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Climate action clock running Canadian prime minister’s chances of holding power in 2015 seen as tied to his willingness to implement a carbon tax; BC levy model Gary Park For Petroleum News
For the Canadian petroleum industry the uppermost question for 2015, except for the imponderables of commodity prices, hangs over whether the government of Prime Minister Stephen Harper decides that its chances of a fourth straight election victory depend on implementing carbon reduction promises.
Amid the clamor for action from Harper’s political opponents and environmentalists, there is a common view that he has no choice but to deliver on his promise extending back to when he was first elected in 2006 and release a plan for reducing greenhouse gas emissions from the oil and natural gas sector and stop waiting for the United States to act.
But Harper, if nothing else, does not react well to those telling him what action he should or must take.
His latest message to the carbon tax advocates occurred in December when he told the House of Commons that “under the current circumstances of the oil and gas sector, it would be crazy economic policy to impose unilateral penalties on the oil and gas sector. With the (current price conditions in the industry) this government will not consider unilateral regulations.”
Instead, Harper left the impression that his government will continue avoiding demands for a comprehensive GHG reduction strategy, opting to continue its so-called sector-by-sector approach, leaving the petroleum industry largely untouched.
Prentice hints at breaking ranks On this issue, however, he could get left behind by one of his most trusted allies, Alberta Premier Jim Prentice.
In the short time since getting elected premier, Prentice has hinted he may be willing to break ranks with Harper and adopt a new approach to energy, the environment and climate change, including changes to the province’s own carbon tax on large emitters.
“One of the surest methods of securing Canada’s prosperity and the market access we need for all of our products is for the provinces involved to find common ground on energy and the environment and enforce fair, clear, well-thought-out rules,” he told the Vancouver Board of Trade before Christmas.
Prentice later told reporters that Alberta’s tax, levied on the biggest industrial emitters at a rate of C$15 per metric ton, needs an overhaul.
The tax has collected almost C$500 million so far that is earmarked for use on technological advancements to reduce emissions.
He said a tentative new framework for Alberta’s approach to energy and the environment should soon be released, indicating how the province will tackle the status quo.
Need to harmonize Even so, Prentice was adamant that Alberta needed to harmonize its approach on climate regulations for the petroleum industry with the Canadian and United States governments.
“My views and (Harper’s) views have a similarity in terms of investment,” he said. “As Albertans we want to be environmental leaders but we are mindful that there must be jobs and investment in Alberta. Under no circumstances are we going to make changes that at a difficult time may damage the investment climate.”
What steps Prentice proposes are unlikely to be ignored by Harper, who entrusted the Alberta premier with three senior cabinet posts (environment, aboriginal affairs and industry) before Prentice took a top post in Canada’s banking industry only to return to politics in 2014 when Alison Redford was forced out of Alberta’s top job.
Paul Boothe, a business professor at the University of Western Ontario, suggested Prentice holds the key to Canada’s carbon policy, especially as he seeks a trade-off with the Ontario and Quebec governments in return for their endorsement of new crude oil pipelines to Eastern and Atlantic Canada.
A C$30 carbon tax would give Alberta an opportunity to “get in front of the carbon issue,” Boothe said.
This may be time to act The time for Prentice and possibly Harper to act may never have been better than during the current oil price collapse.
By some estimates every three barrels of oil are responsible for one metric ton of carbon.
As the price of gasoline falls, some observers make a case that the shortfall in government revenues could be filled with a direct carbon tax.
Tom Worstall, a columnist with Forbes magazine, wrote: “The fall in the price of oil means we can impose a sane and sensible 50-cent gas tax without the pain being too great or apparent.”
Others, however, suggest that any attempt by governments to seize that window of opportunity would be instantly viewed as a cynical move and face stiff opposition.
Narrowing the gap If Harper’s advisers are looking for options, a new study has concluded that Canada could narrow the gap on achieving its 2020 GHG targets by adopting the strategies of British Columbia, Ontario and Quebec, Canada’s three largest provinces.
The report by the David Suzuki Foundation said those jurisdictions have shown that Canada could come within 5.6 percent is meeting its emission pledges.
Ian Bruce, the foundation’s science and policy manager, said British Columbia’s seven-year-old gasoline tax, Quebec’s cap on emissions and Ontario’s phasing out of coal-fired power plants have all been effective without harming their economies.
He said the study is not proposing “radical new ideas ... these are proven solutions that work.”
Bruce said the “main obstacle to Canada meeting its target is a lack of leadership at the national level” and a reluctance to build a made-in-Canada solution around successful provincial policies.
British Columbia’s strategy is based on a 7.24 cents a liter gasoline tax introduced in phases from 2008 to 2012 that the province’s Environment Minister Mary Polack said has put her government on track to lower GHGs by 33 percent in the 13 years starting in 2007.
At the United Nations’ climate-change conference in Peru in December, World Bank president Jim Yong Kim described the British Columbia tax - the first by any jurisdiction in North America - was “one of the most powerful examples of carbon pricing.”
B.C. Environment Minister Mary Polak welcomed the high-level recognition that British Columbia’s “broad-based, revenue-neutral carbon tax is a successful model other jurisdictions could follow.”
Refuting claims Not only has British Columbia refuted claims that carbon taxes kill jobs, but the initiatives the province and governments such as Sweden have taken are quietly gaining support within the oil and gas industry where ExxonMobil and Royal Dutch Shell have factored in carbon prices of US$40-US$60 per metric ton into their long-term planning, with ExxonMobil publicly endorsing a tax.
Whether that response would carry over to Alberta’s oil sands sector, where both companies have vast holdings, has yet to be tested.
Economists agree that the recent trend towards unconstrained development of the bitumen deposits cannot continue indefinitely, given the global supply-and-demand picture.
But they suggest that a carbon tax would serve as a prod towards greater innovation, which has never deterred the petroleum industry in the past, starting with the home-grown technologies that opened up the oil sands in the first place and horizontal drilling combined with multi-stage fracturing that unlocked shale deposits.
A jolt to the established order was indirectly hinted at by Julie Gelfand, the Canadian government’s commissioner of the environment and sustainable development, who warned in 2012 that the Harper government was badly off course in chasing its target of a cut in GHGs to 17 percent below 2005 levels by 2020.
She said the evidence now is stronger than it was two years ago “that growth in emissions will not be reversed in time and that the target will be missed.”
Using Environment Canada data, Gelfand estimated that by 2020 GHGs in Canada’s oil and gas industry will be 27 million metric tons higher than it was in 2012, easily the biggest growth in any sector.
To remain within its 2020 ceiling, the Canadian target is 611 million metric tons a year, but without any intervention that is projected to reach 857 million metric tons.
Gelfand pointedly noted that detailed, proposed regulations have been sitting on the desk of successive environment ministers, but the “federal government has consulted on them only privately, mainly using a small working group of one province and selected industry representatives.”
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