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Wasting no time New Alberta government increases carbon levies 20%, names chair of royalty review panel; industry calls for investment, job goals Gary Park For Petroleum News
The new Alberta government has apparently decided to spend some of its political capital by moving quickly, boldly and ambitiously to impose revised climate-change regulations and increased penalties on the petroleum industry, its mainstay source of revenue.
It has also set in motion its promise to review provincial royalties by naming the chair of an advisory panel.
Less than two months after being swept into power, the New Democratic Party government of Premier Rachel Notley ended its first, brief legislative session - before returning in October with a budget - by increasing carbon fees on major emitters of greenhouse gases and taking a harder line on its climate policies.
Levies on major polluters will double over the next two years to C$30 per metric ton and companies will be required to lower GHGs by 20 percent over time, compared with the current 12 percent.
Energy economist Dave Sawyer estimated the new regulations will cost an average C21 cents a barrel, although variations will be wide, but the NDP government calculated the extra costs at C30-C45 cents by 2017 and Canadian Oil Sands, the majority owner of the Syncrude Canada consortium, said the fees it pays would “likely quadruple” from current levels to about C$1.07 a barrel.
Greg Pardy, co-head of global energy research at the Royal Bank of Canada, said that even at the highest projected levels, the increase would be unlikely to “break the bank” for oil sands producers and other companies.
Alberta first to set limits In 2008, Alberta was the first North American jurisdiction to set limits for large emitters by requiring facilities that contributed more than 100,000 metric tons a year of GHGs to reduce their intensity by 12 percent.
They were offered four alternatives: Clean up their operations; use Alberta-based carbon offset credits; qualify for emission performance credits; or pay the C$15 per metric ton levy.
Over time it became obvious that the intensity-based approach was not achieving reductions in absolute emissions.
And Alberta’s claims that it had led the way in tackling climate change was a wasted effort - within the Obama administration on Keystone XL and the European Union to protect any future exports of oil sands bitumen from a fuel quality directive.
Regardless of its significant role as a global producer of oil and natural gas and its control over the world’s third largest source of oil resources, Alberta discovered that it was only a small voice, not just abroad but within Canada.
Writing in the National Post, Neil McCrank, former chairman of the Alberta Energy and Utilities Board, and Alan Ross, formerly the Alberta government’s representative to the national capital in Ottawa, said that from royalties to refineries, “the Notley government is poised to substantially impact energy and environmental policy in Alberta and beyond its borders.
“A refreshed national engagement on climate change need not be a threat to the Alberta economy.
“A stable framework for GHG emissions - which many in the oil and gas industry themselves have asked for - may provide necessary clarity for investment and growth.
“It may also facilitate something more elusive - the social acceptance to develop pipeline infrastructure necessary for Canada to remain an international economic leader, rather than simply energy superpower-in-waiting,” they said.
Alarm over added costs In response to the new carbon levy, the Canadian Association of Petroleum Producers, which speaks for the large oil sands players, warned that its member companies are facing C$800 million in added costs over two years because of the carbon cost and a 20 percent hike in corporate taxes.
That compares with the C$578 million major industrial polluters have paid in levies over the past seven years.
Michael Dunn, an analyst with FirstEnergy Capital, said the industry has assumed that “what was announced was coming. If that was the end of it, then I think the industry would be quite comfortable. But there’s going to remain some uncertainty until the government finalizes all the details and any other potential changes (to royalties).”
New royalty review Unwavering in pursuit of its objectives, the government also appointed Dave Mowat, chief executive officer of the provincially owned Alberta Treasury Branches, to lead its royalty review. He has been assigned to recruit panel members and craft the group’s purpose.
Opposition parties in the legislature were quick to criticize Energy Minister Margaret McCuaig-Boyd for failing to provide a charter to guide Mowat’s work. She said only that producers “want to have a sense of stability moving forward and what the whole picture will look like.”
CAPP President Tim McMillan said the government should take care to ensure it ends up with a royalty structure that “attracts investment, creates jobs, generates government revenue and builds Alberta communities.”
He said the existing, five-year-old regime “has helped achieve those goals by being responsive to the ups and downs in the industry.”
To that end, CAPP called for four principles in the review: A government commitment to a vibrant and competitive industry; confirmation that any royalty changes will be forward looking; a stable and predictable structure that minimizes uncertainty and maximizes investment; and weighing any royalty changes against the mounting costs from climate change and corporate tax policies.
McMillan said there is an opportunity to consider reviews in partnership with “enhanced market access to move more Alberta oil and gas to more markets where it can fetch higher prices.”
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