Alberta is in a low-carbon investment race — let's compete

Budget 2024 a good time to start, Adam Sweet writes.

With the upcoming provincial budget, Alberta has an opportunity to send a signal to the world that we are committed to becoming a diversified energy powerhouse, and our province is focused on winning the race to attract the investment needed in low-carbon energy that the world needs.

We are starting from a strong position: a robust industrial base, abundant natural resources, a skilled and growing workforce, and reliable regulatory processes. We also have the Technology Innovation and Emissions Reduction (TIER) system — the largest carbon market in Canada and a crucial source of revenue for low-carbon energy projects.

With these assets, Alberta is well-positioned to take a leadership position in low-carbon energy development and attract the billions of dollars of investment that are searching for a home. If we can land those investments, we know what to do with them, as our track record shows. From carbon capture, utilization and storage, to hydrogen and other forms of low-carbon energy, our province has excelled in finding innovative ways to use our remarkable natural resources and grow our economy. Supporting these growing and emerging sectors is necessary to ensure Alberta remains competitive for the years and decades to come.

We've got some stiff competition: the U.S. Inflation Reduction Act (IRA) has rapidly transformed the low-carbon investment landscape and we must move quickly to catch up or risk being left behind.

The challenge for Alberta is that the IRA offers subsidies for low-carbon technologies worth hundreds of millions of dollars more per project than what investors would get from provincial or federal government programs in Canada. Trying to compete head-on with the IRA using similar subsidies for just one new natural gas power plant with carbon capture, for example, would cost Alberta taxpayers $540 million.

Carbon contracts for difference programs help drive investment.

Neither Alberta nor Canada has pockets deep enough to match the IRA using their approach, and nor should we try. There is a better way — one that does not cost taxpayers billions of dollars.

The crux of the U.S. strategy is to give investors the certainty that their low-carbon energy projects will generate revenue. In Alberta's case, investors plan to generate revenue by selling carbon credits on Alberta's TIER market. But those revenues aren't guaranteed and this lack of certainty relative to the IRA puts Alberta projects at a major disadvantage.

So how do we create certainty for investors and compete against those U.S. incentives?

One solution is to implement a financial instrument called a carbon contract for difference. These contracts are like a government-backed insurance policy that guarantees the future value of carbon credits traded on Alberta's TIER market. The government would guarantee a specific credit price for a project proponent, and the proponent would be compensated if market prices fall short.

Carbon contracts for difference help drive investment at little to no cost to the taxpayer. As long as the government maintains its commitment to uphold industrial carbon pricing and a well-functioning carbon market, the contracts won't be exercised, and payouts from government won't be required.

In the upcoming provincial budget, Alberta could commit to a made-in-alberta approach by establishing a provincial broad-based carbon contracts for difference program, possibly using TIER funds to backstop the program.

This would help alleviate the uncertainty holding back key investments in our economy and create an advantage for our province as a destination of choice for low-carbon investment.

Alberta is in the midst of a generational low-carbon investment race. In Budget 2024, we can take steps that will attract billions of dollars in new investment and create thousands of good jobs, or we can sit back and let a generational economic opportunity pass us by.