Calgary

Alberta's new greenhouse gas rules may prove costly, says energy industry

Alberta's oil and gas producers say the new governments' plan to reduce greenhouse gas emissions and raise corporate taxes will be costly for the industry.

Oil and gas industry reacts to Environment Minister Shannon Phillips' new plan

The deadline looming over Alberta's greenhouse emissions plan is the COP21 United Nations conference on climate change in Paris at the end of the year. (Dave Olecko/Bloomberg)

Alberta's oil and gas producers say the new governments' plan to reduce greenhouse gas emissions and raise corporate taxes will be costly for the industry. 

Environment Minister Shannon Phillips announced on Thursday that by 2017, large emitters will have to reduce the intensity of greenhouse gases by 20 percent and carbon levies will double from $15 a tonne to $30 a tonne.

The new NDP government also announced it will renew and update the province's current climate change plan and has hired Andrew Leach, associate professor and academic director of energy programs at the University of Alberta School of Business, to chair an advisory panel.

Tim McMillan of the Canadian Association of Petroleum Producers says an industry already dealing with lower oil prices is now facing higher emissions penalties and the threat of increased royalty payments. (CBC)

Tim McMillan, president of the Canadian Association of Petroleum Producers, said he appreciates the phasing in of higher costs for greenhouse gas emissions. But combined with higher corporate taxes, the industry is set to lose $800 million over the next two years.

"This might be seen as piling on," he said. "When it comes to greenhouse gases, we've decreased the amount of carbon per barrel produced out of the oilsands by about 30 percent since 1990."

The Alberta government intends to increase corporate taxes by two percentage points on July 1. 

Bob Schulz, a professor with the Haskayne School of Business at the University of Calgary, questions the timing of the government's move given recent layoffs in the industry.

"There's going to be a consolidation coming that maybe the NDP government hasn't thought about, of companies that run out of cash, companies that can't get new financing, companies that are debt laden. You're going to see some other countries come in and swoop in and pick up some of Alberta's assets." 

But Capital Power CEO Brian Vaasjo cheered the changes at a news conference alongside Phillips on Thursday, saying more green energy investment is likely to result.

"Not only is it the right thing to do, it's the right time to do it," said Vaasjo. His Edmonton-based company generates power from coal, natural gas and renewables.

Not a good time, warns private equity manager

With oil prices continuing to hover in the US$60 a barrel range, it's not a good time to be raising costs for oilsands players, said Jackie Forrest, vice-president at ARC Financial, an energy focused private equity manager.

"Although this may only equate to less than a dollar of extra cost for a company when it is fully ramped up, that is actually quite material today because there's not very much free cash flow coming from these operations."

Analysts at Desjardins Capital Markets said they expect the tweaks to be "very manageable," but they'll serve as "another overhang on the sector," along with low oil prices and the royalty review.

The Desjardins report predicts Thursday's announcement is just the first phase of a major overhaul. A regime similar to British Columbia's $30-a-tonne broad-based carbon tax would not be "unmanageable," the analysts wrote.

"The big question, however, is what happens to royalties with the rollout of a carbon tax. Perhaps the NDP government will determine that reducing greenhouse gas emissions is a priority and royalties will actually be decreased to ensure ongoing investment in the lifeblood of the Alberta economy."

The government has already been talking to industry and climate change experts and intends to have a plan together by December 2015, in time for the United Nations conference on climate change in Paris, where Phillips is determined to present a cleaner, greener Alberta.

With files from Canadian Press

Comments

To encourage thoughtful and respectful conversations, first and last names will appear with each submission to CBC/Radio-Canada's online communities (except in children and youth-oriented communities). Pseudonyms will no longer be permitted.

By submitting a comment, you accept that CBC has the right to reproduce and publish that comment in whole or in part, in any manner CBC chooses. Please note that CBC does not endorse the opinions expressed in comments. Comments on this story are moderated according to our Submission Guidelines. Comments are welcome while open. We reserve the right to close comments at any time.

Become a CBC Member

Join the conversation  Create account

Already have an account?

now