Ontario's announcement this week that it would join with Quebec in a linked carbon trading market is, on whole, a good thing. We know that climate change is a serious problem, that Canada has made international commitments that it's unlikely to meet, and that, all else equal, carbon pricing policies like taxes or cap-and-trade regimes are the cheapest way to deliver reduced emissions.
Bringing Ontario into the fold means that provinces responsible for about 80 per cent of Canada's emissions now have some form of carbon pricing on some portion of their economies.
Canada has committed to reduce annual emissions from 736 megatonnes in 2005 to 612Mt by 2020, while the most recent projections from Environment Canada showed Alberta's emissions increasing by 55Mt over that time.
Data like these make it easy to blame Alberta, and that's what we've seen – headlines scream that growth in the oil sands has offset the efforts made by Ontario and the rest of Canada to reduce emissions. Adopting a carbon pricing regime similar to Ontario, Quebec, and B.C. provides a way out of this mess for Alberta.
To do anything less now will doom Alberta to shouldering most if not all of the blame for Canada missing its 2020 targets.
What would nationally credible carbon policy look like in Alberta?
Emissions must face a similar price in Alberta as they do in Ontario, Quebec, and B.C. – about $18 a tonne – and our policies must cover a similar 75 to 85 per cent of emissions.
A refinery operating in Alberta must face comparable financial consequences for failing to reduce emissions as would a refinery in Ontario, Quebec, or B.C.
A company looking to open a new oil sands extraction project in Alberta must face a similar cost of emissions and similar financial incentives to improve performance as a new mine opening in Ontario or a new LNG facility in B.C. Drivers in each province should face the same emissions fees for burning gasoline.
Emissions from oil sands have as much impact on global climate as cars stuck in Toronto traffic, so there's no reason for policies to treat them differently – that's the logic of carbon pricing, and it's time for Alberta to use that logic to its advantage.
We will remain at a disadvantage if we get mired in discussions about who has rights to what emissions based on historical data and arbitrary calculations.
Alberta would need to change four elements of its current approach. First, the next provincial government would have to commit to the new 4 cents/litre tax on gasoline and diesel, which amounts to approximately $17 a tonne of carbon emissions.
Second, while Alberta's current policy for industrial emissions only covers firms with emissions over 100,000 tonnes a year, B.C.'s system covers all combustion emissions, and Quebec's system covers firms with emissions over 25,000 tonnes a year. Alberta must lower its threshold.
Third, we must align the value of permits large emitters get for free. In Quebec, industries such as mining and refining are issued most of the permits they require for free, and must purchase the balance either at annual auctions or through trades with other firms. The same is roughly true in Alberta already, where large emitters are granted emissions rights based on their historic emissions-intensity. Companies in B.C receive no free allocations, and pay for every tonne.
Finally, Alberta should modify its existing climate change fund such that the government becomes both the default buyer and default seller of emissions rights at a price indexed to the emissions-weighted average of Quebec, B.C., and Ontario – today, that price would be about $18 a tonne. Transactions would be simplified for all players, and the government would have a built-in commitment device: if the rules are too lax, and firms can easily reduce their emissions and have permits to sell, the government ends up in a deficit position.
With these changes, and a commitment from Alberta to raise prices and/or reduce free allocations over time as policies and prices change in other regions of the country, Alberta industries and consumers would be treated in the same way as those in other provinces. As a result, any emissions growth in Alberta would happen because it generates higher value per tonne of emissions, not because we've chosen to have weaker policies.
If Canada is to meet its targets for GHG emissions reductions, it will take much more stringent policies than what we have today, but we're not going to get there arguing that Alberta should impose policies an order of magnitude more stringent than those in Ontario, Quebec, and B.C.
If all of Canada wants to see higher prices for GHGs, Alberta should be prepared to follow, but should not be asked to go there alone.
Andrew Leach is Associate Professor and Director of Natural Resources, Energy and Environment (NREE) Programs at the Alberta School of Business.
Andrew Leach