The path to Alberta's climate deal

Alberta’s new NDP government had barely landed in office last spring when it announced a sweeping review of Alberta’s climate change policy, sending shock waves through the oil and gas industry and the environmental groups alike.

Led by University of Alberta economist Andrew Leach, the panel came with the mandate to assess the province’s current policy, solicit opinion and issue a series of recommendations.

But how did this agreement succeed where others had failed? In 2008, then-Premier Ed Stelmach's climate plan was strongly criticized by environmentalists. Five years later, Premier Alison Redford failed to win broad support for a carbon tax in Alberta. Talks between stakeholders began under the previous Conservative government of Jim Prentice, but no concrete agreements were made before the election.

When Alberta Premier Rachel Notley took the stage in November in Edmonton at the Telus World of Science to announce the highly anticipated recommendations of the climate change panel, a number of tar sands CEOs and environmental lobbyists gathered around her in support.

How those opponents who fought viciously over the fate of the fossil fuel industry ended up on the same stage is one story. Another is how a province historically built on oil and gas is trying to diversify its economy in the face of a debilitating economic downturn; and finally, there is the story of Alberta’s destiny, how the province is trying to reshape itself in the face of formidable outside forces.

It’s a story that other resource-rich regions will watch with keen interest, because Alberta is the first major oil-producing jurisdiction to introduce a carbon tax. There may be lessons to learn.

No way to operate without climate policy

Alberta’s not just introducing a carbon tax to be a good, green citizen. Circumstances have the province up against a wall.

If Alberta had not taken the initiative to move ahead with its own plan, the federal government would have imposed something on the province, according to Chris Severson-Baker, the Alberta and North regional director for the Pembina Institute think tank.

As it is, the province received a clear message from the market when United States President Barack Obama rejected the Keystone XL pipeline in early November. Notley acknowledged that during the climate change news conference when she said the province “got a major wake-up call on this a few weeks ago in the form of a kick in the teeth from the Government of the United States.”

“The notion that Alberta can just continue to operate without that kind of climate policy is just a false assumption,” Severson-Baker said.

That’s no exaggeration. The climate change panel found that the province’s electricity sector accounts for 65 per cent of all coal power production in Canada. The panel also reported that Alberta is increasingly seen as the reason Canada is failing to meet its greenhouse gas commitments.

In 2013, Alberta’s emissions of 267 megatonnes accounted for approximately 37 per cent of Canada’s total emissions. Projections only make matters worse. Canada’s emissions are expected to increase by 16 per cent from 2013 levels, while Alberta’s are anticipated to grow by 20 per cent.

In that scenario, the 53 extra megatonnes of emissions would account for 60 per cent of the total growth in Canada’s emissions.

At the same time, Canada’s EcoFiscal Commission — made up of members like Preston Manning, former Liberal prime minister Paul Martin and economist Jack Mintz— identified 18 per cent of the provincial economy as emissions-intensive and trade-exposed under internationally recognized standards.

Compared to two per cent in British Columbia and Ontario and one per cent in Quebec, that means overly aggressive actions to reduce emissions in Alberta could trigger “emissions leakage,” according to the panel.

In the face of highly aggressive policies, corporations could just shift production — and the prosperity and jobs — to another region with less stringent greenhouse gas policies. The end result would harm Alberta’s economy, but wouldn’t bring any reduction of global greenhouse gas emissions.

As if that wasn’t a challenging enough framework within which to work, writing in the fall of 2015, the panel noted the drop in oil prices pushed unemployment rates within the province to 6.6 per cent and Alberta itself had recently announced a $6.1 billion deficit.

Competing with shale gas developments from the U.S. and an increased output from the Middle East, the price of both gas and oil dropped, causing job losses, project delays and cancellations across Alberta.

Noted the panel: “The prospect of long-term low prices will mean that, for our province to be successful in a world that is oversupplied with fossil fuels, Alberta companies will need to find innovative ways to reduce their costs.”

Talks began because the PR war wasn't helping anyone

This wasn’t just about reducing provincial emissions; this was about bringing about a major shift in Alberta’s economy.

Even so, Leach dismisses the idea that they proposed a radical change in policy. He says Alberta’s is essentially the same policy that’s already been enacted in British Columbia.

“In many respects, when you cross the border into British Columbia from Alberta, the world doesn’t change dramatically,” he says. “B.C. still has a thriving resource industry. I don’t think it’s fair to say, or to characterize it as this big overnight change away from some industries and toward others.”

Leach says what's important is ensuring that the economy — whether it’s from resource industries or others — can remain competitive in a carbon-constrained world.

Then Alberta Premier Jim Prentice had reached the same conclusion during his time in office.

Severson-Baker told National Observer that talks began during Prentice’s time because people realized the public relations war wasn’t helping anyone.

