A Price is Right

How to learn to stop worrying and love the job-killing-carbon-tax

By Chris Turner

Let’s begin with the hard truth: Alberta has a carbon problem. A pretty major one. Potentially a generation-defining one, in fact. It’s not just that Alberta emits more carbon dioxide than any other province, or that the lion’s share of our electricity comes from burning coal. It’s not even the fact that every barrel of oil sands bitumen creates anywhere from 8 to 37 per cent more greenhouse gas emissions than a conventional barrel of crude, or the even cloudier fact that nearly half of Canada’s emissions reductions would have to come from the oil sands in order to meet our modest national target by 2020. (Canada’s business-as-usual trajectory will see us miss that goal by a smoggy country mile.)

All those under-regulated tonnes of carbon dioxide are, to be sure, a big part of Alberta’s problem. But the real crux of it is that Alberta has no real strategy on the table to change that trajectory and thus almost no remaining credibility on the international stage—where, at present, some very heated discussions about the province’s industrial future are well underway.

On April 9, 2013, in implicit recognition of Alberta’s carbon problem, Premier Alison Redford went to Washington, with all the pomp and ceremony her office could manage, to speak at the Brookings Institution, a think tank and frequent host of gabfests for the insiderest of Beltway insiders. In advance of her arrival, Alberta taxpayers bankrolled a quarter-page ad in the Washington Post and banner ads on the top inside-the-Beltway websites—Politico, the National Journal, Roll Call—all of the notices arguing with conviction that Alberta was “The Choice of Reason.” It was Redford’s fourth visit to DC in just a year and a half as premier, a clear demonstration of the truism that Alberta is staring down the US government’s most important executive decision in a generation for the province’s core industry and primary economic engine: whether or not to approve construction of TransCanada Ltd.’s proposed Keystone XL pipeline, thus to transport more than 800,000 barrels of unprocessed Alberta bitumen per day from Hardisty to the Gulf Coast.

The consensus on carbon pricing has extended far beyond academia and businesseven to Harper’s cabinet.

Redford arrived in Washington facing the unenviable task of trying to regain some modicum of control over a conversation about Alberta’s oil sands that had spun wildly away from what had once seemed like “slam dunk” approval for a straightforward new pipeline. Her Brookings speech began with a forthright acknowledgement of the overheated rhetoric that Alberta’s oil sands business had piped to the surface. “The dialogue that is going on right now does suffer some fairly glaring deficiencies,” she told the DC crowd. “We need to make sure that whatever our perspective might be on this project, that we’re talking about facts. The most basic truth is that the stark choice that Keystone’s opponents have put at the heart of the debate is an illusion. Too many of the arguments that are deployed against Keystone are far too far from reality. They proclaim that either you stand against the oil sands or you write off the environment along with any hope for sustainable existence, and that is completely wrong.”

Beyond the pointed opening, though, the speech was boilerplate party-line boosterism, a laundry list of highlights from Alberta’s existing policy regime, which Redford claimed was “some of the most environmentally friendly, progressive legislation in the world.” She even talked up “Alberta’s legislative price on carbon,” which has provided funding for 49 new cleantech projects.

The premier’s office had touted the speech as a rare chance to take control of Washington’s agenda, at least for a day, but it landed nowhere near the headlines read most avidly by DC decision-makers. The New York Times ran a short item on page A6 that gave equal coverage to a new national television campaign by Keystone opponents, and the Washington Post covered it not at all. The Brookings Institution, meanwhile, carried on as it does, its podium hosting foreign dignitaries and minor congressmen and crusading policy wonks one after another, day in and day out. The same day as Redford’s speech, Scotland’s first minister, Alex Salmond, spoke to the Brookings crowd about “Scotland as a Good Global Citizen.” The next day, the Engelberg Center for Health Care Reform hosted a panel on “Physician Leadership in Payment Reform.”

