Alberta NDP’s energy initiatives carry risk and opportunity

Alan L. Ross, formerly Alberta's provincial representative to Ottawa, is a partner with Borden Ladner Gervais LLP. He has acted for and appeared on behalf of several energy companies.

The Calgary Stampede is at a close, but a new stampede is just beginning. Alberta's NDP government is ushering in policy changes to the oil-and-gas sector with unprecedented scope and speed. It will profoundly impact how the province – indeed, the country – governs the natural-resource economy and wrestles with its energy superpower status. As Premier Rachel Notley recently explained to a group of international investors, "there is always more than you suspect beneath the surface" in Alberta. Hopefully, the province likes what it finds.

The industry is running hard to keep up with the restructuring. The province's emissions framework, royalties, corporate taxes and energy regulator are under review. One of these changes would be significant. All together may be overwhelming, particularly while flirting with recession.

Uncertain or onerous regulatory reforms create risk at a time of disconcerting market conditions. Capital is mobile, even skittish, about oil prices and the Greek situation. China's turbulence is another dark cloud on the horizon.

Exploration and production companies with diversified asset bases can redirect dollars outside Alberta. There are abundant tight oil and shale-gas investment opportunities in the United States and elsewhere. Policies resulting in new operational costs have impacts on investment and drilling. Ensuring a competitive royalty, credit and incentive structure – even relative to Saskatchewan and British Columbia – remains critical.

The Premier appears to understand that economics matter. To run Alberta successfully, a government must acknowledge that the province is resource reliant and that its role is to facilitate job creation. Ms. Notley showed this in a recent speech to the Stampede Investment Forum, calling the oil sands a "tremendous asset" that merit continued investment and expansion. It's a long way from Greenpeace, as have been her moderate appointments to lead reviews on royalties and climate strategy.

When a previous Alberta government introduced the Specified Gas Emitters Regulation in 2007, it was the first greenhouse gas (GHG) pricing policy in North America. Alberta's climate-change regime needs updating. There are a number of models on offer. B.C. imposes a tax per tonne of CO2e (carbon dioxide equivalent) on fossil fuels. Quebec launched a cap-and-trade system. Ontario established a mid-term GHG pollution-reduction target, and is moving toward cap and trade. All three provinces support a Western Climate Initiative that, along with California, is pursuing a broader regional cap-and-trade program.

No model reflects the full costs of navigating GHG restrictions in an oil-and-gas-dependent province. Nor are they perfect in themselves. Carbon-tax and cap-and-trade methodologies both add burdens for new facilities and barriers to investment with high net present value.

Perhaps above all, Alberta must demonstrate leadership on national energy issues. Market access, First Nations, GHGs and access to capital are examples where regional interests or interjurisdictional differences have impeded Alberta's success. Ms. Notley's government will also need to work collaboratively. Engagement with other provinces and the federal government – irrespective of political stripe – prior to the United Nations Climate Change Conference in Paris is one opportunity. Decision-making in the interests of Albertans, not the federal NDP or its election timetable, is another.

Stability in the energy sector and provincial revenue allow the Premier to address her priorities in health, education and infrastructure. Her government is undertaking some of the most important policy reviews in the province's history. The implications for Alberta and the entire country are fraught with risk, but contain tremendous opportunity. The province can assist the social acceptance of energy infrastructure necessary for Canada to remain an international economic leader. Alberta can also provide leadership on what kind of energy superpower Canada wants to be, and at what price.