newfound diversity. Of all B.C.’s neighbours in both Canada and the U.S., Alberta’s generating mix creates the most valuable trading opportunities.

Alberta could curtail exports to B.C. by simply adding a carbon tax. This would reduce the margin available to BC Hydro in its electricity trading activities and the tax collected could be used to compensate Albertan generators for the inevitable drop in their export volumes. Given that the dispute between the two provinces revolves around fossil fuels, and carbon taxes are central to the current policies of both provincial governments, it is hard to see how B.C. could object with any conviction or credibility.

This is all a simplified analysis useful only for general direction and lacking the detail necessary to predict results with any confidence. For example, electricity prices in Alberta and the U.S. inherently follow fossil-fuel prices so have been falling in recent years and are now at historic lows. This means that the import-export price margin that underpins the profitability of BC Hydro’s trading has shrunk considerably, and flows on the transmission line connecting B.C. and Alberta are presently much lower than their historic norms.

But a more serious objection should be that restricting and curtailing interprovincial electricity trade is taking both provinces, and indeed the whole country, in the wrong direction. Both provinces could reap massive economic benefits from closer integration of their electricity systems because the fundamental science and economics behind their respective electricity-generating resources make them perfect dance partners. The long-range objective should be to increase the capacity and number of transmission lines connecting the provinces.

But in the short term Alberta needs to establish leverage to negotiate its fair share of Canada’s energy resource endowment and that could result in moves that will either impoverish BC Hydro or increase electricity prices in B.C. above the annual three to four per cent already planned for each of the next three years.