By: Jose Caceres
The province of Alberta in western Canada is reckoned for its energy wealth and it is also known for being an economic powerhouse of the country, though this latest title is lacking some luster in recent times (for reasons that will be discussed further below). This energy wealth, in the form of fossil fuels accounts for the largest heavy oil deposits in the world, also known as ‘oil sands’. Alberta also has crude oil and natural gas in significant volumes and to round-it-all-up coal is very abundant as well. Also worth noting is the significant potential for renewable energy production, being solar, wind and geothermal important potential sources for electricity generation.
Key figures about the province (source Wikipedia):
- Population – estimated (2016): 4,231,959
- Area: 661,848 Km2
- Capital: Edmonton
- Largest city: Calgary (also known as the energy capital of Canada)
- Main industries: conventional crude oil, synthetic crude, natural gas and gas products, agriculture and forestry, tourism
- GDP (2014): C$414.3 Billion
- Per-capita GDP (2013): C$84,390
In recent months Alberta has seen a number of driving forces coming together in such way that the context for the commencement of a substantial transformation of the energy and economic matrix of the province is starting to take place.
The driving forces:
- An unprecedented downturn in the oil industry, which has seen an abrupt collapse of the oil prices at a global scale and consequently deeply affecting oil-rich Alberta. This in turn creating the need for adapting to a lesser economic reliance to oil & gas and the need to diversify the economy.
- The Paris Agreement -COP21- on Climate Change, in which Canada had a stellar participation and hence a commitment to significantly reduce its emissions of GHG consistent with a 2 degree C global emissions policy.
- A synergic alliance of both federal and provincial governments which are proactively acting together on matters related to the Environment and Climate Action. The government of Alberta in an emphatic push for moving on that direction has come with a ‘Climate Leadership Plan’, which is core in its political agenda and which is discussed below:
*The discussion below takes excerpts from the ‘Summary of the Climate Leadership Plan’ and ‘Climate Leadership report executive summary’ (http://www.alberta.ca/climate-leadership-plan.cfm). The same are presented in order to detail the most salient points of the climate action agenda and the economic, environmental and social repercussions envisioned in the plan.
The ‘Alberta’s Climate Leadership Plan’ prioritizes the following aspects:
- Health and Environment: Alberta’s Climate Leadership Plan aims on improving the air quality by ending coal pollution and transitioning to cleaner sources of electricity. Phasing out coal in favor of renewable energy and natural gas represent a determined move aimed to protect the health of the citizens of Alberta and save money in health care costs and lost productivity.
- Supporting Alberta families: By pricing carbon, the Climate Leadership Plan encourages all Albertans to reduce pollution that causes climate change. To offset costs associated with the carbon levy, the Plan provides rebates to families that need them. Six in 10 households will be eligible for a full rebate. Starting early 2017, a new agency, Energy Efficiency Alberta, will offer programs to help households reduce energy use.
- Strengthening the economy: Alberta’s action plan on climate change aims on diversifying the energy industry and create thousands of new jobs. The carbon levy, which is expected to raise nearly $10 billion over the next five years, will help grow the renewable energy sector and build green infrastructure. New limits on oil sands emissions will help the traditional energy industry secure approvals to reach new markets.
The Alberta context – the big challenge:
In the most recent inventory data available, Alberta’s emissions of 267 Mt in 2013 accounted for approximately 37% of Canada’s total emissions.
A substantial share of the emissions are from oil and gas as well as other large industrial sources. These sectors constitute a major component, if not crucial, of the economy of the province.
The linkage between GHG emissions and the core industries of the province makes policing particularly challenging since reduction of emissions is intrinsically attached to investments on new technologies or as proposed in the plan, carry the burden of levies which are to be charged to the emissions. To add-up to these woes, recent economic circumstances, which have seen the significant drop in oil prices as well as of natural gas, all which is currently having a significant impact in GDP and rise of unemployment, exacerbate the challenge of imposing policies aimed to curve GHG emissions.
In 2008, in a different economic context, the province announced emissions targets framed in the ‘Climate Change Strategy’ which projected substantial reduction of emissions. In such context, not only an increasing carbon levy was stipulated (from $15/tonne (now), to $30/tonne in 2020, $60/tonne in 2030, and $100/tonne in 2050), but also strict regulations aimed to all large and new industrial facilities, which required to incorporate carbon capture and storage by 2015 wherever possible. It is worth noting that neither these regulations nor the modeled carbon price were imposed.