This is about where Alberta, putative energy superpower, stands in the DC power rankings—somewhere between Scotland and the Engelberg Center for Health Care Reform. Another way to think about it is that Alberta’s premier is about as likely to sway US policy as either of those organizations. Yet another way is to accept that if your presentation in Washington is being given in a building with neither “White” nor “House” in its name, you may as well be addressing a Rotary Club in Wetaskiwin. At least they’d feel obliged to feign enthusiasm.

Since the early days of the most recent oil sands boom—if not long before—Alberta politicians have been talking about the need to get the province’s story heard, to get “the real facts” out there. In response to the widespread and widely noted decline in the province’s image outside its boundaries, they have responded time and again with PR campaigns, billboards and banner ads, missions to Ottawa and Washington and Brussels. They’ve never once attempted a new story. In the meantime, the “social licence” to expand the oil sands—that vital but ephemeral cluster of trend and opinion and, you know, actual objectively measurable action on carbon emissions that keeps a resource extraction business in the international community’s good books—has faced the constant threat of being revoked.

Instead of asking for another special-case extension, it’s well past time for Alberta to reapply under a new set of criteria. The province doesn’t need a new slogan or another tree-planting project. (Redford was reduced in her Brookings speech to touting a stat on trees planted in the oil patch as evidence of the province’s green bona fides.) Alberta needs a new energy policy. What it needs, moreover, is a big, audacious gesture, something unexpected and head-turning, something that doesn’t just “tout” our “record” or “tell” our “story” but actually attempts to change the day-to-day operations of the province’s industrial base. I’ve argued in these pages before that the best such gesture would be a feed-in tariff designed to radically shift the province’s electricity grid from its dependence on coal toward renewable energy sources, but I have it on good authority that if you mention renewable energy in the company of Alberta energy ministry officials, they fix you with the kind of cocked stare Labrador retrievers use on exotic species of beetles.

So I have another idea for the Alberta government. The federal Conservatives treat it like a swear word, but it’s actually so close to how Alberta already tackles its greenhouse gas emissions that Redford nearly said it out loud, right there in front of all those Brookings VIPs. “Alberta’s legislative price on carbon” was how she put it, the careful word choice presumably reflecting her terror at the prospect of describing Alberta’s $15-per-tonne levy on a small sliver of the province’s carbon dioxide emissions as a carbon tax.

There it is. I said it. If you’ve paid any attention to the daily harangues from the majority benches in the House of Commons lately, you probably know it better as a jobkillingcarbontax. Still, if Alberta truly wants to make waves in Washington—and Ottawa and Edmonton and Brussels and Beijing and anywhere else where the oil sands’ social licence might come up for review—it should pass the continent’s most ambitious carbon tax. Nothing else this side of a feed-in tariff comes close to the impact, and nothing else would truly reboot the conversation with such speed and clarity.

I realize this is seen in some quarters as tantamount to political suicide. I understand that the term is associated all too closely with the wonky visage of former Liberal leader Stéphane Dion, whose career ambitions evaporated with such dramatic velocity that they were almost physically visible in the air around him by the end of his 2008 electoral run, like Pig Pen’s dust cloud in the Peanuts comic strips. I know it’s the sort of thing that puts you in agreement with the likes of Al Gore and David Suzuki and that do-gooder Bill Gates. And Scandinavians.

Seen from a less biased vantage than the front benches of the House of Commons, however, the two-step from Alberta’s current not-a-tax levy to the dirty word itself seems effortless and inevitable. It goes like this: There is widespread agreement that a price on carbon is an essential piece of any serious climate policy—Alberta, after all, has already broken that taboo and appears to recognize the likelihood that it will need to do more still before too long. And the growing consensus among impartial economic analysts and business leaders is that a straight-up across-the-board tax is the best way to put a price on carbon. There’s even a letter out there for anyone to read, signed by almost 250 credentialed academic economists across Canada, endorsing a carbon tax.

The emerging consensus on carbon pricing extends far beyond academia—it even infiltrated Stephen Harper’s cabinet during the minority years. Jim Prentice called for “a price on carbon” repeatedly when he was environment minister, and John Baird—that John Baird—wrote eight letters to the editors supporting the same idea when he had the federal environment portfolio. A report by Ottawa-based think tank Sustainable Prosperity concluded that “the business community in Canada is overwhelmingly in favour of a price on carbon.”

