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Alberta Carbon Tax Revenue on Individuals Would Offset Oil/NatGas Royalties Decline

Canada’s chief oil- and gas-supplier province has decided upon a partial replacement for production royalties gutted by fallen commodity prices: consumer taxation billed as an environmental measure by a left-leaning New Democratic Party government.

A new estimate by the Alberta government predicts that its “carbon tax” will raise C$9.6 billion (US$7.4 billion) in its first five years after motorists and households begin paying the levy every time they fill their tanks and turn on appliances in 2017.

The provincial treasury’s royalties from publicly owned natural resources shrank by 80% over the past 10 years to C$2.8 billion (US$2.2 billion) in the government fiscal year of April through March 2015-2016 from the peak of C$14.3 billion (US$11 billion) in fiscal 2005-2006.

The shale gale that glutted natural gas markets and flattened prices caused much of the loss as eastern Canadian markets switched to imports from the nearby U.S. Marcellus Shale (see Daily GPI, Sept. 9).

Alberta gas royalties plunged by 94% to C$493 million (US$380 million) in 2015-2016 from C$8.4 billion (US$6.5 billion) in 2005-2006. Annual average prices fetched by Alberta production dove to C$2.21/gigajoule (GJ) (US$1.79/MMBtu) in 2015-16 from C$8.29/GJ (US$6.70/MMBtu) in 2005-2006.

The new consumer tax regime translates estimates of greenhouse gas emissions by personal uses of oil and gas into fuel price hikes. The regime will kick in at C$20 (US$15.40) per ton of carbon-dioxide emissions as of January 2017 then jump to C$30 (US$23.10) as of Jan. 1, 2018.

The carbon tax rates will start next year at C$1.01/GJ for natural gas (US$0.82/MMBtu), C$0.0449 per liter (US$0.13 per U.S. gallon) for gasoline, C$0.0535/L (US$0.16 per U.S. gallon) for diesel, and C$0.03/L (US$0.09 per U.S. gallon) for propane. As of Jan. 1, 2018, the rates rise to C$1.51/GJ (US$1.22/MMBtu) for natural gas, C$0.067/L (US$0.20 per U.S. gallon) for gasoline, C$0.08/L (US$0.23 per U.S. gallon) for diesel, and C$0.046/L (US$0.13 per U.S. gallon) for propane.

Canada’s biggest and fastest-growing natural gas users -- thermal bitumen extraction sites in the oilsands belt across northern Alberta -- are exempt from the carbon tax. Instead, industrial consumers continue to face an emissions penalty regime created by the previous Conservative provincial government nearly 10 years ago.

The system allows industrial plants to cut greenhouse gas penalties by reducing carbon exhaust or buying offsets on a provincial emissions trading market that largely obtains its supply of credits from Alberta farmers.

A Canada-wide version of the Alberta carbon tax regime is widely expected to emerge from forthcoming national climate change policy meetings between the federal, provincial and territorial governments.

Only the Saskatchewan government has voiced outright opposition. Confidential talks and committee work have been under way among officials of all the Canadian jurisdictions since the federal Liberal government pledged to support the United Nations’ 2015 Paris agreement on global greenhouse gas reduction (see Daily GPI, Dec. 14, 2015).

The Alberta carbon tax regime demonstrates potential political advantages of the levies by showing how the money can be poured into a separate accounting pot and ladled out for programs deemed to be popular.

“The carbon levy is the key tool that will pay for the transition to a more diversified economy,” say the Alberta New Democrats. A stronger, wider variety of livelihoods is currently a common wish across a province suffering from rising unemployment and shrinking incomes due to erosion of the old gas and oil mainstays.

Of the C$9.6 billion (US$7.8 billion) to be raised over the next five years the government promises “C$6.2 billion (US$4.8 billion) will help diversify our energy industry and create new jobs.” The package commits C$3.4 billion (US$2.6 billion) to renewable energy projects, C$2.2 billion (US$1.7 billion) to “green infrastructure” led by public transit, and C$645 million (US$497 million) to a new Energy Efficiency Alberta agency for helping provincial residents improve their performance.

The remaining C$3.4 billion (US$2.6 billion) of the projected five-year tax proceeds are committed as C$2.3 billion (US$1.8 billion) for “carbon rebates” to households on the low end of the income ladder, C$865 million (US$666 million) to cover costs of a provincial small business tax cut, and C$195 million (US$150 million) in aid programs for communities hurt by plans to abolish coal-fired power stations by 2030.

Long before the New Democrats won power 16 months ago Alberta oil and gas industry leaders urged the provincial government to use consumer taxation instead of resource royalties for programs with a green political tinge. The old Conservative regime refused, calling carbon levies just politically suicidal sales taxes with green bows tied on them. But in corporate and financial circles where royalties are viewed as economically lethal, the switch in the provincial government’s revenue base is regarded as a blow for fairness.

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