A successful climate policy must recognize the context facing Alberta today, which differs substantially from the pre-oil-downturn period, and focus on policies that will drive emissions reductions while not unnecessarily damaging the economy.
How will the ‘Alberta’s Climate Leadership Plan’ accomplish the core points of its agenda?
1. Ending coal pollution
Under the Climate Leadership Plan, pollution from coal-fired electricity generation will be phased out by 2030. As a reference, the electricity in Alberta is generated by various sources, but it is coal the dominant one, and accounts for about 55% (2014) of the total generation. Coal-fired electricity produces high levels of GHG emissions and air pollutants which impact air quality and therefore human health. In 2013, the electricity sector accounted for 17% of Alberta’s total GHG emissions. In fact, Alberta produces more coal pollution than all other Canadian provinces combined.
In order to replace coal as an electricity generator, coal-fired plants will be phased out and replaced by renewable energy and natural gas-fired electricity, or by using technology to produce zero pollution.
This will be achieved through the following actions:
- By 2030, two-thirds of Alberta’s coal generating capacity will be replaced by renewable energy; one-third will be replaced by natural gas. Government will ensure that workers, communities and affected companies are treated fairly in this process.
- Impose a carbon price and improved emissions performance standard: Starting in 2018, coal-fired generators will pay $30 per tonne of CO2 on emissions based on an industry-wide performance standard.
- Offer incentives for renewable generation. By 2030, renewable sources like wind and solar will account for up to 30 per cent of electricity generation. Alberta will accomplish its transition with policies that fit with Alberta’s unique energy market to ensure that the electricity system continues to be reliable.
2. Carbon levy and rebates
Putting a price on carbon is seen as the most cost-effective way to reduce greenhouse gas emissions that cause climate change.
Alberta’s carbon levy will reward families, businesses and communities that take steps to lower their emissions.
The levy will also help diversify our energy industry and create new jobs, while improving opportunities to get our traditional energy products to new markets.
Carbon rebates will offset costs associated with the levy to help low-and middle-income households adjust. To help businesses, the small business tax rate is being cut by one third.
Carbon Levy
The carbon levy will be included in the price of all fuels that emit greenhouse gases when combusted. These include transportation and heating fuels such as diesel, gasoline, natural gas and propane. It will not apply directly to consumer purchases of electricity.
Starting January 1, 2017, the carbon levy will be applied to fuels at a rate of $20/tonne. One year later, the levy will increase to $30/tonne.
Reinvesting in the economy
The carbon levy is the key tool that will pay for the transition to a more diversified economy. Over the next 5 years, the levy is expected to raise $9.6 billion, all of which will be reinvested in the economy and rebated to Albertans in the following form:
- $6.2 billion will help diversify our energy industry and create new jobs. This would consist on: Large scale renewable energy, bioenergy and technology. Green infrastructure like transit. Energy Efficiency programs and services for homes and businesses
- $3.4 billion will help households, businesses and communities adjust to the carbon levy. This would consist on: Carbon rebates to help low- and middle-income families. Cut in the small business tax rate from 3% to 2%. Assist coal communities, Indigenous communities and others
3. Capping oil sands emissions
Alberta today: The oil sands sector accounts for roughly one-quarter of Alberta’s annual emissions. Oil sands facilities are currently charged a Specified Gas Emitter Regulation (SGER) levy based on each individual facility’s historical emissions, irrespective of how intense (e.g. tonnes of GHG per barrel produced) or efficient that operation has been. Oil sands operations currently emit roughly 70 Megatonnes (Mt) per year. There is currently no limit on oil sands emissions, either by facility or industry-wide.
Getting to 2030: Alberta will transition to an oil sands-based performance standard for the carbon price and will legislate an overall limit to oil sands GHG emissions. These will create the conditions for the oil sands sector to innovate and become more globally competitive.
Alberta’s new approach includes the following:
- An oil sands specific emission performance standard which would replace the current approach. A $30/tonne carbon price will be applied to oil sands facilities based on results already achieved by high performing facilities — to drive towards reduced emissions and carbon competitiveness, rather than rewarding past intensity levels.