And even as politicians in Edmonton and Ottawa shy away from the dread word tax in favour of the murkier math of cap-and-trade, that same business community is embracing a tax. The Canadian Council of Chief Executives has endorsed a carbon tax “in principle.” The Financial Times called it “the least-worst tax,” which is about as close to praise for a tax as you’re likely to hear from the Financial Times. The head of Total’s Canadian operations reckons a carbon tax would “promote better performance.” The CEO of Cenovus called it “probably the most effective means of regulating and addressing the cost of carbon.” Neil Camarta, who occupied executive suites from Shell to Syncrude to Suncor over his career, has said, “If Canada really wants to reduce carbon dioxide, there has to be a carbon tax across the whole economy.” The CEO of TransAlta, which runs several of the province’s most carbon-intensive power plants, has called it “a better way to go.” Even 43 per cent of Albertans say they’d support a carbon tax similar to the one British Columbia has—this before anyone in provincial government has even been willing to speak its name in public. That percentage would surely grow if Albertans knew more about their carbon footprint: Just 35 per cent of us are aware how much of our electricity comes from burning coal.

So, then. A great many economists agree that a straight-up carbon tax is the tidiest policy instrument for reducing greenhouse gas emissions. The oilpatch, while not quite in love with it, demonstrably doesn’t hate it. (You really think they’re going to beg to be taxed?) In fact, when Bloomberg News went around asking oilpatch insiders about it, they found an energy investment fund manager who made this tidy argument in favour of it: “What business hates is a lack of clarity. Even a bad tax would be better than discussions that are endless.”

The real kicker in the whole carbon tax debate, however, is that the evidence to date suggests it isn’t a bad tax at all. There’s no credible evidence that it “kills jobs” or even gives jobs serious flesh wounds. In every jurisdiction that has passed a carbon tax, the nightmare scenarios floated by its opponents have failed to materialize. And packaged right, carbon taxes actually make a lot of sense to the public in general. Unlike an increase in taxes on things we generally regard as positive—income, property, goods and services—a carbon tax is a Pigovian tax, a corrective levy designed to price negative externalities like greenhouse gases into the cost of doing business. Alberta’s burning of coal, for example, generates an estimated $250-million per year in added healthcare burdens. Meanwhile greenhouse gas emissions from the oil sands have expanded the provincial and national carbon footprint and fuelled a global backlash against Alberta’s top export. The option isn’t a carbon tax or nothing; it’s a carbon tax or the ballooning expense tab accrued by business as usual, to be paid in unhealthier lives and diminished corporate and government revenues (and flailing PR campaigns in Washington and much else).

Norway was the first major oil producer to pass a carbon tax, way back in 1992. Not only did the Scandinavian sky fail to fall, but the tax proved a major driver of innovation in that country’s oil and gas sector. In part because the proceeds from the carbon tax go into their general coffers, the Norwegians are riding a budget surplus worth 12.5 per cent of their GDP and sit on a $664-billion sovereign wealth fund created by oil and gas revenues (compared to the paltry $14.8-billion in Alberta’s heritage fund—about where it was in 1987). Just this year, the Norwegian government announced plans to double its carbon tax from $38 to $75 per tonne. At the risk of overstating the obvious, it’s doubtful even a Scandinavian government would double down on its carbon tax if the levy had ruined its economy and killed jobs.

In every jurisdiction that has passed a carbon tax, opponents’ nightmare scenarios have failed to materialize.

Australia—an economy as resource-driven as Canada’s—passed a carbon tax last year, set at $23 (Australian) per tonne nationwide and applied to its 500 largest emitters. It was hugely controversial, greeted with howls of protest from its resource-extraction and manufacturing sectors. Again, the sky has remained high above. Even the chief executive of the rendering plant whom the opposition cited to bash the tax in the Australian press is now voicing support for it. “What the imposition of the carbon tax has done,” the plant’s boss told an Australian newspaper, “is make industry take stock of what it is currently doing and has forced it to look at doing things in a better way—it is working and working well.”

