How Alberta Overcame Discord to Enact Carbon Tax

In January 2017 Canada’s oil-rich province of Alberta took the unprecedented step of instituting a carbon tax.  Combined with a cap on greenhouse emissions from the Oil Sands, the bulk of the province’s economy is now party to one of the most encompassing efforts to date in North America to address global warming.

Alberta’s senior diplomatic representative to the United States, Gitane De Silva, talks about the province’s climate goals and the process by which Albertan industry, environmentalists, and government found common ground to get the tax passed.

Full Transcript

Andy Stone: Good day and welcome to the Energy Policy Now Podcasts from the Kleinman Center for Energy Policy at the University of Pennsylvania. I’m Andy Stone. On January 1st the Canadian Province of Alberta introduced a carbon tax that aimed at lowering its greenhouse gas emissions. The move to tax carbon on such a large scale comes without precedent in North America and it might seem all the less likely in a place like Alberta where the economy is tied to the oil sands and the oil companies that operate there.

Despite these challenges, the Provincial Government in conjunction with industry, environmentalists, and indigenous groups succeeded in piecing together a plan that while, viewed as a compromise from all sides, is a concerted effort to address the problem of carbon emissions. The tax is one part of Alberta’s Climate Leadership Plan, which also includes a cap on air pollution from the oil sands and as a key to Canada meeting its Paris climate commitments. Here to talk about Alberta’s climate leadership plan and the path to its creation is today’s guest, Gitane de Silva, a senior Canadian, diplomat, and Alberta’s top representative in Washington, D.C. Gitane, welcome to Energy Policy Now.

Gitane de Silva: Thank you for having me.

Stone: Gitane was named tohera position in 2015 by Alberta’s incoming premier Rachel Notley. Earlier diplomatic roles include Head of Environment and Fisheries at the Canadian Embassy in Washington and Deputy Minister for International and Intergovernmental Relations for Alberta, Gitane, I wonder if we could start out talking about the specifics of the carbon plan or the carbon tax and Alberta’s climate leadership plan. How big is the tax and what industries will be levied upon?

De Silva: So Premier Notley’s government was elected in May 2015 and rolled out their Climate Leadership Plan in November of 2015, so just in six short months they managed to pull everyone together. The plan has four key elements. The first being a price on carbon, which is an economy wide price, which once applied, will cover between 78 and 90% of the economy. It started this January at $20 a ton and moves to $30 a ton in January, 2018. We also instituted a cap on emissions from the oil sands, so there’d be a hundred megaton cap on emissions from that part of our economy. We’re also moving to reduce methane emissions by 45% by 2030 and we’re also phasing out the use of coal fired electricity and looking to replace that two thirds with renewable energy, also by 2030.

Stone: So it’s across a variety of industries it sounds like.

De Silva: That’s right. It applies to, like I say, between 78 and 90% of the economy once it’s fully implemented

Stone: Now will emitters under the tax be able to purchase credits rather than directly reduce their emissions?

De Silva: So this plan is a little bit different from the Specified Gas Emitters Plan which we had in place before. So what is happening is that each sector is going to have a performance based standards that they need to achieve. And if they beat that standard, then yes, they would pay a  lower fee in terms of the carbon price. But if they exceed standard, then they will definitely be paying more. So it’s not exactly a system of credits, but it is designed to incent good behavior and best in class performance in particular sectors.

Stone: Now the levy will not cover large industrial polluters, most notably oil sands producers. Given Alberta’s efforts to control emissions, how are emissions from the oil sector specifically going to be addressed?

De Silva: So two things. One, the oil sands is still covered by the Specified Gas Emitters Regulation, which has been in place since 2008, and that addresses large industrial emitters of our 100,000 tons per year. So those that was initially when it was introduced was individually location-based performance targets. So each location, each emitter had to reduce its emissions on an intensity basis and that was currently set was set at $15 a ton when the Notley government came into power. It’s now increased to $20 and will also be moving to $30 a ton in 2018. And that we’re transitioning from the Esker to this price on carbon economy wide, where I said we’re implementing these performance standards. So there’s that part.

The second part is part of the climate leadership plan is a cap on emissions from the oil sands. So this is not a cap on production. It’s a cap on emissions. And as production continues to grow, producers will have to do that within the cap. And we set up an Advisory Council in the Province to help us determine how to allocate that cap across producers in the province.

Stone: So as oil production from the oil sands grows, the overall, the net emissions will reduce over time?

De Silva: So they’ll be capped at that 100 megatons, right? So right now it’s about 70 megatons. We left some room for growth because we do need time for the economy to transition. But just to put it into context, if all of the projects were to go forward, that had previously been permitted before the current government came to power, would have been both 300 megatons. So this is a sizeable cap that’s being put in place. And like I say, we’re having this process in order to allocate it fairly amongst the players.

Stone: Now, the carbon tax was introduced by Alberta’s New Democratic Party, which has been in power since 2015, is that correct?