- A legislated emissions limit on the oil sands of a maximum of 100Mt in any year with provisions for cogeneration and new upgrading capacity. This limit will help drive technological progress and ensuring Alberta’s operators have the necessary time to develop and implement new technology that takes more carbon emissions out of every barrel and helps bend Alberta’s overall emissions trajectory downward.
4. Reducing methane emissions
Under the plan, methane emissions in Alberta will be reduced by 45 per cent by 2025.
Alberta today: The climate change impact of methane is significant — 25 times greater than carbon dioxide over a 100-year period. In Alberta, the oil and gas industry is the largest source of methane emissions. Methane emissions in 2014 from Alberta’s oil and gas sector were 31.4 megatonnes of carbon dioxide equivalents.
Getting to 2025: Cutting methane emissions is the most cost-effective way to accelerate greenhouse gas reductions. Alberta will reduce methane emissions from oil and gas operations by 45 percent by 2025 using the following approaches:
- Applying new emissions design standards to new Alberta facilities. Applying standards at the planning stage will be less expensive.
- Improving measurement and reporting of methane emissions, as well as leak detection and repair requirements.
- Developing a joint initiative on methane reduction and verification for existing facilities, and backstopping this with regulated standards that take effect in 2020, to ensure the 2025 target is met. This initiative will include Alberta industry, environmental groups and Indigenous communities.
Personal insight and Conclusions
As of mid-2016 Alberta is positioned in a crossroads, the backdrop to this unique situation is that the economic backbone of the province is its energy wealth in the form of fossil fuels, however, an economic turmoil as a consequence of an unprecedented downturn in the oil industry as well as a diminished demand for natural gas are currently posing a tremendous pressure on this wealth.
Poised to a further economic decline shouldn’t the oil and gas prices don’t significantly rebound or if this rebound doesn’t occur in a sustained manner (which very possibly will be the case), the emergence of a Climate Action agenda in the form of the province’s Climate Leadership Plan appears as a particularly timely opportunity for diversifying the energy and economic wealth of the province whilst at the same time de-carbonizing the economy. I say ‘particularly timely’ since along the oil & gas industry downturn an increased global concern about Climate Change is bringing with it new trends which address the threat of Climate Change and at the same time favor the energy and economic diversification.
Fortunately, both, federal and provincial governments are taking this call very seriously and responding to it in a responsibly manner. The acknowledgement that not addressing Climate Change will eventually signify a greater risk to the economic prosperity not only of the province but virtually globally, is core to these actions.
This latter proves the leadership of Canada and energy-rich Alberta in the world context. But here is the dilemma, assembling a plan that is consistent with a ‘2-degree global emission policy’ in a fossil-fuel rich, high greenhouse gas emitter jurisdiction such as Alberta poses a monumental challenge, and that is why the Alberta’s Climate Leadership plan represents an effort that is not devoid of criticism especially given the current economic circumstances of the province and the often contentious positions of the many stake-holders engaged in putting this plan into action.
Albertans need to recognize that the current economic woes of the province are not a product of a political mismanagement but they are owed to the confluence of various factors which are far beyond the scope of the provincial or even federal governance. The oil industry downturn is mainly owed to the significant oil-price drop as a result of a global surge in supply due to technological advances which allowed shale oil production at a massive scale in addition to geopolitical intricacies and a seemingly low growth in demand. Climate Action is not in place to aggravate things but is there to address a major threat and at the same time reverse the economic problems of the province by creating new opportunities.
I believe that putting into action the Alberta’s Climate Leadership plan marks a pivotal time and the beginning of a new era in the history of the province. The transition to a new, greener and more diversified economy will certainly have hurdles along the way, but above all, this Climate Action agenda should be seen as the catalyst for new technological innovations which will also bring along new opportunities. Alberta has always been a magnet for talent and possesses a plethora of well educated professionals commingled in a forward-looking, hard-working population and that already guarantees the success of the plan. Evolution is inevitable, moving along with the times and that is, adopting a greener economy not only is the right thing to do, but is something essential for our own well-being and that of the generations coming after us. We are in this together, let’s make it succeed!
