To Clean Up Oil Sands’ Dirty Image, Alberta May Try Emission Tax

Alberta’s new government is engaged in a balancing act. It’s trying to cut carbon emissions while protecting an oil-sands industry that supports hundreds of thousands of jobs.

Tar sands are found almost exclusively in the western Canadian province. They produce a product that generates about 17 percent more carbon dioxide on average than conventional oil, and emissions in Alberta have risen by more than 53 percent since 1990. At the same time, they’re the nation’s single most valuable export, making up nearly a fifth of total foreign sales.

The challenge for the government is to work with an industry, already struggling with price cuts, on ways to hold off environmental criticism of the tar sands. Opponents have so far blocked the Keystone XL pipeline that would carry the oil to the U.S., and limited the world’s third-largest reserve from reaching new buyers.

“If Alberta wants better access to world markets, then we’re going to need to do our part to address one of the world’s biggest problems which is climate change,” Shannon Phillips, who was appointed Alberta’s environment minister in May, said at a press conference June 25. “Nobody knows this better than the people who work in our energy industry.”

Obstacles High

Alberta in 2007 introduced a carbon levy of C$15 ($12) per ton of CO2 for large emitters not meeting government-mandated reductions. A price on carbon would have to ramp up to at least C$100 a ton by 2030 to incentivize emissions cuts, said Matt Horne, associate regional director at the Pembina Institute, an environmental research group, in a July 6 phone interview from Vancouver.

“With fossil fuel users taxed for their consumption, as well as industry, Alberta’s overall emissions would stand a better chance of declining,” said Horne. “The province emits the most carbon from coal power plants in the country.”

Obstacles to cutting emissions while preserving the industry are high.

“It’s very hard to see a credible climate policy that would allow continued expansion of the tar sands,” said Anthony Swift, an international lawyer at the Natural Resources Defense Council, a New York-based environmental lobbying group. “The key point is to not focus on the tool, but think about the objective: actual emissions reductions.”

Carbon Tax

The Alberta government plans to increase the levy next year and again in 2017 as a temporary measure before a new climate policy is introduced. It hasn’t indicated how much of an emissions cut it is targeting.

Some producers, including Suncor Energy Inc. Chief Executive Officer Steve Williams and Freehold Royalties Ltd. CEO Thomas Mullane, are leaning toward establishment of an economy-wide carbon tax which would be designed to make emissions expensive. The revenue would allow governments to lower income and other taxes. They want to avoid restrictions on oil expansion.

The benefits of a tax include the predictability of price increases and its easy application to all consumers, according to Horne. Other options include a cap and trade regime that would impose limits on CO2 output, while possibly linking Alberta with Quebec and California’s markets for the climate-warming gas.

Prices Plunge

We need “to address emissions from all sectors, not just the petroleum industry,” Phillips, the environment minister, said during the June 25 press conference. “If we get it right, our environmental policy will make us world leaders on this issue instead of giving us a black eye around the world.”

In neighboring British Columbia, fossil fuel consumers pay a C$30 per ton tax of carbon emitted, which corresponds to 6.67 cents a liter for gasoline (20 U.S. cents per gallon). Per capita use of fossil fuels has declined 16 percent since it came into force in 2008. Sweden has among the highest carbon tax in the world at about $150 a ton for some emissions, making it cheaper for generators to switch to biomass.

Premier Rachel Notley and Minister Phillips’s jobs are made harder by the plunge in oil prices and the fact that Alberta’s oil sands, which have helped make Canada the world’s fifth largest crude producer, are already among the most expensive producers.

Canada’s economy shrank 0.1 percent in April following a 0.6 drop in the first quarter, according to Statistics Canada. The country exported C$81.7 billion of oil derived from bitumen in 2013, the most recent full-year figure available.

“It’s important that all Albertans are in this project together and it’s very unhealthy to point fingers” at one kind of emitter such as the oil sands industry, Chris Ragan, a McGill University economics professor and head of Canada’s Ecofiscal Commission, said in a phone interview July 6 from Montreal. His group seeks to boost economic activity while reducing the environmental impact. “Everybody is an emitter.”