“When Premier Prentice became the leader in Alberta before the provincial election, one of his messages was this climate policy, this approach to climate, is not serving Alberta,” Severson-Baker says.

Prentice said things need to change and began talking about the need for the province to meet its treaty climate change commitments. That signal from government, that it was going to take a different approach on dealing with greenhouse gas emissions from the oil sands, was all it took to get industry and the non-governmental organizations talking.

Some of the questions raised included: how do you reconcile climate science with the tar sand industry’s aspirations? What are both sides interested in? What are you trying to achieve?

Severson-Baker said the conversations continued right through the lead-up to the provincial election and beyond.

The initial discussions took place over dinner with people trying to get to know each other better and understand the other side’s position. Severson-Baker says there was a lot of tension, and the conversation could get testy.

“They were challenging conversations,” says Brett Harris, a spokesperson with Cenovus. He recalls that before the groups sat down together, the rhetoric consisted of conflict and polarization. “We weren’t getting anywhere on the climate change issue, on market access, economic development,” Harris recalls.

“To be perfectly frank, at the very beginning we weren’t even talking the same language.”

Over the course of a year-and-a-half, the groups began to find some common ground. They settled on the notion that carbon should be subject to a broad-based price and that part of the revenue from that should be reinvested in technology development to reduce Co2 emissions, while another part would go to support affected communities, and a final piece would go toward helping low-income people affected by new tax.

"Conversations between us (industry and environmentalists) have been happening for years," recalls Environmental Defence executive director Tim Gray. "The difference in this set of conversations was that we started to identify our shared goals, our shared vision for Alberta and Canada and our shared values. Do we agree that we want Alberta and Canada to have a strong economy? Yes. Do we both agree that Canada has to do its fair share to meet its climate agreements? Yes. Once we had the shared goals...we started to have a different understanding."

Once the groups developed their ideas, they shared those with the government through the climate change panel as well in talks with the provincial government.

Harris says the meetings were not negotiations, but talks with stakeholders. “People are talking about backroom negotiations and secrets deals. This is simply a group of companies. We weren’t there talking on behalf of industry in any way, shape or form.”

Severson-Baker says their discussions about the climate change policy and what each group was willing to support is what led to the groups being on stage. “Instead of the government coming out with a climate policy that everybody had something to complain about, they were actually able to line up support for it.”

Views differ as to whether the plan goes far enough

On November 22, Notley — flanked by her environment minister and the CEOs of the tar sand companies and various environmental representatives — announced the recommendations of the Leach Panel on Climate Change, which had input from a wide range of people and sources, including over 25,000 online responses, 920 individuals at open houses, 535 online submissions, and technical expert and First Nations engagement sessions.

They included phasing out coal emissions by 2030, and introducing an ambitious carbon pricing plan. The latter will be phased in, starting at $20 a tonne “economy-wide” in January 2017 and reaching its stated target of $30 a tonne one year later.

The province also announced that it would impose a limit of 100 megatonnes annually from the tar sands.

The province plans to replace two-thirds of coal-generated electricity with renewables by 2030, primarily wind power, while continuing to rely on natural gas generation. Alberta also intends to introduce a methane reduction strategy to reduce emissions by 45 per cent from 2014 levels by 2025.

"If the 1.5 degree Celsius ceiling on greenhouse gas emissions negotiated at the Paris summit is going to be met, the province will have to do better."

Karen Mahon, Canadian Director of ForestEthics, is upbeat about the plan. She notes Alberta contains the third largest oil reserve globally, but just created a limit of how much they can exploit. "That is what climate leadership looks like."

She agrees the new policy doesn't solve the greenhouse gas emission problem entirely, but calls the end result progress. "While the Alberta climate change policy has caused some debate about whether it is strong enough, we welcome the debate. At long last we are arguing about how fast we need to change, rather than whether or not we have a problem that needs changing."

Jennifer Winter, associate director of energy and environmental policy at the School of Public Policy, University of Calgary, says given the lack of action on climate policy from both the previous federal and provincial governments, it’s impressive that six months after taking office the current Alberta government was able to announce a broad-based carbon tax.

“It says Alberta is serious about addressing climate change and they want Alberta to pay the price for the emissions they create.”

One of the big questions is, is what effect will the plan have on the resource-reliant province as it begins to reshape its economy, particularly when the low price of oil is already causing financial grief in once booming Alberta?

Winter suggests the oil and gas sector will face additional pressure, with the cost of producing a barrel of oil ranging from $2 to $5 depending on the emissions released during production. However, the panel report pegs those figures at the high end, instead suggesting that the policy changes would be "negligible" on efficient projects that make use of cogeneration, for example, for combined heat and power, but could rise to $2 to $3 per barrel on more emission-intensive projects.

