Prime Minister Stephen Harper has painted Alberta Premier Jim Prentice into a corner as the provincial government prepares to announce its latest plan for a climate levy on oil sands production.
Mr. Prentice has signalled all fall that he was prepared to increase the $15 charge on every tonne of carbon dioxide that exceeds regulated limits, arguing that the province must be not only a leader in energy production but also on the environment. But with crude prices plummeting in recent weeks, the Premier appears to be pulling back and will likely delay any carbon-tax hike until the sector lands on firmer footing, industry sources said Thursday.
With blunt comments in the House of Commons this week, Mr. Harper made it clear Ottawa would not support any move to increase the climate levy, and left little political room for Mr. Prentice to do so. "Under the current circumstances of the oil and gas sector, it would be crazy, it would be crazy economic policy to do unilateral penalties on that sector," he told Parliament.
Before prices went into a skid in late November, the Premier was looking for federal endorsement – or at least neutrality – for Alberta's proposal to hike the levy. When he toured Quebec and Ontario last week, Mr. Prentice said Alberta recognized it had to do more on climate change, and was reviewing its regulations for large emitters. The implication was clear – the regulation, which expires at the end of this month, would be tightened. But after the Organization of Petroleum Exporting Countries refused to implement production cuts at its Nov. 26 meeting, the price of West Texas Intermediate dived from $74 (U.S.) a barrel to close below $60 (U.S.) on Thursday – its lowest point since July, 2009.
Ottawa and the industry sent a clear message to the Premier to hold fire on the carbon levy.
Mr. Prentice quickly closed any perceived space between himself and the Conservative Prime Minister from Calgary. In fact, Mr. Prentice himself has long argued that Alberta could not go it alone, but needed to harmonize its approach on climate regulations for the oil industry with Ottawa and the United States.
"My views and his views have a similarity in terms of investment in our country," he told reporters on Tuesday. "We as Albertans want to be environmental leaders but we are mindful that there needs to be jobs and investment in this province. Under no circumstances are we going to make changes that at a difficult time damage the investment climate."
But how much damage would be done?
The provincial government has long considered a plan that would require companies to reduce their per-barrel emissions by 24 per cent over a number of years, and pay $30 per tonne into a technology fund when they exceed the regulated limit.
University of Alberta economist Andrew Leach calculates that such a "24/30" plan would cost companies 15 cents a barrel for the typical steam-assisted, gravity-drainage (SGD) project, which tend to have higher per-barrel emissions than mines.
Oil sands producers paid $42-million into the carbon-reduction technology fund in 2013, and a total of $176-million since the regulation took effect in 2007.
Environmental groups say the province needs to impose higher carbon levies, regardless of the oil price turmoil, to get long-term reductions in emissions.
"We have to give Alberta credit for being the first jurisdiction in North America to introduce a carbon price," said Amin Asadollahi, oil sands program director with the Pembina Institute. "But that carbon price has been ineffective in reducing emissions."
Mr. Asadollahi said the government could make some structural changes to the regulation that would close loopholes.