Since the election of Prime Minister Mark Carney in April, Alberta and the federal government have been talking about a “grand bargain” to balance rapid industrial development with emissions reductions. But at the same time, the province is considering ways to weaken its industrial carbon tax, The Narwhal has learned.
According to a consultation document sent to stakeholders and obtained by The Narwhal, the province is asking for input on how to structure its carbon credit market going forward. It’s also asking for feedback on its proposal to allow companies to avoid the carbon price by investing in their own projects, as well as the best way to allow some companies to opt-out of the carbon price altogether.
Alberta’s industrial carbon price — the first of its kind in North America when it was introduced in 2007 — is separate from the federal consumer carbon tax that Prime Minister Carney ended when he took office in April.
The province says the consultations are an opportunity to share insights on “how specific elements of the … system can provide greater certainty and accelerate investments that reduce emissions” and will help further enhance “Alberta’s global competitiveness.”
The province unilaterally froze the price of carbon in May, a price that is supposed to rise each year.
“Alberta’s claims that they need to do take a bunch of steps to substantially weaken [its industrial carbon price system] in order to protect the competitiveness of their industry just doesn’t make any sense,” Scott MacDougall, the head of Pembina Institutes electricity program who has a long history with carbon pricing, said in an interview.
The move would appear to contradict statements in Parliament this week by Tim Hodgson, the federal minister of energy and natural resources, in relation to his Liberal government’s plans for a rapid build-up of infrastructure in response to the U.S. trade war.
“Mr. Speaker,” he said on June 3, “if Conservatives were listening yesterday, they would know there is a grand bargain. There is a bargain that the premier of Alberta has signed on to. We will build. We will do it responsibly, and we will do it in conjunction with Indigenous partners.”
Currently, Alberta companies pay their carbon tax into what’s known as the Technology Innovation and Emissions Reduction (TIER) fund. That fund is managed by the province and distributes grants toward emissions reduction projects.
Part of Alberta’s consultation document shows the province is eyeing ways for companies to offset their commitments to the Technology Innovation and Emissions Reduction Regulation by investing money directly in facilities for emissions reduction projects instead, which could include operating costs.
The consultation document also says companies can avoid the carbon price for investing in “technical studies, financial studies, studies that support an eligible capital-based project, etc.”
That would mean companies could avoid the industrial carbon tax, all but nixing the incentive inherent in the carbon tax plan: pollute less carbon, pay less tax.
“The fact that there wasn’t really any discussion of whether or not the companies may also be able to generate emission performance credits from those projects is another thing I’m concerned about,” MacDougall said. Companies can collect credits for emissions below certain thresholds and then trade those to other companies trying to offset higher emissions.
“It opens up the potential for an emission reduction project to get double credited, basically, which is kind of one of those things that you wouldn’t want to do.”
It’s also unclear how — and if — companies’ individual projects will be evaluated when it comes to real-world emissions reductions.
Weakening the carbon price system in Alberta could have a profound and negative effect on emissions reduction technology investments, including renewable energy. The Canadian Renewable Energy Association told The Narwhal in March that approximately half of the 8,000 gigawatts or power generated by renewables in the province are supported through carbon pricing.
Industrial carbon pricing systems are the single biggest policy reducing emissions nationally, according to the Canadian Climate Institute, responsible for between 20 and 48 per cent of Canada’s emissions reductions in 2030. Emissions reductions are necessary to address climate change, which is caused by heat-trapping greenhouse gases like carbon dioxide and methane, leading to more frequent and more intense extreme weather such as wildfires and floods.
Money collected through Alberta’s fund goes to everything from clean electricity to new uses for waste carbon.
In a twist that directly involves the federal government, the province points out Alberta’s industrial carbon price had an opt-in clause for smaller emitters to join the program, even if they weren’t covered by the regulation, to avoid the federal consumer carbon tax.
Now the federal consumer levy is gone, and Alberta wants to speed up the opt-out process.
“With removal of the federal fuel charge, there may no longer be an economic benefit for opted-in or aggregate facilities to be regulated under [the Technology Innovation and Emissions Reduction Regulation],” reads the document.
Aggregate facilities refers to oil and gas operations that producers will cobble together for emissions reporting to be submitted for pricing.
It’s unclear how many facilities could now operate without any price on carbon in Alberta and what their emissions are, but MacDougall said it could include thousands of facilities. Those facilities, he added, could be responsible for as much as 20 per cent of the emissions regulated under the current system, mostly in the oil and gas sector.
Prime Minister Carney’s office did not respond to a request for comment, asking if the government foresaw this impact when it eliminated the consumer carbon tax.
The offices of Alberta Premier Danielle Smith, Environment and Protected Areas Minister Rebecca Schulz and Energy and Minerals Minister Brian Jean did not respond to a request for interviews or to emailed questions.
Allowing companies to opt out of the carbon pricing program will further undermine what MacDougall says is already a weak carbon credit market.
MacDougall said the solution is to reduce supply of carbon credits and increase demand for them, but the province appears to be moving in the opposite direction — further disincentivizing emissions reductions.
He also points out that the federal government requires provincial systems to comply with guidelines, including a stipulation that there is more demand than supply in carbon credits markets.
“It’s mostly going to reduce demand,” he says. “So that’s going to exacerbate the market balance problem in your credit market.”
The government has imposed a June 16 deadline for stakeholder feedback on its changes.
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