Looking at the province 20 years down the road, Winter foresees much more electricity production from renewables, backstopped with natural gas. Oil and gas production will continue, but with far less emissions released than currently.

“I still think there will be production from the oil sands in Alberta for some time to come in that we’re trying to transition away from emissions, not necessarily from fossil fuel,” Winter says.

If the climate change policies are hard on companies, then they must be pretty close to the edge

The panel worked hard to balance the competing interests of the economy and the environment, leaving Leach with little patience for media reports of grumbling from the oil patch that the climate change plan will cost jobs and hurt the industry.

The policy is designed to minimize the average costs on trade-exposed sectors - including oil and gas - while building in incentives to reduce emissions at the $30 a tonne carbon price. According to Leach, if companies are making the case that the policy is economically hard on them, then its his position that they must be “pretty close to the edge regardless.”

In fact, Leach believes the carbon-based companies will remain competitive. He says Alberta’s resources are significant, but will need to be low-cost and low in emissions compared to the province’s global competition. And when it comes to tar sands, Leach believes new, innovative technology will be crucial in helping them lower both their costs and emissions.

Currently, the tar sands produces about 70 megatonnes of emissions annually. Harris says the estimates anticipate the tar sands hitting the cap anywhere from 2020 to 2030 without the introduction of new technology to lower emissions.

“Is it going to be challenging? The rubber is going to hit the road at some point. There is a carbon cap, so we have to make sure we intensify or focus on technology and innovation, but we absolutely think it can be done.”

To diversify the economy, the panel recommended an expansion into renewables. The province has substantial wind resources, some hydro, and some solar. In order to expand the market, the panel has proposed that the government ask companies to participate in a request for proposal process for support.

Under that framework, companies would enter a bid for the level of support they need to start a project and government would give the ones that need the lowest support the green light.

Will the province's public buy in to the plan?

While industry appears to find the carbon tax palatable, it's going to be a harder sell to the Alberta public. The impact of the tax will be relatively small on gasoline, a rise of seven cents a litre by the time its in full effect in 2018, but home heating costs could rise sharply.

In early December a Mainstreet Research/Postmedia poll found 66 per cent of Albertans are opposed to the new tax, with 68 per cent opposed to the province’s climate plan. Since then, a January poll by Abacus Data found that 47 per cent support the plan while 42 per cent oppose it and 12 per cent are unsure.

“People don’t like taxes, and it seems Albertans in particular are especially averse to taxes,” Winter notes. She says she’s not surprised at lack of support for the carbon tax, but adds, “I think it’s the right thing to do and I think Albertans will get used to the idea.”

Another issue is eliminating coal-fired power in the province. Shannon Phillips, Alberta’s Environment and Parks Minister, told National Observer that 12 of the 18 plants under discussion were slated to be shuttered by 2030 regardless. Nor did the previous Conservative government have anything to offer the effected communities, Phillips says.

Phillips says the province will announce terms of reference for a mediator to guide the "evolution of our electricity system in a way that is fair for workers, fair for communities and fair for the companies involved.”

When it comes to getting Albertans to buy into the carbon tax, Phillips would only say that the government will have more to say in the new year. “There are many ways in which the plan remains simply that. It has not become concrete for Albertans yet.”

For now, though, the government is reviewing its options and will hash out much of the plan's details through the 2016 budget process. “We are not taking the climate change panel’s recommendations as gospel,” Phillips told National Observer.

What is clear is that government, industry, academia, environmentalists, and the public are about to participate in a province-wide experiment to fundamentally change Alberta’s economy while working toward a two degree Celsius limit. If it works, the province’s climate change plan could be the template for years to come for other jurisdictions, particularly major fossil-fuel producing ones.

The panel recognizes that their policies are not consistent with a two degree ceiling on global warming. But the report states that more stringent polices in Alberta would come "at a significant cost to the province due to lost competitiveness, with negligible impact on global emissions due to carbon leakage."

The panel further argues that imposing tough policies on Alberta wouldn't work until "peer and competitor jurisdictions adopt policies that would have a comparable impact on their industrial sectors."

Leach says the 1.5 degree ceiling reached in Paris provides a clear sense of what would make up a global carbon budget. He contends that the number of countries and sub-nationals that have the equivalent carbon price and coverage of Alberta aren’t many.

“I would argue the pressure should not be any more so on Alberta than it would be on the many, many other jurisdictions that have zero or near zero prices on carbon. That was in the Paris agreement, that carbon pricing be the core of this drive toward meeting this target.

“If you think that’s true, then I think you have to start looking and saying, where are the jurisdictions of low, or even in many cases, negative effective carbon prices with significant consumption subsidies?”