Alberta’s carbon policies damage province’s competitiveness
The Notley government recently announced new regulations aimed at providing emission-cutting incentives for industry. The so-called Carbon Competitiveness Incentives will begin in January and apply to emission-intensive industries including oilsands operations. Alberta Environment Minister Shannon Phillips claims the plan will "ensure companies remain competitive." Meanwhile, it’s getting harder to attract capital to Alberta’s oil and gas industry due to regulatory and taxation concerns.
Here’s how it will work. Instead of measuring emission reductions on a facility-by-facility basis as the previous structure did, the new system will compare each company’s emissions to an industry benchmark. Firms that create fewer emissions than the benchmark will receive credits while less-efficient producers will buy offsets or pay levies on emissions over the benchmark. Although the new system is an improvement (as it increases incentives among firms), it comes at a high cost for large industrial emitters—an estimated $1.2 billion a year by 2020, though credits and rebates will probably lower the cost to about $800 million.
These new high-cost regulations will be implemented while Alberta’s oil and gas industry already faces competitiveness concerns in a tough business environment. Indeed, according to this year’s Global Petroleum Survey, which highlights policies (royalties and taxes, duplicative regulations, political stability, etc) that make a jurisdiction attractive or unattractive to oil and gas investment, Alberta already lags behind many U.S. states in key policy areas including regulatory compliance and taxation.
In fact, survey results show Alberta’s investment climate remains far behind 2014 levels when the province ranked 14th (out of 156 jurisdictions). In 2016, Alberta fell to 43rd of 96 jurisdictions and only rose to 33rd of 97 jurisdictions this year. Alberta’s (33rd) rank is well behind international competitors such as Texas—the most attractive jurisdiction in the world—Oklahoma (2nd) and North Dakota (3rd).
More specifically, in 2017, 70 per cent of survey respondents cited the high cost of regulatory compliance as a deterrent to investing in Alberta compared to only 9 per cent in Texas and 16 per cent in Oklahoma. And 52 per cent of respondents see taxation as a deterrent to investing in Alberta compared to only 13 per cent in both Texas and Oklahoma and 9 per cent in North Dakota.
What factors have contributed to Alberta’s drop in the eyes of oil and gas investors? And what’s encouraging investment south of the border? Simply put, policy directions.
Since 2015, the Alberta government has increased corporate income taxes by 20 per cent, implemented a carbon tax, and introduced a new slate of environmental regulations including a cap on emissions from oilsands production.
Meanwhile, across the border the Trump administration is adopting the opposite approach, implementing sweeping energy-sector reforms that cut taxes and regulations, opening additional lands, suspending onerous regulations, dropping international greenhouse gas obligations, allowing oil exports and promising to cut taxes on business. In fact, President Trump’s latest tax plan calls for a reduced corporate tax rate, from 35 per cent to 20 per cent. The direction of the Trump administration, compounded with the Notley government’s new high-cost regulations, will likely exacerbate the U.S. advantage over Alberta in terms of investment attractiveness.
In reality, investors will flock to greener pastures if government policies are too costly. Alberta’s new regulations, layered on top of other regulations and tax increases, will undermine the competitiveness of the province’s oil and gas industry. If the Notley government wants to attract investment to the province, it should re-think its high-cost policies.