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Alberta’s new carbon tax rate could cost industry $800m over two years: CAPP

Revised incoming carbon rates, which will be phased in over 18 months, along with Alberta’s recently announced corporate tax increase, could...
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Revised incoming carbon rates, which will be phased in over 18 months, along with Alberta’s recently announced corporate tax increase, could potentially add almost $800 million to industry costs over the next two years, according to the Canadian Association of Petroleum Producers (CAPP).

“We will continue to work with the Alberta government to protect jobs and investment to keep the industry healthy for all Albertans,” Tim McMillan, president of CAPP, stated in a news release June 25. “The competitiveness of our industry on the world stage is important to keeping Albertans working.”

Environment and Parks Minister Shannon Phillips announced June 25 the existing $15 per tonne levy on carbon will increase to $20 per tonne next year and $30 per tonne in 2017.

Under the updated rules, any facility that emits 100,000 tonnes or more of greenhouse gases a year must reduce their emissions intensity. Current legislation, introduced by the previous government, requires emissions to be reduced by 12%. Effective January 1, 2016, the new Alberta government has raised the reduction targets to 15% with an additional increase to 20% as of January 1, 2017.

According to Sneh Seetal, spokeswoman for Suncor Energy Inc., management expects that on average the doubling price for carbon will increase by three or four fold the company’s costs over the existing regulation. She told the Daily Oil Bulletin: “What is really important for us is for the next phase, and we will work with the government to ensure our industry and Canada remains both competitive and sustainable.”

During June 25th’s  announcement, the government said Andrew Leach, academic director of energy programs in the School of Business at the University of Alberta, will chair an advisory panel to comprehensively review Alberta’s climate change policy, consult stakeholders and provide advice on a permanent set of measures.

The government intends to make at least a preliminary proposal for future policy in time for the UN Climate Change Conference in Paris later this year.

Phillips told reporters the upcoming review should tackle not only how industry reduces emissions, but also how individuals, municipalities, First Nations “and so on” improve efficiencies, as well as how the province can build green jobs and a strong renewable energy economy. “Those three pieces fit together and so those are going to be the items of business from now until Paris.”

Alberta’s Specified Gas Emitters Regulation (SGER) applies to all emissions from in-province facilities emitting over 100,000 tonnes of equivalent carbon dioxide (CO2e) per year other than industrial emissions and CO2 from biomass. In place since 2007, the system requires emitters to achieve a targeted reduction in emissions intensity below a facility-specific baseline amount.

Emission-intense facilities can purchase emissions performance credits, paying a current amount of $15 per tonne CO2e into the Climate Change and Emissions Management Fund (CCEMF), or through buying offset credits from Alberta projects. The CCEMF goes towards emission-reduction projects within the province, investing in technology development and deployment.

Policies to increase the price on carbon must spur direct investments into greenhouse gas-reducing technologies to address climate change, says CAPP, which is a factor Alberta’s new climate change panel should consider.

“Climate change is a global challenge that needs to be tackled with broad-based policies that consider production and consumption by everyone,” McMillan noted. “We will lead on technology and policy, but climate change is greater than the oilsands, greater than Alberta. Everyone has a role to play.”

Oilsands producers are prepared to take a greater leadership role on climate action as part of the growing global intention to reduce greenhouse gas emissions, McMillan said: “We developed the technology to get the oil out of the sand, and we are just as committed to getting our carbon out of the air.”

Lorraine Mitchelmore, president and country chair for Shell Canada Ltd., stated yesterday’s announcement is a clear signal that Alberta is committed to doing its part to address climate change, and her company recognizes that economic growth demands environmental leadership more than ever.

“We believe that all policy should be holistic, and that any economic and environmental decisions should be integrated in a way that increases prosperity for Albertans while reducing the impacts we all have on the planet. We look forward to participating in the provincial consultation process to help create a climate change plan that will take a broad view, encourage technology development, and integrate economic and environmental decisions.”

Brett Harris, spokesman for Cenovus Energy Inc., told the DOB that his company is pleased the government provided some clarity regarding its carbon policy intentions, and while he knows there are more changes to come, Cenovus looks forward to working with the NDP and Leach in trying to find the optimal policy for Alberta.

“Hopefully the end result is that we not only continue to have a strong energy sector, but we have stronger carbon policy as well,” he said, adding industry has anticipated increased carbon pricing for a while and is therefore prepared to work with new regulations.

“The caveat I would add is that we would hope that as this consultation goes forward, the government carefully considers the cumulative impact of not only these carbon regulations, but also higher corporate taxes, a potential royalty review, and whatever else comes from the consultation process, and its cumulative impact on the energy sector at a time we have extremely low oil prices and a very challenging fiscal environment.”

Ideally, according to Harris, the energy sector might eventually operate within a uniform Canada-wide, or even continent-wide, carbon policy that creates a level playing field, although he recognizes that goes beyond the authority of the provincial government. So far, he said, the NDP’s approach has been favourable for industry.

“What we would like to see is what the government has said it will do, and really has been doing, which is to be collaborative and make sure they are consulting with everybody, including industry, on what comes out of this, and again to make sure they are accounting for the cumulative impact of policy changes on the industry.”

He added: “As the minister noted in her news conference [on Thursday], the energy sector is a significant employer and a significant contributor to prosperity in Alberta. [The government] acknowledges that and also acknowledges, as do we, this is an issue that is not just about the oil and gas sector. We have to look at these things across the economy from production all the way to the end use.”

One good thing about SGER in its current form is that the money it earns directly funds technology development to help industry reduce its emissions, Harris noted. “We think that structure should remain and the funds from carbon pricing should go towards technology and innovations that will incent the step-change technologies that will help us all reduce our greenhouse gases.”

Given the price per tonne will double, Suncor too supports the NDP’s phased-in approach to SGER changes. While industry must continue to play its part in addressing climate change, Seetal said, the company also believes future climate change policies should be broad based and address carbon generated across the value chain.

“Moving forward, we will continue to work with the government to ensure Alberta continues to be a global leader in the development of Alberta’s resources. We must evaluate any future climate-change policy in conjunction with other policies such as tax or regulatory changes, as well as technology investments, so that Alberta, Canada and our industry can remain competitive globally.”

While the NDP has indicated previously that it does not support carbon capture and storage, Phillips told Thursday’s news conference the province would maintain those commitments the preceding Tory government made for such projects.

She said: “We have contracts in place and we intend to honour those contracts.”

Daily Oil Bulletin