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Looking under the hood of Alberta's new climate plan

November 24, 2015

5-minute read

How times have changed in 2015. Just days away from the Paris climate conference, Prime Minister Trudeau met with the Premiers to talk about working together to make Canada a leader on climate. Compare this to PM Harper, who never met with the Premiers, championed the oil and gas industry, and if anything was a disruptive force in global climate negotiations. And leading the march to Paris? The Premier of Alberta, a province long considered a laggard.

Alberta's new climate action plan achieved the unthinkable: both industry and environmental groups sharing the stage, and praising Premier Notley's announcement. An advisory panel, chaired by University of Alberta's Andrew Leach, made detailed recommendations to the government, in the form of a "policy architecture" designed to create "an integrated framework that accelerates carbon emissions reductions in the short-term, and provides a solid foundation in the longer term for creating a competitive and diversified lower-carbon economy." The government's actual plan so far contains only high-level details based on the Leach commission framework, with more to come in the months ahead.

Alberta's climate challenge can be split in two. First, there are the measures that other jurisdictions are already doing, such as shifting away from coal for electricity generation, home energy retrofits, and limited carbon pricing. These are the low-hanging fruit of climate policy, and mostly deal with domestic energy use. Second, there is the elephant: the oil sands, a $90 billion export industry. Oil and gas extraction and production are more than half of Alberta's greenhouse gas emissions, and about a quarter of provincial GDP. This makes climate action harder in Alberta than other provinces.

With that context in mind, here are the key elements of the plan and its four action areas:

1. An economy-wide carbon price

The term "carbon tax" has been scrubbed, but that's essentially what's on offer, starting at $20/tonne in 2017 and rising to $30/tonne in 2018. It is not clear that the final carbon pricing regime will be exactly what was recommended by the Leach commission. The Leach carbon pricing recommendation is very technical, and includes elements of a cap-and-trade system.

Large emitters would have to pay a carbon price, but they would get back a portion of carbon tax revenues as subsidies (called "sector-specific, output-based allocations of emissions rights") to mitigate competitiveness impacts. The intuition being that these companies cannot pass on the additional cost of a carbon tax onto their consumers. Other end-use emissions would also face the carbon price. In particular, distributors of heating and transportation fuels would have to purchase emissions permits, and they could buy them from other emitters, from the government at the carbon price, or purchase Alberta-based carbon offsets.

About half of revenues would go to those producer subsidies, while the other half ($3 billion per year) would be used to support some very CCPA-like measures: a consumer rebate to low- and middle-income households, funding complementary climate action policies, and a just transition for affected workers and communities. This is not technically "revenue neutral" (as stated by the government), but that's a good thing. I'm pleased they do not plan to use revenues to fund tax cuts.

2. Phase out of coal-fired electricity by 2030

Alberta does not have the hydroelectric generation resources of BC, Ontario or Manitoba; instead it is the most coal-intensive province. Emissions from electricity generation in Alberta were 47 million tonnes of CO2 in 2013. This is perhaps the single most important action in the plan, one that emulates efforts in Ontario, the Maritimes, and the United States to phase out coal and lower emissions. There are health co-benefits (e.g reduced respiratory illness) associated with this energy transition. One estimate put the annual health costs of burning coal in Alberta at $300 million per year.

The low North American price of natural gas is a blessing and a curse in this electricity transition. Alberta's plan aspires to get all its electricity from renewable sources (30%) and natural gas (70%) by 2030. Natural gas (methane) is still a fossil fuel, releasing carbon dioxide when combusted, so some post-2030 plan to shift to 100% renewables will be needed. On GHG emissions, leakages of methane from wellhead to final combustion can un-do any climate benefit relative to coal. However, the plan also contains measures to ...

3. Reduce methane emissions by 45% by 2025

Leakages from venting and fugitive emissions in the oil and gas industry are a major issue. Methane's global warming potential is even worse that stated in the Alberta plan. This is because atmospheric methane breaks down into carbon dioxide and water within about 12-13 years, but while there it is way more heat-trapping that carbon dioxide – 86 times more over a 20-year period.

The Leach commission plan includes a multi-stakeholder initiative, with short term use of offsets for facilities to implement new technology to reduce methane emissions, then after five years a mandatory replacement regulation with no offset funding. New regs would also come into play for well design and operation, and leak detection.

4. A cap on oil sands emissions at 100 Mt, from 70 Mt currently

The idea of an oil sands emissions cap is an important one – it establishes that there are limits. The central problem here is that the Alberta government is essentially allowing a 43% increase in emissions from the existing industry. This part of the Alberta plan is an example of "all of the above" rhetoric on energy and climate. That is, saying yes to reducing carbon emissions, while also saying yes to increased oil sands production. In BC, we see this with contrast between the push for LNG export industry and new climate actions. There is a danger is that we see the same in new federal climate policies.

On the other hand, the collapse of oil prices has exposed Alberta as a high-cost producer, resulting in planned investments in the oil sands being put on the shelf. So while it's a shame that the cap was not set much lower, as long as prices stay low, we are not likely to see emissions jump up to the limit. The broad emissions from the oil sands sector are ultimately determined by external (US) demand. If the world does not get its act together, external demand and therefore emissions from the oil sands will go up. But if the ambition of climate policies ratchets up, it will reduce that demand and lower production in Alberta.

* * *

The Notley government deserves praise for putting meaningful climate policies on the table, and some slack for needing to make the package politically palatable. In the face of a powerful and deep-pocketed fossil fuel sector, there is no guarantee any of this makes it past the next election.

That said, commentary about Alberta "bending the curve" and "doing its fair share" is premature. Indeed, the plan does not state any emission reduction targets, and what those look like as part of a national strategy is to be determined. The PM and Premiers will meet again within three months after Paris to get serious. Even with the Leach commission report, if all went according to their plan the province's emissions in 2030 would be at similar levels as today (due to growth of oil sands emissions which offset reductions elsewhere).

That there is more work to be done is acknowledged by Leach commission report. They make an important argument that going beyond what other jurisdictions are doing would undermine Alberta's competitiveness, merely pushing emissions – and economic activity – elsewhere. However, there is also scope for increasing the stringency of the policy framework as others make more meaningful commitments.

So, what's on the table is not enough relative to Canada's commitment to reduce emissions by 2030 to 30% below 2005 levels, nor the ambition of climate negotiations to keep global temperature increase below 2 degrees. But with the spotlight of the Paris conference approaching, the Alberta plan is a significant and important first step on climate action.

Marc Lee is a Senior Economist with CCPA-BC. Follow Marc on Twitter @MarcLeeCCPA.

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