The federal government's carbon pricing plan will eliminate Alberta's hard-earned climate gains
Gas will have a much stricter limit applied to it than coal, despite being a much cleaner fuel
Back in October, Justin Wheler, Executive Director of Regulatory and Compliance at Alberta Climate Change, told a symposium at the University of Alberta that if year to date trends hold, greenhouse gas (GHG) emissions from electricity generation in the province are expected to decline by a net eight megatonnes for this calendar year. To put this in perspective, that is a three per cent reduction for the province, and an incredible one per cent for the entire nation – from one pricing policy, in one industry, in one province.
Shortly thereafter, the federal government announced its new pricing policy for the electricity sector, a backstop measure for those jurisdictions that do not adopt their own policy. The feds propose to use a complex economic device for large industries called an output based pricing system (OBPS), which is designed for emissions-intensive, trade-exposed industries.
The policy, well explained by Canada's Ecofiscal Commission, means that emitters pay the full carbon price on their emissions, but then get a rebate back on emissions below a certain threshold, generally the average or best in class for the industry.
This has been shown to be equally effective as a flat carbon price as far as incenting reductions, while it also does not penalize emitters to the extent that they might move to a non-carbon pricing jurisdiction. It incentivizes low emitting plants while discouraging high emitting ones, supporting a low-carbon transition.
It is essentially the same system that Alberta implemented on Jan. 1, which has been so remarkably effective in reducing emissions. But the federal government is adding a twist by applying the benchmark for credits differently to different fuel sources (800 tonnes of CO2/MWh for coal, 370 tonnes of CO2/MWh for gas), meaning that gas has a much stricter limit applied to it than coal, despite being a much cleaner fuel. Renewable energy gets no added incentives (unlike the current Alberta pricing scheme) despite being emissions-free.
This seemingly small change will make a heck of a difference. It has been calculated by economist Blake Shaffer that the cleanest coal plants, despite being much much dirtier than gas, and much, much, much dirtier than renewables, will only pay the equivalent of $1 per tonne. In contrast, you and I, average Canadian citizens, will be paying a rate of $20 per tonne starting in 2019. With this thumb on the scale, coal plants will be incented to run before cleaner gas plants. And why rush to build new renewable energy when coal plants are going to be cheap enough to stay in the game for the long haul?
Why the discrepancy? Well, there's an election coming up, and surely there's concern about jurisdictions that continue to rely on coal as a fuel source paying so much in carbon pricing that their electricity prices would rise too high. So the federal government has opted to essentially subsidize coal burning instead.
Except, a long-term rise in electricity prices probably wouldn't happen. The whole point of pricing carbon is to motivate behavioural change, and that applies to big utilities as well as individuals. With recent wind prices being as low as 3.7 cents per kilowatt-hour, and solar prices plummeting below the cost of gas and even coal-fired electricity, it wouldn't be long before Saskatchewan, New Brunswick and Alberta transition to a cleaner, and cheaper, electricity grid.
But what does this have to do with Alberta? Both the governing NDP and the poll-leading United Conservative Party leaders have vowed to cancel our own pricing regime, thus triggering the federal backstop (Rachel Notley in 2021 and Jason Kenney after the provincial election). Reverting to federal policy is projected to increase emissions from the sector by five to eight megatonnes per year, or an additional 100 megatonnes in total until the last coal plant closes in 2029. Added to this is the incredible uncertainty transmitted to our utility industry at a time when investments for the future must be planned.
With the production of GHGs from coal comes the production of other air pollutants, such as nitrogen oxides, sulfur dioxide, mercury and particulate matter. As a physician, I have spent years fighting coal pollution from coal plants, which has been linked to at least 100 premature deaths in Alberta each year. Finally, this year I can celebrate our utilities. Thanks to the invisible hand of carbon pricing, they are doing the right thing, and the plummeting use of coal in our province is cleaning Alberta's air, and saving lives.
Sadly, the current federal pricing plan will eliminate many of these gains, and likely make things even worse. Climate and health will once again be jeopardized by coal combustion, at a time when cheap, emission-free alternatives exist. We need to embrace the future of climate action, not cling desperately to the past.