As it announced the 2016 budget on Thursday, Alberta’s NDP government outlined the details of its new province-wide carbon tax, which includes levies on transport fuels and natural gas that will accompany consumer rebates and a cut in the small business tax rate.

The measure is part of a suite of climate actions announced by newly-elected Premier Rachel Notley and her NDP government last year, which also include an expansion of Alberta’s carbon market, a cap on emissions from the oilsands, and the phasing out of the province’s coal-fired power plants by 2030.

Below are the Carbon Pulse’s main takeaways from the government’s carbon tax plan:

• Starting Jan. 1, 2017, a tax of C$20/tonne will be applied to transportation and heating fuels such as diesel, gasoline, natural gas, and propane. It then rises to C$30/tonne from Jan. 2018.
• The government said it will not increase the tax further “until the economy is stronger and the actions of other jurisdictions, including [Canada’s] federal government, are better known.” This is in contrast to recommendations from province’s climate taskforce, which last year said Alberta should continue to increase the tax over time.
• The programme is estimated to raise some C$9.6 billion over the next five years, which will be “fully reinvested” in Alberta’s economy. This includes:
  • C$6.2 billion for diversifying its energy sector, building large-scale renewables and bioenergy facilities, incentivising energy efficiency, and expanding its low-carbon infrastructure including transit.
  • C$3.4 billion being channelled back to consumers and companies to offset the impact of the tax, including the small business tax rate being cut to 2% from 3%, and to communities affected by the province’s decision to phase out coal-fired power.
• “Six in 10 Alberta households will receive a rebate that covers the average cost of the carbon levy they pay,” the government said, adding that refunds will be up to C$360 in 2017 versus a C$338 increase in living costs stemming directly from the tax. In 2018, the maximum rebate rises to C$540 compared to an estimated tax impact of C$508.
• However, high-earning households with total incomes above C$100,000 will receive no compensation.
• Below is a table of the how the tax will affect the cost of major fuels:

NEW TRADING SYSTEM

Large industrial emitters are exempted from the tax but will continue to be subject to Alberta’s nine-year old Specified Gas Emitters Regulation (SGER) until the end of 2017, when the government said the market-based carbon levy programme will transition to a sectoral benchmark-based trading system called the Carbon Competitiveness Regulation (CCR).

Under the SGER, only facilities that emit 100,000 tonnes or more are this year required to reduce their emissions intensity by 15%.  Companies that exceed these levels have the option to buy Alberta-based carbon offsets or emissions credits from other installations, or pay a C$20/tonne levy into a provincial innovation fund.  In 2017, the SGER’s emissions reduction rate rises to 20%, and the levy to C$30/tonne.

Under the new CCR system, all major emitters operating in around 12 trade-exposed industries, including oil and gas, power, petrochemicals, chemicals, cement, coal mining, and fertilisers, will be covered, with the cleanest installations in each sector receiving free emission allowance quotas based on sectoral baselines.

In addition, the innovation fund, dubbed the Climate Change and Emissions Management Fund, will cease to exist in its current form, and the CCR’s per-tonne levy will be aligned with province’s wider carbon tax.

The government on Thursday said further details on the new programme will be available following its consultations with industry.

FACTFILE:

• Alberta is Canada’s most polluting province, accounting for more than a third of the country’s total GHG emissions of around 730 million tonnes.
• The province has pledged to cut its emissions by 50 million tonnes below business-as-usual levels by 2020 – a target that was set under the previous conservative government and one that most observers say is unreachable. Alberta is also aiming to halve BAU emissions by 2050, equivalent to a 14% cut below 2005 levels.
• The Notley administration has said it won’t rush into setting a 2030 target, adding that any such announcement may come alongside similar pledges and actions to be announced by the federal government and other provinces later this year.
• In 2014, 18 coal-fired generators provided 55 percent of Alberta’s electricity, with a further 31% coming from gas-fired plants. The power sector accounts for around 17% of the province’s GHG emissions, with the oil sands making up the largest portion.
• Alberta will apply a 100-million tonne limit on annual emissions from its oilsands, well above the industry’s current output of around 70 million tonnes.
• On-site combustion in conventional oil and gas will be forced to pay the carbon levy from 2023.
• Alberta is also targeting a 45% reduction in methane emissions below 2014 levels by 2025, matching goals set by the Canadian and US federal governments.

By Mike Szabo – mike@carbon-pulse.com