Alberta’s carbon tax bargaining chip with Ottawa

Province mulls hiking levy on heavy emitters

OTTAWA • Proposed changes to Alberta’s carbon tax on industrial firms could become the province’s latest bargaining chip with Ottawa, amid souring relations between the two over differences in climate change policy.

Environment Minister Catherine Mckenna is currently reviewing a proposal by Alberta to adjust its socalled “Technology Innovation and Emissions Reduction,” or TIER, a carbon tax applied solely to heavy emitters. Alberta posted the proposed changes late October.

If Ottawa determines that the proposal falls short of its environmental thresholds it could enforce its own regulatory regime in the province, similar to the highly controversial consumption-based carbon tax that will come into force there in January 2020.

Such a move would further inflame tensions between Ottawa and the West, where resentment toward the federal government has been running high since Prime Minister Justin Trudeau won a narrow minority government and failed to win a single seat in Alberta or Saskatchewan. Observers said it is unlikely Ottawa would do so in the current political climate, despite criticism that the proposed changes will provide more cushion to the most emissions-intensive facilities in the province.

In late October, Alberta Environment Minister Jason Nixon released a proposal for heavy emitters that included keeping the carbon tax at $30 per tonne, a level set by the former NDP government. The province did not commit to raise that price to $50 per tonne by 2022, as laid out by Ottawa.

The proposal would also revert to a system in which the emissions profile of a facility is compared against its own past performance, rather than against an industry-wide average — a change that many observers said will provide relief to the most emissions-intensive sources.

“This is all about incentives and in terms of establishing strong financial incentives to reduce carbon emissions, the new TIER regime is likely to be less effective,” said Jessica Kennedy, a regulatory expert at law firm Osler, Hoskin & Harcourt LLP in Calgary.

However, Alberta Premier Jason Kenney has already floated the idea of hiking the tax as part of a grand bargain with Trudeau, telling reporters in October that the province would be “willing to be flexible on the price of our TIER levy” in exchange for assurances the Trans Mountain pipeline would be built.

His comments on the tax are part of broader efforts by Kenney that he claims will improve Alberta’s position within the federation. They include a threat to pull the province out of the Canada Pension Plan and a challenge to the current balance of the national equalization program.

He has also expressed concerns that Trans Mountain will not reach completion, adding to frustrations over a decade-long pipeline bottleneck. While the project no longer needs cabinet approval, some worry it could become a line in the sand for smaller parties propping up the Trudeau minority.

A carbon tax on heavy emitters was first introduced in Alberta by the former Conservative government in 2007. It is separate from the economy-wide carbon tax introduced by Trudeau, which functions by increasing the price of consumer fuels like gasoline and diesel. That consumer tax will also come into force at the beginning of 2020, after the Kenney government scrapped its provincial fuel tax soon after winning power.

Ottawa has so far not imposed its heavy emitters tax, known as Output-based Pricing System (OBPS), in any provinces except Saskatchewan, where it enforced tighter rules on the province’s electricity market. Ottawa is currently also reviewing heavy emissions regimes put forward by Ontario and New Brunswick.

A spokesperson for Nixon urged the federal government not to impose its OBPS, saying “Ottawa should not force a one-size-fits-all system, and should instead take into account a variety of effective emission control regimes.”

The response mirrors complaints from other Conservative premiers in Canada, who have challenged the Trudeau carbon tax on the basis that it is too prescriptive and allows few other options to reduce emissions.

Environmental advocates argue that climate change policy without financial incentives would fail to adequately lower greenhouse gas pollutants.

GMP Firstenergy analyst Michael Dunn said in a research note the proposed changes would decrease costs on the most emissions-intensive steam-driven oilsands projects by as much as 80 per cent.

Other observers including environmental groups said the change would hurt the most efficient projects, who had earlier benefited from emissions profiles that were above the industry average.

“It’s ultimately weaker than straight up sector-based benchmarks because it rewards companies that haven’t taken any action and punishes progressive companies,” said Jan Gorski, analyst at Pembina Institute.

He nonetheless applauded the proposal for maintaining the industry standard on the electricity sector, which would be applied to highly emissions-intensive coal plants.

“We’re happy to hear that they kept a strong approach there,” Gorski said.

Ottawa will pass down its decision on the Alberta regime sometime before the New Year, according to Environment Canada officials.