A new study by economist Jack Mintz, released by the Fraser Institute, warns that conditions in the federal-Alberta memorandum of understanding (MOU) to approve a new oil pipeline will raise costs on Alberta’s oil production, making it uncompetitive with other exporting jurisdictions. The higher industrial carbon tax requirement will also add $1 billion per year to the cost of producing electricity in Alberta by 2040.
Key Findings of the Study
The study finds that the MOU, which includes a requirement to raise Alberta’s industrial carbon tax and Ottawa-imposed carbon capture requirements, places a multibillion-dollar drag on the province’s ability to compete with major oil and gas producing jurisdictions in the U.S., especially Texas and New Mexico. Mintz, a University of Calgary economist, said that the Trudeau Liberal government’s carbon tax had already hamstrung Alberta’s oil and gas industry without contributing significantly to global climate change mitigation.
“The Trudeau government was narrowly focused on calculating the impact of emissions in the country, and didn’t take into account the impact we could be having elsewhere in the world,” with exports displacing higher-carbon sources, said Mintz.
Comparison with Previous Policies
Mintz noted that things have improved under Prime Minister Mark Carney, but stressed that the numbers are still uncompetitive under Carney’s new MOU agreement with Alberta Premier Danielle Smith. The agreement reduced the requirement to raise the carbon tax from $170 per tonne by 2035 to $140 per tonne by 2040. The current target industrial tax under Alberta’s Technology Innovation and Emissions Reduction Regulation carbon-credit trading system is $95 per tonne, although credits frequently trade at a much lower price.
Cost Impact on Oil Production
Mintz calculates that the revised industrial carbon tax requirement will add $3 per barrel onto the marginal cost of oilsands production in 2040. This adds up to a total of $3.8 billion in additional costs at current production rates. Costs per barrel rise even higher for conventional oil. The report says investors generally make decisions on expectations of tight margins, and without the policies, Alberta would be relatively competitive with U.S. producers, but the five-to-15 per cent increase in costs will make Alberta an uncompetitive high-cost jurisdiction.
Impact on Electricity and Other Industries
Mintz said that, left unchanged, the carbon tax will have the biggest impact on Alberta’s electric power industry, raising household electricity bills and slowing the development of AI data centres and other new industries. The higher industrial carbon tax requirement will add $1 billion per year to the cost of producing electricity in Alberta by 2040.
Pathways Carbon Capture Project
The study doesn’t directly calculate the impact of the $20-billion Pathways carbon capture project, but Mintz says it will almost certainly weaken Alberta’s market position even further. “There’s no gain at all, from the producers’ point of view,” said Mintz. “Even if producers get (carbon capture) subsidies from the government and breaks on their carbon tax payments … there’ll still be a leftover cost.”
