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Alberta’s Government Kicking Oil Industry While It’s Down

Alberta’s Government Kicking Oil Industry While It’s Down

The new government in Alberta is much less friendly to the fossil fuel industry than the conservatives it recently swept out of office after forty years of rule. And early on, the new NDP government has shrugged off pleas from the oil and gas industry to go easy on it, given the extraordinary collapse in revenues from the fall in oil prices.

The provincial government decided to raise the carbon tax beginning as soon as 2016, jumping from $15 per tonne to $20 per tonne. It will then go up to $30 per tonne in 2017.

That the Canadian province with the most oil production – home to the vast Athabasca oil sands – has a carbon tax to begin with is impressive. But the fact that the province elected a government willing to double the tax is probably hard to understand for Canada’s neighbors south of the border. It would be as if Texas passed a carbon tax, then elected a government that was willing to raise the tax. Related: Could Armenia Be The Next Ukraine?

Alberta’s government argues that the province needs to take stronger measures on carbon emissions in order for Canada’s oil to not be derided as too dirty for export. “If Alberta wants better access to world markets (for its oil), then we are going to need to do our part to address one of the world’s biggest problems, which is climate change,” Alberta’s environment minister Shannon Phillips said. “Nobody knows this better than the people who work in our energy industry.” TransCanada used the tax to lobby the U.S. State Department for approval of its Keystone XL pipeline, arguing the tax is further evidence the pipeline wouldn’t increase greenhouse gas emissions.

Of course, notwithstanding TransCanada’s letter to the State Department, Canada’s energy industry has not exactly embraced Alberta’s new green approach. They argue the carbon tax is kicking them while they are down.

But it should be noted that the tax is hardly crippling. The NDP government predicts it will only raise the cost of production by 30 to 45 cents per barrel of oil. With oil prices swinging so wildly, such a cost will probably not have an enormous impact on the industry. It probably won’t result in a significant volume of oil sands that suddenly become unviable. In that sense, the province’s carbon tax probably isn’t a terribly ambitious climate policy. Related: Current Oil Price Slump Far From Over

Still, the industry is unhappy with the new sheriff in town. The NDP government also raised corporate taxes from 10 to 12 percent. It wants to raise the minimum wage to $15 per hour. The province will also weigh an increase in royalties paid by the energy industry. “There was a concern from Albertans (about whether we) are getting our fair share,” energy minister Marg McCuaig-Boyd told reporters. “Could it be different? Could it be better? So we are delivering on that promise and reviewing.” The review of royalty rates will probably not be completed until the end of the year, but increases could be coming.

That has one top official at an oil company apoplectic. “The eco-activists and big labour will do their very best the next four years to squeeze the living hell out of our sector. The socialists have scored the keys to the castle, the biggest per capita economy in Canada, and Alberta will be home for one very grand social experiment. We are going to suffer immensely,” the oil executive told the Financial Post, asking to remain anonymous. Related: Top Shale Takeover Targets

And it is not just oil. Coal companies are worried that the Alberta government could force the closure of coal plants due to province’s new focus on climate change. The carbon tax and the potential increases in royalties will likely accelerate the trajectory of fuel switching. Coal could make up just 12 percent of Alberta’s electricity portfolio by 2030, down from 40 percent today. But the province could go further by capping the legal lifespan for a coal plant at 40 years, down from the current 50 years. That has raised the alarm for a few companies that would have stranded assets on their hands, as plants may have to shut down earlier than expected, which could amount to 2,600 megawatts of shuttered capacity by 2020.

Of course, shutting down coal, which accounts for Alberta’s largest source of greenhouse gas emissions, would be the purpose of climate policy.

By James Stafford of Oilprice.com

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  • John Clark on July 01 2015 said:
    Short sited and biased article! Our royalty was at 16% when Ron Liepert told us it was down to 6 falling from there. In addition he told Albertans to get rid of their feeling of entitlement and, tighten our belts. So much for Conservatives! Royalty was now at zero.

    Simultaneously a new carbon tax was announced to the world of 15%. The carbon tax was actually a renaming of our royalty income minus 1%

    So? Where is the other 1% they are not paying?

    Bottom line then is the carbon tax increase is actually only 4%. I ask you; just how kind hearted can you expect a Government to be?
  • Phil on July 02 2015 said:
    There must be some evolving benefit to eating your young.
  • Ernie on July 02 2015 said:
    John Clark

    The provincial government decided to raise the carbon tax beginning as soon as 2016, jumping from $15 per tonne to $20 per tonne. It will then go up to $30 per tonne in 2017.

    $30/$15 = 100% increase not 4%

    Also royalties are a complex calculation of flow rates, oil prices and capital recovery. They are not just 16%
  • Jacques on July 03 2015 said:
    This is the beginning of the end for Alberta, and 4 more years of taxes increase. You wanted it you have it. It is your turn to suffer, here in Ontario we are still suffering from 4 years of Bob Rea.
    Good luck
  • Robert on July 03 2015 said:
    May as well slow down capital investments as much as possible to push down an already suppressed oil market.

    Way to go. Looks like more people will be needing EI and that higher minimum wage.

  • Jim on July 03 2015 said:
    So the oil producers are down are they? Yet we haven't seen losses posted. The oil Companies are busy extracting profits from contractors right now, cutting rates and wages by over 50%. The article doesn't speak tot he fact that oil companies pay far more for oil in the US and pay taxes thast are higher as well. Canada also subsidizes oil producers at 4 times the average rate in the US per capita. The story is ridiculous, since it omits facts, that are very pertinent to the discussion. A discussion that need s to be had.
  • Brad Roy on July 03 2015 said:
    Yes Jim,,,,keep talking. This article and all other corresponding ones like this are simply ridiculous. No facts what so ever. Its time to pay the piper Koch Brothers. you own way to much of Mordor to finance your other ventures at Canadian taxpayers behest. You scream FREE MARKET but refuse to engage in this process. The free ride is over. I just dumped my car and bought a bike and bus pass,,,,talk about freedom eh.

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