How carbon plan might impact Alberta economy
Alberta’s climate plan could lead to 15,000 fewer jobs, a $4-billion drop in household income, as well as lower corporate profits, oil exports and overall economic activity.
That’s what Alberta Treasury Board and Finance officials initially projected last November in an internal analysis conducted for the NDP government — data the province doesn’t deny, but insists was based on invalid assumptions that make the information irrelevant.
The province hasn’t released a fully detailed economic impact assessment, but preliminary government analysis from November — dated about a week before the climate strategy was unveiled by Premier Rachel Notley — shows an array of potential consequences.
According to a projection for Finance Minister Joe Ceci and obtained by Postmedia News, the climate plan would lower the province’s gross domestic product by one to 1.5 per cent by 2022, “due to the decline in energy investment, weaker production and lower consumer spending.”
Oil exports would be crimped by 0.5 per cent from the business-as-usual (BAU) case in 2018-19, the study says.
Consumer spending would fall by almost two per cent by 2022, “due to the impact on employment and slower wage growth.”
As well, corporate profits would decline about $1.5 billion, or 1.7 per cent, from the BAU scenario by 2022.
These key impacts are based on several assumptions rolled out by the province Nov. 22, such as implementing a $30-a-tonne carbon tax by 2018, phasing out coalfired power plants and investing in renewable energy.
The NDP government, however, says the study made a number of incomplete or out-of-date assumptions.
Most significantly, it assumed about half of the money raised by the carbon tax would go directly to general government revenues, which didn’t happen.
For a cash-strapped government, this would have been an enticing prospect.
Instead, carbon tax revenue will be spent on consumer rebates, promoting green energy, mitigating the impact on coal communities and other goals.
Provincial officials insist these assumptions would alter the key impacts, but don’t say what the updated figures would be for the final plan’s effect on Alberta’s economy, job numbers or other measurements.
“It was a snapshot in time and cabinet deliberated and made a number of decisions that are not reflected in this note,” Environment Minister Shannon Phillips says.
“It’s an analysis, quite frankly, of what we didn’t do.” OK. But there’s much here the government did do, such as introduce a carbon tax that will reach $30 a tonne within two years and plan to speed up the closure of coal power.
And the briefing does give Albertans a glimpse of the potential implications tied to a broad strategy of lowering greenhouse gas emissions.
It indicates household income would fall by about $4 billion, or 1.3 per cent, from the businessas-usual case by 2022.
“Slower economic activity will impact baseline government revenues,” it notes, with royalties projected to be around $250 million lower than the businessas-usual case in 2020-21.
Income tax revenue for government was estimated to drop by about $450 million in 2020-21.
According to the information, the scenario estimates carbon levy revenue of $3.4 billion in 2018 — increasing to $5.8 billion by 2030 — although the spring budget pegs the climate revenue at $2.4 billion next year.
So, is this an accurate picture of the carbon plan’s real-world effects?
Provincial officials say it reflects a worst-case scenario and was used to mitigate the potential fallout.
They point out the analysis didn’t include several steps taken in the final plan, such as adopting a small business tax cut, exempting farm fuel from the levy, or creating a new petrochemical diversification initiative.
Other measures — such as providing rebate cheques rather than tax credits to consumers, a fiveyear exemption on oil and gas fuel used in the field, and measures to protect trade-exposed industries — would also alter its conclusions.
“This was one of the pieces that was in the machine at that time — a very small piece containing some assumptions that never happened. So therefore the GDP and job impacts are not going to happen,” Phillips says.
“This is not a prescriptive or a predictive document in any way, shape or form and should not be interpreted as such.”
There is an easy way, of course, to completely discount this information: release an update on the implications of the new strategy.
Government officials say they don’t have updated figures because key policy pieces are still being formed and analysis is ongoing.
Phillips says she expects more data will be included in the next budget and through ministry business plans.
The chair of the province’s climate advisory panel, Andrew Leach, an energy economist, says such analysis also begs the question of what exactly you compare it to.
The business-as-usual case doesn’t take into account the potential costs of not taking action — more energy trade restrictions, for example — or benefits of the strategy, such as improving Alberta’s prospects to get a pipeline built.
“Greenhouse gas policy would be easy if you had magic,” he says.
“If you had access to a magic wand where you could say, ‘I am going to reduce greenhouse gas emissions in Alberta at no costs to anyone at any time,’ then my job would have been really easy.” He’s right. Lowering emissions in a carbon-constrained world will come with a price, especially for a province that produces oil and gas for the world.
But with a carbon tax coming into effect in six months and the province in recession, shouldn’t we be able to accurately and openly assess what those full costs will be in terms of jobs or economic growth?
After all, the entire province is paying the full freight. We should know the best forecast of what the final tab will be.