Alberta Announces a New Approach to Managing Greenhouse Gases

November 23, 2015
Denise Mullen

Our high level summary of the Alberta government’s just announced framework for addressing greenhouse gas emissions is provided below.

Coal Generation

  • Alberta will phase out coal in its electricity sector by 2030. It will replace coal ~2/3 with renewables and 1/3 with natural gas, leading to a substantial decline in the carbon intensity of the province’s overall power sector. Incentives will be developed to speed the switch to renewables. It is unclear whether funding will be set aside to compensate affected utilities or workers in coal-fired plants. Over time, the cost of electricity for Alberta households and businesses will be higher than at present.
  • By 2018, coal generation will face a tax of $30/tonne of emissions for incremental emissions, as compared to those produced from the cleanest Alberta natural gas-fired power plant. In other words, the latter forms the baseline, and coal-fired generators will pay carbon tax on the quantum of emissions above that baseline.

Oil Sands

  • Alberta will implement a 2030 100Mt cap on total GHG emissions from the upstream oil sands sector. This means that total oil sands upstream emissions are permitted to increase by 30 Mt from today.
  • The application of the carbon tax to the oil sands industry will be similar to that for coal – that is, it is focused on incremental emissions. Note that this differs from the broader carbon tax that exists in British Columbia and which applies to all fossil fuel combustion.

Carbon Pricing

  • For industrial facilities with annual GHG emissions >100 Mt, Alberta will implement a tax of $20/tCO2e in 2017, rising to $30/tCO2e in 2018, for every tonne over their individual reduction target. The government’s initial plan is to increase the amount per tonne by the rate of inflation thereafter – but this will depend on what competitor jurisdictions do. The definition of what constitutes a competitor jurisdiction is not spelled out.
  • Application of carbon tax to conventional (non-oil sands) oil and gas activity is deferred to 2023; until then, the government’s main focus will be on reducing methane emissions and establishing verification rules and procedures.
  • The format of the proposed carbon tax is output-based allocations (i.e., permits for specified industrial entities). Again, this differs from the BC carbon tax model.
  • Over time, Alberta also intends to move ahead with product based emissions performance standards (but no details are provided).
  • The carbon tax is to be applied to transportation and heating fuels at the distributor and import stages.
  • Tax revenues derived from the carbon tax will be invested in technology and energy efficiency rebates and other initiatives. Again, this differs from BC’s “revenue-neutral” carbon tax policy.

To date, the Alberta government has said little on how the policy will be implemented. Policy-makers are still reviewing the report tabled by the province’s Climate Leadership Team, and it is not clear which recommendations from the report will be adopted.

Some Implications and Learnings for BC

Alberta has accepted the notion of pricing carbon (and other GHG) emissions, and in a more substantial way than previously. This marks an important policy shift that will add to the momentum in favour of carbon pricing across Canada.

The Alberta carbon tax is noted as being economy wide, but there are caveats. Granted, consumers will now pay carbon tax on transportation and heating fuels (as they do in British Columbia). But for power generation and industrial emissions, it appears that the carbon “price” is only applicable to incremental emissions above a baseline level. Importantly, Alberta has made it clear that further increases to the carbon tax will depend on what competitor jurisdictions do on carbon pricing.

Unlike BC, Alberta is taking meaningful steps to mitigate the impact of its broader carbon pricing policy on the competitiveness of domestic industry. This is something the BC government should also be doing.

The term “revenue neutral” is used to describe Alberta’s carbon tax, but it is not revenue neutral in the way that British Columbia defines the term. Alberta’s carbon tax revenues will be collected and then “reinvested into measures that reduce pollution,” meaning technology development including “incentives for renewable generation capacity” and consumer rebates for energy efficiency. This contrasts with BC’s approach, whereby funds from the carbon tax are recycled via tax reductions for individuals and businesses such that the overall tax burden is unchanged. In Alberta, the aggregate tax burden will increase over time as the carbon tax rises.

Alberta will implement a system for issuing emissions permits (in other words, allowances), meaning that the province is thinking ahead to the development of a future cap and trade system covering industrial GHG emitters as the rest of North America seemingly opts for such a model for managing GHGs.

Overall, the differences between BC and Alberta are narrowing as the latter takes a big step forward on carbon pricing.

There may be more opportunities to collaborate between industries that operate in both provinces, for example in respect of dealing with fugitive emissions from the oil and gas sector. Alberta’s commitment to expand the role of renewables in its electricity sector may open up possibilities for more integrated electricity systems and an expansion of two-way trade in electricity.

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