Much belatedly, the Harper government has inched toward the third-best solution for limiting the increase in carbon emissions from the oil and gas industry.
At some point this summer, federal regulations will likely be published for the industry. These have been promised for so long that their failure to appear has become a joke.
The regulations would place a fee (or tax, or fine, or price, or performance regulation – call it what you will) on emissions intensity per unit of production over a certain level, with the collected money placed into a technology fund.
Getting the details of such a regulation right will be tricky, as will be the politics. After all, the Conservatives successfully denounced the Liberal Party's carbon tax proposal two elections ago. Now, they are about to place what could be called a tax on industry.
Critics will say that if the policy quacks, walks and looks like a tax, it's a tax. The Harperites will argue quite fiercely that their policy is not a tax, and certainly not a tax on consumers as the Liberal plan would have been. Conservatives will insist that consumers will be protected from this policy, and that, therefore, they have not flip-flopped.
Prime Minister Stephen Harper has been dragged toward this policy. When he has spoken about climate change – rarely and with great reluctance – he has imagined very long-term solutions through technological breakthroughs. The federal policy will be framed this way: money accumulating slowly, invested over time, to produce results in due course.
Federal regulations on emissions have been announced for vehicles and coal. Oil and gas, largely located in the Conservative political heartland of Alberta and Saskatchewan, was always going to be more difficult.
The oil and gas industry over many years has brilliantly delayed any implementation of federal regulations in one of the most concerted and successful lobbying efforts in modern Canadian history. But time is up, in large part courtesy of the United States.
The long U.S. debate over the Keystone XL pipeline finally awakened the Alberta and federal governments that something more needs to be done to improve the image of bitumen oil, which is also being targeted in Europe, California and by environmentalists everywhere.
Last spring, the excellent U.S. ambassador David Jacobson (who left his post this week) in effect told the two governments that the Obama administration needs something more from Canada to make it easier to give a positive verdict on Keystone.
Stubborn as always, the Harper and Alberta governments doubled down on their long-standing policy of salesmanship, sending yet more politicians to the U.S., taking out more advertisements, and generally doing the same thing that had proven unsuccessful for so long. The results were predictably discouraging.
The best policy for reducing carbon emissions – a policy called for by various oil company executives – would be a price on carbon, or a tax, with the revenues recycled in the form of lower personal and corporate taxes. Another possibility would be a cap-and-trade market system. Either method would use free-market principles that the federal Conservatives and their erstwhile cousins in the Alberta Progressive Conservative government are supposed to favour, but do not for oil and gas.
Instead, Alberta uses a regulation that the government calls a "tax," whereby a company has to reduce the intensity of carbon dioxide emissions per unit of production (a barrel in the case of oil) by 12 per cent. If the company fails, it puts $15-per-tonne into a technology fund. Since 2007, the fund has collected $300-million. Companies have also invested large sums in reducing their own emissions.
Of course, if total oil and gas production rises, then this intensity-based approach only slows down the overall increase in carbon emissions.
Alberta is likely to raise its intensity-based tax to something like $30 a tonne and to insist on a 30-per-cent improvement in the CO2 emissions per unit of production. Ottawa might come in at something approximating this target. Both governments could then say to bitumen's tormentors that they are doing something substantial.
Which would be right, but only up to a point. If bitumen production soars, emissions would still rise, just less rapidly than with the status quo.