De Silva: That’s right.

Stone: But Alberta had a Climate Change Plan dating the 20, excuse me, 2007 when the Progressive Conservative party held power. It seems a little striking, coming from the U.S. perspective, that both sides of the aisle could agree on emissions plan, but how did this happen?

De Silva: So I would say that Albertans are very proud of the natural beauty of our Province. Many people haven’t been to many places in Canada, but a lot of people have been to Banff, which we’re very fortunate to have. So we’re very proud of our natural beauty and we work hard to protect it. The four major sectors of our economy are energy, agriculture, forestry, and tourism. So all of those depend on the land. We all want clean air and clean water. So it’s just a core value of Albertans and it may seem surprising to outsiders, but it’s not surprising to us that all of the parties we would look to elect would have this commitment.

I would say that the New Democratic Party, it was one of their core commitments in their election platform and they did move very quickly to implement quite an ambitious plan, you know, so we did have this Esker plan in place since 2008. But the Climate Leadership Plan, I would say is really a very strong plan, especially for an economy that is so focused on its energy sector.

Stone: Now, the earlier plan did come under some criticism for not actually keeping emissions down as much as people had hoped.

De Silva: Yeah, that’s true. And so what we’ve tried to do with this new Climate Leadership Plan is to address some of those criticisms. So we’re moving from a facility-based, intensity-based, target to performance standard across the industry. So, you know under the Esker some of the criticism was that an individual facility, if it had old technology, only needed to decrease its emissions by a certain percentage, but that wasn’t really bringing it up to date with current technology. So the intent of this new performance based standard is that there will be an average across the industry. And like I say, if you meet or exceed that target, you’ll be rewarded in terms of paying a lower amount in terms of the carbon, the price on carbon. But if you exceed that, then you’ll be paying a higher amount.

Stone: Now, Prime Minister Justin Trudeau announced a Pan-Canadian framework on Climate in December and that would require provinces to impose a carbon price of $10 per ton starting in 2018 and escalating thereafter. Why is Alberta ahead of this with a $20 price beginning this year? And what about economic competitiveness concerns that arise due to the extra tax burden on industry?

De Silva: So Premier Notley was elected a few months prior to Prime Minister Trudeau, so she was elected in May. He was elected in October 2015 and as I said, one of the core components of her electoral platform was taking action on climate change. So her government moved quickly to do that. We felt it was important to have a made in Alberta solution, as we want to ensure that the plan allows for continued economic growth and continued investment flows. So we really wanted to act quickly and do something that made sense for our industry. We were absolutely fully engaged in the conversations with the federal government and other provinces and territories in developing a National Action Plan.

So we will continue to move forward. We’ve got our $20 now, we’ll go to $30. And the way the federal plan works is it starts at $10 and ramps up to $50 over a course of five years. And now that we also, one of the conditions that the Premier had indicated was that we would support the plan if we could get a pipeline approval because our $30 a ton price was based on what we felt could still retain the competitiveness of our industry. And our Prime Minister recently approved two pipelines within Canada, Trans-Mountain Pipeline to the west coast and a Line Three expansion. And so now we feel that our industry is well positioned to continue to be competitive and deliver our world-class resources with really you know, excellent environmental standards as well.

Stone: And clearly, outlook to grow as well as these pipelines have been, have been approved.

De Silva: That’s right.

Stone: Today’s guest is Gitane de Silva, a senior Canadian Diplomat and Alberta’s top representative in Washington D.C. We’re talking about Alberta’s new carbon tax in the province’s efforts to reign in carbon pollution. Moving on, what were the biggest challenges in pulling various stakeholder groups together and the most serious opposition that needed to be addressed?

De Silva: So what’s interesting in the Climate Leadership Plan is if you were actually there on the day it was announced or you look at the pictures, the Premier had a real cross section of Albertans with her on stage. So she had indigenous leaders, she had environmental leaders, she had industry leaders, she really has a real skill for bringing people together. So what they did was focused on commonalities. They agreed to disagree on a variety of issues, but they said, what are, where are the areas we can agree and make progress? I believe that those that were concerned about continued energy development or whose primary focus was on the environment, we’re very pleased that there was a government in power that was willing to take decisive action. And so they really wanted to come to the table and make the most progress that they could.

From industry’s perspective they wanted to be engaged in the solution as well. And I think that they and many Albertans were concerned with the international reputation we had with some, who had deemed to not take appropriate action. So they really wanted to right that as well. So I think it really was a great timing with real leadership from the Premier that she was able to bring people together and they focused on these four key areas you know, have a cap, and a price, and the methane piece ,and then also phasing out coal emissions. And we were able to get agreement on these four and move together. Like I say, she was only in power for six months by the time the plan was announced, which is really quite impressive.

Stone: What were those commonalities that different stakeholder groups actually had in common that allowed the, you know, this to go forward?

