Efficient sites to pay price of carbon tax in Alberta: analysts
CALGARY Alberta’s new carbon tax on large emitters is friendlier to the oil and gas industry, but analysts warn that some of the most efficient facilities will end up paying more in tax than under the previous NDP government.
Alberta introduced its Technology Innovation and Emissions Reduction (TIER) system Tuesday, which is a carbon tax for heavy emitters in the province that replaces the system introduced by former premier Rachel Notley in 2015.
While a tax on large emitters was widely expected, the $30-pertonne carbon price was not — many political observers and industry analysts expected a lower price, especially since Alberta Premier Jason Kenney made axing the province’s $30-per-tonne carbon tax a central part of his United Conservative Party’s campaign to oust the NDP earlier this year.
“I think generally people are a little bit surprised,” said Richard Masson, an executive fellow at the University of Calgary School of Public Policy. He said the carbon tax for large emitters was likely set at $30 per tonne to align with federal regulations, which state the price of carbon must rise to $40 per tonne in 2021 and $50 per tonne in 2022.
Masson is also chief commercial officer at Fractal Systems Inc., which is developing technology to reduce the viscosity of oilsands bitumen, and said the new TIER system is friendlier to the province’s oil and gas industry.
The TIER system taxes heavy emitters based on their ability to reduce their emissions by 10 per cent below their own facilities’ average emissions between 2016 and 2018. The previous system taxed heavy emitters based on their emissions compared to the average emissions profile across their respective industries.
“There’s a bunch of different reservoirs that we have and they are at different points in their life cycle,” Masson said, noting that different facilities might have different emissions profiles based on when they were built, what they produce or what part of hydrocarbon-bearing formation they are extracting.
“What this system does is it accommodates those differences,” he said, because the system allows a company to benchmark against itself.
Environmental organizations, however, decried the move away from a carbon price that rewarded companies for reducing their emissions below the industry’s average. “A sector-based benchmark is better,” Pembina Institute analyst Jan Gorski said, calling the TIER system “a step backwards” from what former premier Rachel Notley implemented while in government.
In addition, he said the TIER system would not reward companies that have already reduced their emissions effectively.
In fact, financial analysts covering the oilsands predicted that the lowest emissions facilities in the play would pay more under TIER than under the NDP’s Carbon Competitiveness and Incentive Regulation (CCIR).
“Relative to the CCIR carbon tax, the TIER system would be less financially punitive on less GHG-efficient facilities, while the most GHG-efficient facilities would likely be subject to some tax as opposed to having likely generated some GHG tax credits under the prior CCIR system,” GMP FirstEnergy analyst Michael Dunn wrote in a research note published Wednesday.
Under the new system, the most greenhouse-gas-intensive steambased oilsands facilities will end up paying 33 cents per barrel of oil in the TIER tax, compared with $1.69 per barrel under the CCIR tax — a reduction of 80 per cent.
However, the most efficient steam-based oilsands facilities will pay roughly 13 cents per barrel under the TIER tax, rather than receiving a credit of 32 cents per barrel under the CCIR system.
As a result, analysts say the most efficient oilsands facilities will end up paying more in tax under TIER than they did under the CCIR system.
For example, Dunn wrote that Canadian Natural Resources Ltd.’s Athabasca oilsands project is equipped with carbon capture technology and has “the lowest direct emissions intensity of the upgraded mined projects, will likely be financially worse off under the TIER system than under the old CCIR system.”