Alberta And Saskatchewan Must Align On Energy Issues As Country Considers Carbon Policy
Whatever ideological differences Saskatchewan’s right-of-centre government and Alberta’s left-of-centre government might have, their leaders need to “bury the hatchet” and present a common argument in regards to their energy sectors in the face of federal climate policies that could hit the oil-rich Prairie provinces’ economies harder than in the rest of Canada.
“Saskatchewan and Alberta share interests,” said Trevor McLeod,director of the Centre for Natural Resources Policy for the Canada West Foundation. He added: “We need to remind Canadians that the world is changing, and that we need to adapt.”
McLeod told Thursday’s Economics Society of Calgary luncheon there is precedent for the two provinces to align on energy issues, even when their governing parties are on opposite sides of the political spectrum. He said premiers Rachel Notley and Brad Wall could look to when Saskatchewan was the province with an NDP government under then-Premier Allan Blakeney and Alberta’s premier was Progressive Conservative leader Peter Lougheed, and the two worked together.
“Facing similar circumstances, they formed a bit of an alliance, and based on the shared interests of Alberta and Saskatchewan, they were very effective at negotiating together.”
According to McLeod, there needs to be recognition that energy-producing provinces compete on the world stage.
“We know that we need to do more to reduce greenhouse gas emissions, but now is the time to make sure that the Canadian discussion takes account of the global context,” he said. “We need to take that broad view and put competitiveness on the radar, and we need to make sure this pan-Canadian climate strategy does not hobble [the] Canadian economy at the worst possible time.”
Mid-last year, McLeod co-authored a report, making three recommendations about developing a Canadian climate plan. Firstly, the report called for a Canada-wide shared offset market as an important first step towards harmonization. Secondly, the report said, Western Canada should first determine how to integrate its systems when re-evaluating systems and designing new ones, and then consider how to link those to the rest of the country.
Thirdly, in pursuit of more effective climate policy, provinces and the nation as a whole should be mindful that carbon pricing represents only one policy tool among many necessary to achieve substantial emissions reductions. While carbon price policies will play a major role in achieving reductions — especially based on cost-effectiveness and revenue-generating potential — additional “command-and-control” regulations are also vital.
Speaking specifically about Alberta, McLeod said a major concern for the province and its resource-based economy is that despite the government’s recently-announced efforts to curb carbon emissions, the federal government might demand more in terms of reductions from oil and gas producing regions, which could further impact the ability for Alberta’s crude to compete with other countries’ production that does not adhere to such strict environmental policies.
“If [Prime Minister Justin Trudeau] is serious about meeting global commitments made in Paris, [then] we should be a bit worried in Alberta and Saskatchewan,” he said, adding that while Ottawa indicated it would respect provincial jurisdiction on carbon policy, last week the Liberals also announced an additional pipeline approval process that would include consideration of upstream GHG emissions (DOB, Jan. 27, 2016).
“A cynic could be excused for believing the federal government plans to use this new ‘pipeline national interest test,’ which includes the upstream GHG emissions, as a hammer to make sure Alberta, Saskatchewan and some others do more. We’ve seen the impact of [Alberta’s] existing climate plan, and it might not be the end.”
Broad-based carbon price is good: Winter
Jennifer Winter, associate of the energy and environmental policy area at the School of Public Policy at the University of Calgary, told this week’s luncheon that the provincial government was right to implement a broad-based price on carbon, but there are aspects of the plan that she would characterize as less than ideal.
“What you may or may not be aware of is that there is also what is called an ‘output subsidy’ for large emitters,” she said, adding the climate policy review panel indicated the $30-per-tonne rate would result in $3 billion net revenue, rather than the near-$6 billion that carbon rate could earn the province if it was not for the fact that the plan provides output subsidies for large emitters of GHGs that are trade exposed.
“I would argue that it is not the best policy, but it is also not necessarily the worst in the way that the Specified Gas Emitters Regulation was constructed in that it also had an implicit output subsidy involved with it, and with the new carbon tax plan … it is a more even allocation of revenues.”
Just prior to the COP 21 in Paris late last year, Alberta’s NDP government unveiled its climate change management plan, which is based on the climate change policy advisory panel’s final report and includes a legislated emissions limit on the oilsands, a carbon price across all sectors, as well as pledges to reduce methane emissions from oil and gas operations (DOB, Nov. 22, 2015).
The government’s plan includes phasing in carbon pricing in two steps: $20 per tonne economy-wide in January 2017 and $30 per tonne economy-wide in January 2018. The province will set an overall oilsands emission limit of 100 megatonnes, with provisions for new upgrading and cogeneration. The province will also phase out all pollution from burning coal and transition to more renewable energy and natural gas generation by 2030.
Winter also argues against subsidizing renewable energy, because the carbon tax already makes fossil fuel-based electricity more expensive, which should incentivize more renewables to enter the grid.
Around the same time the province was making its climate policy announcement, Winter co-authored a report recommending how government might set up a carbon tax, suggesting it apply to all energy-based emissions in Alberta, along with a revenue-recycling guarantee to minimize any negative impacts on households, firms and the provincial economy as a whole (DOB, Nov. 26, 2015).
Collaborative governance on carbon pricing a key issue for 2016
According to a C.D. Howe Institutereport released last month, integrating federal and provincial carbon-pricing policies will likely be the key collaborative governance issue of 2016. With the recently-elected federal Liberal government commitment to allowing provincial carbon pricing freedom, as well as emerging provincial policies, the author said this raises the risk of a “provincial patchwork” leading to higher costs of doing business.
Therefore, suggests the report about the future of Canadian energy policy, producers and transportation companies should look to their own practices to improve the chances of getting project support. Meanwhile, federal and provincial regulators should examine how securities and competition policy impact potential energy sector mergers.
Since social acceptance and getting crude to world markets is a priority for the energy sector in 2016, governments must have a robust regulatory system that ensures producers can reach those markets in a safe and environmentally-friendly manner, noted the report author, and social acceptance requires governments to lead in areas outside the task areas officially assigned to regulators.
In 2016, said the institute, Canadian policymakers should provide collaborative carbon policies, a robust-but-prompt regulatory review system and an economy that encourages an innovative energy sector, as well as competitive electricity prices and a competitive resource tax and fiscal regime.
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