The Case for a Carbon Tax in Alberta

Abstract

In 2007, Alberta demonstrated that it could be a leader in the effort to reduce greenhouse gas emissions by becoming the first North American jurisdiction to put a price on carbon. Given that the province had long been criticized for its central role in the carbon-based economy, Alberta’s move was important for its symbolism. Unfortunately, the emissions policy itself has delivered more in symbolism than it has in actually achieving meaningful reductions in greenhouse gas emissions. The Specified Gas Emitters Regulation (SGER), as the carbon-pricing system is formally called, has only helped Alberta achieve a three per cent reduction in total emissions, relative to what they would have been without the SGER. And emissions keep growing steadily, up by nearly 11 per cent between 2007 and 2014, with the SGER only slowing that growth by a marginal one percentage point. Alberta’s carbon-pricing policy simply fails to combat emissions growth; the province needs a new one. Lack of progress in reducing emissions appears to be partly attributable to the fact that many large emitters find it more economical to allow their emissions to rise beyond the provincially mandated threshold, and instead are purchasing amnesty at a lower cost through carbon offsets or by paying the levies that the SGER imposes on excess emissions. But it is also partly attributable to the fact that the SGER only applies to large emitters who annually produce 100,000 tonnes of CO2-equivalent all at one site: mainly oil sands operations and facilities that generate heat and electricity. This excludes operations that emit well over that threshold, but across diffuse locations. The transportation sector, which is typically spread out in just such a way, is the third-largest sector for emissions in Alberta. Its emissions are also growing faster than those of the mining and oil and gas sector, even as emissions in the electricity and heat generation sector are actually declining. And if we combine the emissions from the transportation sector with those of the manufacturing and industrial sector, which can also be characterized by scattered operations, they substantially exceed those of the electricity and heat generation sector. Indeed, over 58 per cent of Alberta emissions come from places other than oil and gas and mining. There will surely be those who prefer strengthening SGER to a carbon tax; this is not likely to make enough of a difference for Alberta to meet its carbon-reduction goal of 218 Mt by 2020. The government would make far more progress by implementing a broad carbon tax, similar to the one in British Columbia, which applies to all emitters and consumers. The cost to the economy would not be steep: For a $20 per tonne tax, the cost would be 0.9 per cent of gross output (or 1.7 per cent at $40 a tonne). And the cost to households would be less than $700 a year. As in B.C., the proceeds would be better recycled in the form of reduced corporate income taxes, personal taxes, and subsidies to lowincome households, to offset the extra burden and distortions a carbon tax would create. But unlike the current SGER, a carbon tax would succeed in being more than a symbolic, largely futile gesture.