Canada’s most ambitious experiment with a carbon tax to date has seen similar results. British Columbia introduced a $5-per-tonne tax in 2008, rising to $30 per tonne at present. It now generates revenue of $1.2-billion per year for the provincial government, which is offset by cuts to business and personal taxes. The province’s economic growth rate has actually been slightly better than the national average since the carbon tax was passed. Businesses and the public alike, meanwhile, have adapted. Overall, greenhouse gas emissions are now in decline (not just growing slower than the industry itself—the slightly-less-bad approach which is Alberta’s main claim to legitimate climate action). And the estimated seven cents per litre extra that BC residents pay on gasoline has led to an 8 per cent reduction in transport fuel consumption.

The carbon tax, so contentious as a proposal, was a virtual non-issue as an actual fact in a viciously fought provincial election this year. You know what was a hot-button topic in that BC election? Alberta’s bitumen and the pipelines that carry it to the sea. The oilpatch’s social licence is up for review practically everywhere the industry goes, and it will not be renewed by a website banner ad.

In the run-up to Alison Redford’s Washington visit, her government somewhat clumsily floated the idea of a serious upgrade to its existing legislative-price-that-is-not-a-tax on carbon. This “40/40 proposal” would usher in a $40-per-tonne levy (up from $15) on those emissions that didn’t meet a 40 per cent “emissions intensity” target (up from 12 per cent). The way Alberta’s don’t-call-it-a-tax carbon price currently works, polluting companies are taxed based on an industry average—the typical emissions associated with producing a barrel of bitumen, for example—and must pay $15 for every tonne that exceeds the 12 per cent reduction per barrel. In practice, this means that just 2 per cent of all the province’s carbon dioxide emissions are actually taxed.

The 40/40 plan would give Alberta’s strategy real teeth—not enough to meet its own or the country’s 2020 emissions targets or anything, but a substantial step in the right direction. A research report on the proposal by FirstEnergy Capital, one of the country’s top energy investment firms, reckoned the 40/40 scenario would add about 80¢ to the cost of the average barrel of bitumen. The report also suggested that if the higher carbon price was what it took to get a pipeline approved, “such a trade-off” would be “a net positive for oil sands producers.” A new carbon tax would also net the provincial government $1.8-billion in annual revenue, according to the Alberta Liberal party.

The 40/40 proposal came seemingly out of nowhere and took the oilpatch by surprise. Heads did indeed turn. The Globe and Mail called it a “bold plan.” The Pembina Institute, a frequent critic of Alberta’s environmental regulation, said the idea was “encouraging” and “shows leadership.” By the time Redford got to Washington, however, she was backing away from the 40/40 idea like it was a bozo eruption. “I wouldn’t characterize anything as a plan,” she told the Calgary Herald. In a longer interview with a Maclean’s Washington reporter, she insisted “nothing has shifted.” The 40/40 proposal was not “a number that we’ve landed on or proposed,” rather just “part of the work we do on an ongoing basis.” In Washington to tout Alberta’s bold leadership on environmental sustainability, in other words, Redford scrambled to avoid having her government attached to a step in the direction of bold leadership on environmental sustainability.

Alberta has a serious credibility problem. Alberta’s oilpatch has a bit of a carbon problem. Alberta’s government has a mounting deficit problem. And nearly the entire southern half of the province earlier this year experienced all too vividly what a much more volatile climate could mean for its long-term stability. This is no time to be slathering another layer of lipstick on the province’s energy pig and insisting that the beast should actually be called a hog. Imagine how much easier that next trip to Washington might be for Alberta’s premier if she had something genuinely new and meaningful to add to the conversation. Say it loud, Premier Redford. Say it proud. This province needs a carbon tax.

Calgary’s Chris Turner writes on sustainability and energy issues. His latest book is The War on Science (Greystone, 2013).


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