Alberta puts pressure on oil sands with plan to double carbon fee

By Benjamin Hulac | 06/26/2015 08:41 AM EDT

The top environmental official in Alberta — home to the Canadian oil patch that would be the point of origin for the proposed Keystone XL pipeline — announced yesterday that the province will raise its carbon price next year. Shannon Phillips, Alberta’s minister of environment and parks, said the exiting fee of $15 per metric ton will climb to $20 per metric ton in 2016 and $30 per ton in 2017.

"Our regulations are now obsolete," said Phillips, telling reporters that the current regulations represent "essentially" a $2-per-ton fee.

For Albertan companies to sell their products in global markets, she said, the provincial government must address climate change, adding that previous administrations "dithered" in mitigating emissions.

Rachel Notley
Alberta Premier Rachel Notley. | Photo courtesy of the government of Alberta.

"It needs to address emissions from all sectors, not just the petroleum industry," Phillips said of the ideal carbon fee at a press conference in Edmonton. "More of the same means more roadblocks," she said. "We elected to take an important first step."

The province’s action is bound to stir up the debate about the climate impact of the oil sands — Canada’s fastest-growing emissions source — at a time when the fate of TransCanada’s proposed Keystone XL pipeline is as uncertain as ever and the country is facing criticism for not regulating the oil industry in its emissions plan for a new international climate agreement.

Under Alberta’s previous premier — whom the left-leaning New Democratic Party (NDP) ushered out in May with its surprise election of Premier Rachel Notley — companies releasing more than 100,000 tons of greenhouse gases each year were required to cut emissions 12 percent from a base line.

Yesterday’s regulatory announcement raised that mandate, which will apply to existing facilities, to 15 percent in 2016 and 20 percent in 2017. The policy, which Notley’s Cabinet still must approve, will cover all sectors and will phase in new facilities.

On climate change issues, Notley said yesterday afternoon, "We’ve been losing ground over the course of the last 10 years."

New commission to study provincial climate policies

Alberta was the first jurisdiction in North America to levy a carbon fee and, in 2007, joined the Western Climate Initiative, a now essentially defunct carbon-trading market linking Canadian provinces and Mexican and U.S. states.

"I want to see us as a province lead the country," Notley said, adding that she hopes for a "realistic" and "concrete" climate policy leading into international climate negotiations later this year in Paris. "The extent of the job ahead, it’s huge," she said.

Andrew Leach, a University of Alberta economist, will lead a commission to study Alberta’s climate policies in preparation for the Paris talks, Phillips said.

During the campaign this spring, Notley emphasized energy issues and the province’s economic vulnerability to the turbulence of the energy sector, specifically the fallout from the oil price collapse. The provincial government will announce review of royalty rates for oil and gas operators today, officials said.

Segments of the oil industry, meanwhile, expressed concerns about the cost of the plan.

"We developed the technology to get the oil out of the sand," Tim McMillan, president of the Canadian Association of Petroleum Producers (CAPP), said in a statement. "And we are just as committed to getting out carbon out of the air."

The new emission fee, in addition to a recent corporate tax hike, could add about $800 million in costs for the industry in the next two years, according to CAPP.

"Climate change is greater than the oil sands, greater than Alberta," McMillan said. "The competitiveness of our industry on the world stage is important to keeping Albertans working."

Environmental advocates applauded the news, though many said the changes don’t go far enough. In October, a government watchdog unit found "strong evidence" that Canada will fall short of its 2020 emission target set at the 2009 U.N. climate summit in Copenhagen, Denmark, and some blame emissions from oil sands production (ClimateWire, Oct. 8, 2014).

"It really should be viewed as a stopgap measure," Mike Hudema, a climate and energy campaigner with Greenpeace Canada. "Definitely not enough to move industry," he said, "so it really doesn’t do a lot."

A U.S. Department of Energy study published this week found gasoline and diesel fuels derived from Canada’s oil sands region release about 20 percent more carbon, on a well-to-wheel basis, than conventional U.S. crude oil.

"Canadian oil sands accounted for about nine percent of the total crude processed in U.S. refineries in 2013, but that percentage is projected to rise to 14 percent in 2020," Hao Cai, the study’s lead researcher, said in a statement.

A policy of ‘meaningful reductions’?

Ed Whittingham, executive director of the Pembina Institute, a Canadian energy think tank, said in an interview that the province made a positive initial move. But, he added, the $30-per-ton target won’t be able to "bend down" emissions dramatically.

"It’s not the type of change that’s really going to drive meaningful reductions," he said. "What I hear from industry is that they’re looking for some certainty."

The International Emissions Trading Association (IETA) welcomed the news that Alberta would extend its policy through 2017.

"This is a signal that business and investors in Alberta have been needing," said Dirk Forrister, IETA’s president and CEO.

Alberta’s carbon fee measure, officially the Specified Gas Emitters Regulation, within which regulated firms can buy carbon offsets to comply, is now set to expire Dec. 31, 2017. That date coincides with the date Ontario will likely launch its emissions-trading market, "which is intended to link with those of California and Quebec," according to IETA.

Reporter Christa Marshall contributed.