Mark Jaccard is a professor in the School of Resource and Environmental Management at Simon Fraser University.
Alberta premier-elect Rachel Notley must be facing a long queue of oil executives with policy advice. Before getting overwhelmed, she might consider this modest proposal that solves her budget, energy, climate and political challenges in one go: Sacrosanct as this may sound in Alberta, Ms. Notley should implement a carbon tax. It should start at $10 this year, reach $20 in 2016 and $30 in 2017. Political suicide? Hear me out.
The tax would be like B.C.'s carbon tax – but different. As in B.C., it would apply to all carbon-dioxide emissions from coal, oil products (such as gasoline) and natural gas, whether in vehicles, power plants or oil sands facilities. And, as in B.C., it would be revenue neutral for individuals (voters!), with all non-corporate carbon-tax revenue returned to individuals via income-tax cuts.
Unlike B.C.'s tax, however, the carbon tax would not be revenue neutral for corporations. Some of the tax revenue would support health care, education and other priorities such as balancing the budget. Some would also be available to help industry with major initiatives to reduce emissions, much like Alberta's Climate Change and Emissions Management Fund. For oil-sands plants, the $30 tax would raise production costs by about $2 a barrel. If oil prices get really low, some of the tax revenue could be temporarily returned to oil producers if their foreign competitors do not face similar climate policy costs.
The carbon tax would work best if complemented by a second policy that requires the Alberta electricity sector to reduce its emissions by 80 per cent over the next decade, in line with what Ontario achieved from 2004 to 2014. Focused on coal-fired power plants, this regulation would be slightly more stringent (but less complicated) than the one President Barack Obama is implementing in the United States. In one decade, Alberta's coal-fired power plants would have to retrofit to capture carbon emissions, like Saskatchewan's Boundary Dam power plant, or shift to wind and other renewables backed by natural gas, as Ontario did. Thanks to the falling costs of wind and natural gas, the effect on electricity prices would be negligible over the decade.
Why will this proposal succeed politically? Let's start with industry.
Ms. Notley should get her staff to collect the many quotes of fossil-fuel executives calling for a carbon tax in recent years. Maybe these requests were sincere. Maybe they were simply to improve corporate images when it was safe to assume that federal and provincial Conservative governments would never implement carbon taxes. Either way, these quotes should be trotted out repeatedly.
Ms. Notley should also reassure oil producers by putting an economist or two on her royalty review. Economists believe that if the price of oil is low enough, royalties should be zero. This is why carbon taxes are a more stable source of government income than royalties from a volatile commodity like oil.
What about voters? Here Ms. Notley should thank former premier Jim Prentice for raising the gasoline tax by 4 cents a litre. Without increasing it, she can simply relabel Mr. Prentice's tax as a carbon tax. (This is what Scandinavian countries did when they introduced carbon taxes in the early nineties.) Since a $30 carbon tax equals 6.7 cents a litre, Mr. Prentice has already done two-thirds of the heavy lifting. Ms. Notley would keep reminding voters that, unlike Mr. Prentice's gasoline tax, her carbon tax is revenue positive for voters – they get an income-tax cut, while some of the corporate taxes will fund education, health care and balance the provincial budget.
Finally, Ms. Notley should remind voters that the carbon tax does one other essential thing: It recaptures the leadership role Alberta had back in 2005 when it was the first North American jurisdiction to enact serious climate policy. Having a true story to tell is more effective than wasting taxpayers' money on slick ads to convince North Americans that you care about the planet when your actions show the opposite.
With this carbon tax and electricity policy, imagine future conversations between Canadian and U.S. political leaders. "Mr. President, our coal-fired electricity emissions are lower and falling faster than yours, while our oil-sands industry pays a $30 carbon tax and must compete with your tax-free shale oil in North Dakota. Now, about that pipeline …"
Mark Jaccard's book, Sustainable Fossil Fuels , won the 2006 Donner Prize.