Where does Alberta's carbon tax, which takes effect this week, fit in the global fight against climate change, and what will it mean for households and the oil and gas industry?
Andrew Leach, an economist at the University of Alberta and the architect of the province's climate change plan spoke with the CBC about some of the common questions that Albertans have about the carbon tax.
Here are edited excerpts from the interview:
Let's start at the beginning; what's the point of a carbon tax?
The goal is to shift relative prices so that people move to lower-emissions lifestyles and activities … and it's to put that decision-making power in the hands of individuals as opposed to in the hands of government regulation.
So what kind of decisions are we talking about?
We tend to focus on the really visible, outward, flashy things — the electric cars, the solar panels, these types of things — but a lot of the time where the biggest gains are for individuals, and for greenhouse gas emissions, are in the simple boring stuff, weather stripping around doors, insulation in attics, windows, things that don't make a huge visible imprint … but really do have a massive bang for the buck.
What will this mean for household budgets?
This isn't a policy where we're all of a sudden making the use of fossil fuel-based energy, whether for transportation or for home heating, prohibitively expensive.
- Alberta carbon tax calculator: How much will you pay — or get back?
- What Alberta's new carbon tax will mean for these 6 households
Where for an individual replacing their furnace previously, it may not have made sense for them to put in a high-efficiency furnace, maybe now it makes sense for them to put in a high-efficiency furnace as opposed to a standard furnace. For an individual looking at new windows, maybe it makes sense to go from a double-pane window to a triple-pane window or it makes sense to pay a little bit more for the gas treatment within the panes to increase their energy efficiency a little bit. It just changes those tradeoffs at the margin.
Which households will be better and worse off?
It makes higher-emissions lifestyles more expensive, it makes lower-emissions lifestyles less expensive, it has credits that are more generous — in relative terms — at the lowest income [levels], but … within those income brackets, you're talking about someone earning less than $20,000 a year who might end up $200 a year better off than they would otherwise be, where someone earning $140,000 a year might end up a few hundred dollars worse off than they would otherwise be.
The energy industry, as we know, competes for investment globally with money flowing to the most attractive places. Will a carbon tax make Alberta's industry less competitive?
It's certainly a valid concern … our policy makes low-cost resource developments and low-energy input resource developments cheaper than they would have otherwise been. The ones that it makes more expensive are the ones with really, really high greenhouse gas emissions
Yes, there are potentially some different cost structures that come in from carbon emissions policies, but there's also a big swing in the operating environment that's come about as a result of the royalty framework. Let's look at the whole thing, let's not just say "all else equal what about this carbon policy?" Let's remember these two frameworks were developed simultaneously.
The New York Times recently quoted you as saying the carbon tax was a "rounding error" for producers. It's a sentiment that didn't sit well with some in the industry, who say it's evidence the new policy is out of touch with the competitive realities on the ground.
If you look at the average cost [of the carbon tax] on a top quartile oilsands facility, it's 20 cents a barrel. Relative to the uncertainties around oil prices, that's not a material change in the economics of an oilsands facility.
And so where that quote came from was me saying relative to the potential swings in oil prices … the potential impact of carbon pricing is a rounding error. These are changes that matter, but they're just not as big as the uncertainty we have right now over the oil price. Taken in context, I think people would be happier with that quote.
What would you say to Albertans who would rather wait and see what the rest of the world does on climate change before putting a price on carbon? They wouldn't mind taking some type of action, but worry about what this will mean for the economy.
We're not saying shut down Alberta's economy to solve climate change.
What do we know about climate change? We know it's a global collective action problem and so it would be very easy for all of the jurisdictions in the world to divide themselves into small enough parts to say they don't matter.
The problem is one of adding up all of those jurisdictions. It doesn't actually change the problem if we divide everybody up into small pieces and say nobody matters. Is Canada or is Alberta, in and of itself, going to stop the problem of climate change? Absolutely not, but no one's ever said it would.
That would seem to speak to the idea that Canada is only responsible for 1.6 per cent of global emissions, a point raised by critics who regard domestic efforts to fight climate change as futile. In that context, does it really matter what Canada does?
There are a lot of things we do [even though] we're small. Every individual Albertan isn't going to make a difference when it comes foreign aid. We're not a large part of the response to the global refugee crisis, but that doesn't mean that what we're doing doesn't matter.
What about China and the U.S.? What they're doing or, perhaps, not doing often comes up in this same discussion.
The red herring that other countries are not acting has been bandied around, but I think people should have a look at the rapidity of solar and renewables deployment in China.
The world is moving on this problem for a variety of reasons, and I think Alberta should be part of it.
China's large, there's no getting around the fact that on most of these files, China's going to have a key role in determining the trajectory for the world. Let's look at China's problem compared to Alberta's. China is resource poor in alternatives to coal. Their access to natural gas and other alternatives is far more expensive, but we as Alberta are going to turn around to them and say, "You guys should really get off coal." Now, we're not prepared to do it, despite the fact that we have a vast reliable local source of natural gas and we have higher disposable incomes, but we think you should do it and we'll do it when you do. That's a pretty hard case to make.
Is Canada really enough of a global player to take on this kind of leadership role?
I would think in a lot of other fields, people would have a very different impression. When you get thinking about things like our NATO presence, we're a very small percentage of a vast majority of NATO efforts … we're a small portion of global foreign aid, refugee crisis, you can list them all. We're always going to be small, because we're a small portion of the global population.
Saying all that, some still believe Alberta should stay on the sidelines. If you were trying to convince them otherwise, what might you say?
The motivation to act upon this from Alberta's perspective is, in part, an economic self-interest. We're not facing the choice between action or inaction. We're facing the choice of action that we set the agenda for or action imposed on us by others.
- How much will the tax cost you? Use our Carbon Tax Calculator to find out.
- How the CBC Alberta carbon tax calculator assesses groceries and indirect costs