Alberta’s Government Kicking Oil Industry While It’s Down

The new government in Alberta is much less friendly to the fossil fuel industry than the conservatives it recently swept out of office after forty years of rule. And early on, the new NDP government has shrugged off pleas from the oil and gas industry to go easy on it, given the extraordinary collapse in revenues from the fall in oil prices.

The provincial government decided to raise the carbon tax beginning as soon as 2016, jumping from $15 per tonne to $20 per tonne. It will then go up to $30 per tonne in 2017.

That the Canadian province with the most oil production – home to the vast Athabasca oil sands – has a carbon tax to begin with is impressive. But the fact that the province elected a government willing to double the tax is probably hard to understand for Canada’s neighbors south of the border. It would be as if Texas passed a carbon tax, then elected a government that was willing to raise the tax. Related: Could Armenia Be The Next Ukraine?

Alberta’s government argues that the province needs to take stronger measures on carbon emissions in order for Canada’s oil to not be derided as too dirty for export. “If Alberta wants better access to world markets (for its oil), then we are going to need to do our part to address one of the world’s biggest problems, which is climate change,” Alberta’s environment minister Shannon Phillips said. “Nobody knows this better than the people who work in our energy industry.” TransCanada used the tax to lobby the U.S. State Department for approval of its Keystone XL pipeline, arguing the tax is further evidence the pipeline wouldn’t increase greenhouse gas emissions.

Of course, notwithstanding TransCanada’s letter to the State Department, Canada’s energy industry has not exactly embraced Alberta’s new green approach. They argue the carbon tax is kicking them while they are down.

But it should be noted that the tax is hardly crippling. The NDP government predicts it will only raise the cost of production by 30 to 45 cents per barrel of oil. With oil prices swinging so wildly, such a cost will probably not have an enormous impact on the industry. It probably won’t result in a significant volume of oil sands that suddenly become unviable. In that sense, the province’s carbon tax probably isn’t a terribly ambitious climate policy. Related: Current Oil Price Slump Far From Over

Still, the industry is unhappy with the new sheriff in town. The NDP government also raised corporate taxes from 10 to 12 percent. It wants to raise the minimum wage to $15 per hour. The province will also weigh an increase in royalties paid by the energy industry. “There was a concern from Albertans (about whether we) are getting our fair share,” energy minister Marg McCuaig-Boyd told reporters. “Could it be different? Could it be better? So we are delivering on that promise and reviewing.” The review of royalty rates will probably not be completed until the end of the year, but increases could be coming.

That has one top official at an oil company apoplectic. “The eco-activists and big labour will do their very best the next four years to squeeze the living hell out of our sector. The socialists have scored the keys to the castle, the biggest per capita economy in Canada, and Alberta will be home for one very grand social experiment. We are going to suffer immensely,” the oil executive told the Financial Post, asking to remain anonymous. Related: Top Shale Takeover Targets

And it is not just oil. Coal companies are worried that the Alberta government could force the closure of coal plants due to province’s new focus on climate change. The carbon tax and the potential increases in royalties will likely accelerate the trajectory of fuel switching. Coal could make up just 12 percent of Alberta’s electricity portfolio by 2030, down from 40 percent today. But the province could go further by capping the legal lifespan for a coal plant at 40 years, down from the current 50 years. That has raised the alarm for a few companies that would have stranded assets on their hands, as plants may have to shut down earlier than expected, which could amount to 2,600 megawatts of shuttered capacity by 2020.

Of course, shutting down coal, which accounts for Alberta’s largest source of greenhouse gas emissions, would be the purpose of climate policy.

By James Stafford of Oilprice.com

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