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Alberta’s New Carbon Emissions Reduction Policy Favors Natural Gas

The sales outlook for natural gas in Canada’s chief producing province brightened Sunday when the Alberta government unveiled a new carbon emissions-reduction policy hitting coal-burning power plants and using a light hand on gas-burning oilsands production.

An accelerated timetable for phasing out coal-burning power stations and acceptance of gas-fired replacements will increase demand by up to 1.5 Bcf/d, said the Canadian Association of Petroleum Producers (CAPP).

The policy, laid out by the New Democratic Party government elected in May, says all 18 coal plants in Alberta must be gone by 2030. The previous Conservative regime’s environmental agenda let six of the stations linger for their full, decades-longer economic lifespans. The new agenda enables gas to fill at least one-third of the gap left by coal and sets a goal for “renewable” wind- and solar-power stations to take two-thirds, to the extent that they can compete using as-yet unspecified government assistance.

The New Democrats assured Alberta’s investor-owned power companies that they would not be stuck with suffering heavy losses on stranded coal-fired generating assets shut down before their time. A compensation plan is in the works, with a mediator already appointed.

About 55% of Albertan electricity comes from coal-burning plants, and the new government singled them out as the prime target for swift greenhouse gas emissions cuts instead of the province’s more famous carbon sources: thermal oilsands plants.

Mammoth bitumen extraction projects emerged as mainstays of investment and jobs across Canada, especially in Alberta, since the late 1990s, with production from mining and underground extraction sites climbing to more than two million b/d. Increases continue. Output is growing by another 800,000 b/d by 2020 at new projects and expansions of old ones where construction began before the current oil price slump.

Rather than disrupt the provincial and national economy, the New Democrats elected to enact a cap on oilsands greenhouse gas emissions that enables bitumen production to grow by 40%, even if the industry fails to improve environmental performance.

The new policy says provincial legislation will set a limit of 100 million tonnes per year on oilsands carbon emissions. The current level is 70 million tonnes. Long before reaching the ceiling, industry and government authorities predict bitumen developers will improve technology to ensure production can keep on growing indefinitely.

An increased “carbon price” or provincial emissions penalty will ensure the next few years become a “transition” era to cleaner Alberta production of all kinds, predicted industry and government alike after Premier Rachel Notley announced the policy.

The Alberta carbon price, set at C$15/tonne (US$11.25) for about a decade by the former Conservative government, will double to C$30/tonne (US$22.50) over the next two years. Eventually the new policy says the penalty will automatically rise at an annual rate of inflation plus 2%.

The policy spreads effects of carbon emissions management beyond industry, out across the entire population of Alberta as a display of Canadian good intentions for the United Nations world climate change summit in Paris next month.

Consumer carbon emissions fees -- the policy avoids using the politically dreaded phrase “carbon tax” -- will be set at levels deemed equal to the industry carbon penalty: C$0.07/liter (US$0.20/U.S. gallon) of gasoline, and C$1.68/gigajoule (US$1.32/MMBtu).

The new environmental fees amount to a 54% increase in the Alberta gasoline tax, currently C$0.13/liter (US$0.37/US gallon), to C$0.20/liter (US$0.57/U.S. gallon) and an entirely new levy on previously untaxed natural gas consumption.

While Alberta consumers digested the complex policy announcement with their Sunday dinners, CAPP and oilsands producers Canadian Natural Resources Ltd., Cenovus Energy, Suncor and Shell Canada immediately circulated supportive statements.

The government predicted its annual carbon penalty and fee revenues will hit C$3 billion (US$2.25 billion) in 2018 and climb to C$5 billion (US$3.8 billion) by 2030, but promised rebates to low-income consumers and clean energy research investments.

The industry sees the new policy as a counter against the cartoon image painted of Alberta by eco-groups and evoked by President Barack Obama when he rejected the Keystone XL export pipeline project as a “dirty oil” conduit.

“We expect today's announcement to further enhance the reputation of our sector and improve our province's environmental credibility as we seek to expand market access nationally and internationally,” CAPP President Tim McMillan said.

“As well, the province's climate strategy may allow our sector to invest more aggressively in technologies to further reduce per barrel emissions in our sector and do our part to tackle climate change,” McMillan said.

The provincial premier agreed in her policy announcement statement. “Responding to climate change is about doing what’s right for future generations of Albertans -- protecting our jobs, health and the environment.”

Notley said, “It will help us access new markets for our energy products, and diversify our economy with renewable energy and energy efficiency technology. Alberta is showing leadership on one of the world’s biggest problems, and doing our part.”

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