Alberta's climate-change plan: Breaking down the numbers

Sunday afternoon offered up another surreal moment in Alberta's history, as oil executives stood side by side with environmentalists, First Nations, academics and NDP politicians, all seemingly thrilled to be announcing a carbon tax for the province.

• Alberta's climate change strategy targets carbon, coal, emissions
• Carbon taxes could hit oilpatch hardest

You could imagine them heading to the football game together after the announcement, secure that by presenting a unified front they had made inevitable something that seemed impossible just a year ago.

But now the questions begin: Will the plan reduce Alberta's carbon emissions and rehabilitate its reputation? If so, at what cost? And who gets the money?

'A missed opportunity'

The big question is whether this carbon tax is really revenue neutral, as Alberta Premier Rachel Notley said.

Many things will become more expensive in Alberta in 2017: Consumers will pay more particularly for fuel, heating, and quite possibly electricity, while industry will pay for its greenhouse gas emissions.

If the recommendations of the report are accepted by the government, and there's no reason to think they won't be, there will be a $30 a tonne charge on carbon emissions, fully phased in by 2018.

Trevor Tombe, an economist with the University of Calgary, did a rough calculation after the report was released, multiplying the taxable greenhouse gas emissions in Alberta by $30.

That roughly works out to $6 billion.

After paying out some subsidies to large emitters (which we'll get to), the province expects revenue to be around $3 billion in 2018. Some of that money will be recycled into the economy through rebates to lower-income families and investments in green technologies. But there is also the potential for the fund to be used for "fiscal capacity."

The report said one use for the carbon tax revenue would be "providing incremental fiscal capacity for government priorities, be they infrastructure spending, tax reductions, deficit reductions or other programs."

That's not really revenue neutral. When British Columbia introduced its carbon tax in 2008, it reduced corporate and personal income tax rates. That's revenue neutral.

"I view it as a missed opportunity," said Tombe, who pointed out that income taxes tend to change or distort the labour market, acting as a disincentive for individuals to earn more and for companies to hire.

"We know that corporate and personal income taxes are much more distortionary forms of taxation, so there's an opportunity to shift the source of tax revenue toward carbon."

However Tombe said that the carbon tax might stop further tax increases if its used to slay the deficit, which would a positive.

Opposition politicians were also quick to criticize the plan. 

"A revenue neutral carbon tax that was offset with reduced income taxes would be about the environment," tweeted Finance critic Derek Fildebrandt. "This is a cash grab."

Keeping the oilsands competitive

While oilsands producers started calling for a carbon tax months ago in their submissions to the climate leadership panel, they raised the issue of competitiveness. Imperial Oil was quoted in the report saying that until the United States puts a price on carbon, any extra costs to invest in Alberta will have a negative effect on the industry, as it's very easy to shift investment to the U.S.

That may sound good to the environmental movement, but the panel, led by economist Andrew Leach, made the case that it didn't want to see investment move to locations where there is no carbon charge, because overall global emissions would increase at a loss to Alberta's prosperity.

The question is the amount of the subsidy. Tombe took an educated guess.

He's estimating a $2.8-billion subsidy to large emitters to deal with the competitiveness issue and to protect industry in a time when prices are very low.

The plan for industry is a hybrid of a straightforward carbon tax and a cap-and-trade system that allows the buying and selling of carbon credits, according to Michal Moore, an economist with the University of Calgary's school of public policy. He said it should spur industry to innovate, lower its emissions and possibly even make money trading permits.

"If you're trying to find that sweet spot that causes industry to want to invest, $30 a tonne is just enough to get them to come off the dime," Moore said. "The carbon change that he's proposing combined with a tradable permit system is clever and it's got a lot of chance of success."

Will GHG emissions go down?

In the report, success is measured by topping out Alberta's greenhouse gas emissions at around the level where they are now, which the panel admits is not enough to meet the global goal of a two degree warming limit.

The report said that until other jurisdictions that compete with Alberta follow suit, it's too risky to the province's prosperity to charge a higher price on carbon for the time being. However, the tax is at the same level of British Columbia, and that province's carbon tax is generally considered a success.

Tombe said there's little question that Alberta's carbon tax will have the same effect, as people in the province start to adjust their behaviour.

"They'll respond to the carbon tax in a variety of different, subtle ways," said Tombe. "Millions of small decisions adding up to the total."