Carbon price would cost Alberta oilsands a Timbit per barrel: climate group

The industrial carbon price will cost Alberta’s oilsands producers on average the equivalent of about a Timbit per barrel of oil, according to a climate think tank’s new analysis intended to serve as a reality check on provincial-federal pipeline talks.

The analysis published by the Canadian Climate Institute indicates oilsands producers will pay an average of about 50 cents per oil barrel, if the minimum carbon price rises to $130 per tonne.

That’s compared to about nine cents per barrel in today’s market, the institute says.

The $130 price is the target laid out in the recent Ottawa-Alberta memorandum deal to explore a new export oil pipeline.

The calculator is intended to “interject some reality” into those talks as a deadline approaches for the two sides to come to a carbon pricing agreement, said the institute’s executive vice-president Dale Beugin.

“If (companies) have concerns about their competitiveness, let’s have that conversation,” he said in an interview.

“But let’s do that based on spreadsheets, not based on vibes.”

The calculator, based on government compliance data, is lower than other carbon price estimates; one pundit told the National Post last month it could cost producers $20 per barrel.

That’s because other estimates either overweigh the worst performers or apply the price to a facility’s entire emissions, when it only applies above a certain threshold, the Canadian Climate Institute said.

The calculator shows a wide range in costs for the 29 oilsands facilities analyzed. The hardest-hit facility is Strathcona’s Tucker Thermal, with almost $4 per barrel in estimated costs by 2030. On the other end of the ledger, Canadian Natural Resources’ Peace River project would be awarded with carbon credits equivalent to about $2.23 per barrel of oil.

The public analysis notes some key limitations in its methodology. Among them, it doesn’t account for changes to production or to the emissions benchmark applied to producers.

Critics of the policy have suggested it’s a serious drag on the industry’s competitiveness. Slashing the industrial carbon price is a key pillar of the federal Conservatives’ energy plan. Some analysts have said any cost, even as small as what the Canadian Climate Institute’s calculator comes up with, will lead to a flight of investment.

Energy economist Andrew Leach says that argument may leave Canadians with a contradictory view of the sector.

“It’s … both the engine of Canada’s economy and incredibly precarious, and if you sneeze at it, it might all go away, right? These things are not compatible,” said Leach, a professor of economics and law at the University of Alberta.

Strengthening the industrial carbon price was a key plank of a November pipeline memorandum of understanding between Alberta and Ottawa. Alberta secured concessions to federal climate policy but, among other things, agreed to reach a carbon pricing deal with Ottawa by April 1.

The concessions, including a retreat on methane and clean electricity regulations, are part of a wider rollback of Trudeau-era climate policies under Prime Minister Mark Carney. Canada’s climate ambition is now more tied up than before in the industrial carbon price, underlining the “high stakes” of getting the deal right, said Beugin.

“At its best, it can be one of the most impactful policies we’ve got in the tool kit,” he said.

Here’s the basic idea: companies who pollute below a facility-specific emissions benchmark are awarded credits they can sell to those above the benchmark. That benchmark and the government’s carbon price, which acts as a ceiling, ratchet up over time to drive deeper cuts to planet-warming emissions.

But the floor price has fallen out from under Alberta’s carbon market.

The market has been flooded with credits that are trading at a major discount to the current headline price of $95 per tonne, which Alberta froze last year. Some reports last year indicated credit prices had dipped below $20 per tonne, rebounding only slightly since then. Companies, meanwhile, had banked three years’ worth of credits to buttress against future price hikes, and the market was expected to take years to balance out, the financial research firm S&P Global reported last year.

With credit prices low, there’s little incentive for companies to cut their emissions.

The MOU between Alberta and Ottawa says the two sides will work toward raising that credit price floor to $130 per tonne, though it attaches no timeline to the target.

The federal government’s headline price is expected to rise to $170 per tonne by 2030. Ottawa sets a minimum benchmark for the policy, but it’s up to provinces to design their own system.

Oilsands production accounts for about 13 per cent Canada’s total emissions, according to federal data. Although those companies have cut into how much pollution they release per barrel of oil produced, skyrocketing production has resulted in a nearly 150 per cent increase in absolute emission since 2005.

Those production totals don’t account for the much larger share of planet-warming emissions released from downstream oil combustion, from powering cars to fighter jets.

Alberta’s economy is deeply tied to the oil and gas sector. Royalties alone accounted for around a quarter of the province’s revenue in recent years. With each dollar oil prices drop, about $680 million is wiped out from Alberta’s bottom line, the province’s finance minister has said.

Beugin, with the Climate Institute, says the goal of the MOU appears to “stop some of the whiplash” in carbon pricing policy.

“It’s to entrench a strong incentive not just now but into the future as well and that will allow firms to make long-term investments with some certainty,” he said.

Questions about the future of carbon pricing also extend well beyond the oilsands, said Leach, the energy economist. Carbon credits regularly trade at a major discount in other provinces too and Saskatchewan moved to scrap its price altogether.

“I think everyone’s focused on Alberta, but the federal government actually has a broader national question to answer,” he said.

“Do we have a federal carbon pricing regime or don’t we?”