De Silva: So the first one I think is a desire for progress. And even before that, a willingness to sit down together. Conversations had been ongoing quietly in the background for quite some time before Premier Notley was elected and once she came to power, she really tried to harness people and said, you know, she was very committed to this very publicly committed. And so I think people also saw that the writing was on the wall. So whether you were on the side of it seize our moments, seize our opportunity or okay, we realize this is happening, so it’s better to be at the table than not, it really was that leadership from the center, I think, that brought people together and enabled us to reach agreement.

Stone:  Is there anything you can say about the energy producers, specifically what they saw as the major advantage to them? To go along with this.

De Silva: So one they prefer to price on carbon because they can account for that. It’s easier for them in terms of their own budgeting things to know. Two they like, excuse me, that all the revenues remain in the Province. So, any money generated from our price on carbon stays in the Alberta economy and is reinvested in the Alberta economy. So there weren’t those same conversations around stranded assets and things because we are moving to help various communities that are impacted in a variety of ways.

And I think the difference too is that in the Canadian system, when you have a party that holds a majority of the seats in the legislature, which is our current situation in Alberta, the government controls the leavers of power to move. We don’t have that same separation of the executive and the legislative. They are together and combined. So if the government has decided they are going to do something, it will happen by and large. And so I think industry really felt it was in their interest. And again, back to my earlier point they too, like the rest of Albertans, were upset about the reputation that we had in some circles and they wanted to take action. We have a number of very progressive energy leaders, some of our biggest companies, they’re very progressive and were already taking action. So this is really an opportunity for them to showcase that to the world.

Stone: It’s interesting as well that in Canada, unlike in the United States, the provinces actually own the underground resources. Correct?

De Silva: That’s right.

Stone:  So the province’s is actually take the leadership role on this rather than the federal government.

De Silva: That’s right.

Stone: Okay. One of the questions I want to ask about the industries themselves is the electricity industry. I understand that all coal fired electric power plants in Alberta will be retired by 2030. That’s a bit of an acceleration, how is Alberta going to handle its electricity needs going forward without those resources?

De Silva: It is a very big change for the Province. Right now we have about just over 40% of our electricity that’s fired by coal. So it is a very big and a very ambitious change. So we’re really looking to incent renewables, so that’s a big piece of it. But we also have a lot of natural gas production in Alberta, so at least initially we’ll look to replace a bunch of that coal and natural gas as our base load. So part of what’s happening with that price on carbon is that money’s being reinvested into the economy to help the growth of renewables and also to assist those communities that were coal dependent to help them to transition to new industries.

Stone: How will the tax impact consumers?

De Silva: So, you know, they started to see the price as of January the first. It is interesting in Alberta, however, we’ve opted to, like I say, keep all the money in province and part of that is a rebate to low and middle income Albertans. So over 60% of Albertans will get a rebate check every year to help them with that change. You know, the price of gas did go up and other things, but the government really felt strongly that these rebate checks would help to balance things out.

Stone: You know, why did Alberta choose a tax rather than another strategy such as cap and trade? Specifically in the U.S. taxes seem to be politically impossible. A four-letter word as they’re often described, you know why this choice?

De Silva: So as I said, it’s important was very important for Albertans that the money raised, generated through this price remain in Alberta. That’s just the nature, as you said. Alberta owns its resources and we also have a system of transferred payments within Canada between us and the federal government. So it was very important for Albertans that the money generated, remain in the province and be reinvested in the province. You know, so a cap and trade with other jurisdictions just was not the preferred approach and we just had to move in a pragmatic way and this is something that we could get buy in from the various supporters.

Stone: One final question here. Given the polarization around climate change in the United States, do you see any elements, Alberta’s plan, that might be applied to policies here?

De Silva: I would say two things. One would be taking advantage of those overlaps between the various players where they exist. So being pragmatic and taking the action that you can, when you can. You know, there’s action in the U.S. this is in Canada, both at the federal and at the state level. So, you know, not waiting for the perfect, but moving forward in an ambitious way where you can. And the other thing in my conversation with state governments is they’re very interested in the Alberta model in large part because all of the revenue does remain in Province. So Alberta has chosen to recycle all of that back into the economy. British Columbia also has a price on carbon. They’ve chosen to make it revenue neutral. So there’s options there for state governments that are facing some challenging budget situations in addition to the environmental, positive environmental outcomes. There’s options there to fund other things within their state that maybe they wouldn’t have had revenue for otherwise.

Stone: Gitane, thank you for appearing on the podcast.

De Silva: Thank you for the opportunity

Stone:  And thanks to our listeners for tuning into Energy Policy Now from the Kleinman Center for Energy Policy. We hope you enjoyed today’s podcast and found it informative. You can get the latest energy and environment updates from our Twitter feed @kleinmanenergy. Keep up to date on the latest news, research, and events from the Kleinman Center by visiting our website, www.kleinmanenergy.upenn.edu.