Alberta's carbon tax: What we still don't know

Just eight months before Alberta's new carbon tax takes effect, the provincial government still has to iron out how some key pieces of thenew program will work.

The Climate Leadership Plan, which launches January 1, 2017, will create widespread change in the province far beyond having to pay a little extra at the pumps.

At $30 atonne, there is Alberta and British Columbia at the top. Nowhere else in North America will come close- Trevor Tombe, U of C

The recent Alberta budget provided some new details,including who is exempt from the tax and what the financial impact will be for the average Albertan. Still, some significant details are unknown with billions of dollars in the balance.

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Here are some important parts of the policy and what informationwe're missing.

Large industry

Large manufacturers andoilsands facilities are not exempt from paying the carbon tax. They will pay $30 a tonne for emissions just like everyone else. What's different thoughis these large emitterscan receive rebates so that they can maintain their competitive advantagein North America. The rebates also providesomeincentive for those facilities to reduce greenhouse gases.

The Alberta government still has to announce a performance standard, by which theselarge emitterswill measure themselves.

Above the benchmark, companies will pay a carbon tax. Below the benchmark, they can receive a subsidy.

Apart from not knowing where the benchmark will be set, we don't knowhow much the subsidies will be. The government says it needs to talk to industry further. Large emitterswon't join the carbon tax programuntil 2018, so instead they will keep paying into an existing program, called theSpecified Gas Emitters Regulation (SGER).

"The critical difference between the existing program and the new proposal is that under the previous program (SGER), firms had these performance benchmarks, but they were all differed. Every firm had their own benchmark and that's a terrible way to do things," said Trevor Tombe, an economist with the University of Calgary.

Although no numbers are available, someanalysts have estimated the most carbon intensive oilsands projects could pay up to $5 per barrel of oil, while the most efficient could make money from the government for each barrel of oilproduced.

How the government sets the performance standard will determine how much money it can use to fund other parts of its climate plan such as transit and renewable energy projects throughout Alberta.

Power plants

Electricity producers in the province are also waiting to hear what performance standard they will have to hit. It's believed the benchmark will be set at the level of emissions produced by a well run natural gas power plant.

"Coal facilities emit much more, so they will be dramatically above that benchmark and their costs will grow much more," said Tombe.

For renewable energy producers, it's expected they will walk away with extra money in their pockets. How much, again, depends on the performance standard.

Electricity prices

Electricity prices are currently at their lowest levels in Alberta in almost 20 years. That is expected to change once the carbon tax comes into effect. Low cost electricity from coal power plants won't be as cheap anymore.

What's unknown is how much of an impact the carbon tax will have on prices. One analyst said there is no escaping higher prices with the provincial government's new climate plan. In Alberta's deregulated electricity market, there are other factors that could shift prices as well.

Even those who follow the province's electricity market closely can't quite figure out what will happen with electricity prices.

It's one reason why the opposition Wildrose'sestimateabout the carbon taxwas discredited by economists. The party saidfamilieswould be hit with at least $1,000 in extra costs when the climate plan was fully implemented. The numbers were based on a 2014 study by Nic Rivers, a University of Ottawa professor.

There were a few problems with the Wildrose's calculations, saidRivers, such as not taking into account theAlberta government's decision to rebate some power producers, which will avoid passing on indirect costs to Albertans.

"Theyare probably substantially too high," he said of the Wildroseestimates.

The Alberta governmentestimates its $30 a tonnecarbon tax will mean an extra $540 for the average family of four. It is also providing rebates.

Carbon tax hike

Alberta's carbon tax will begin at arate of $20 pertonnebeginning January 1, 2017. One year later, the levy will increase to $30 pertonne.

That's where the price will stay for the time being. Alberta likely does not want to go much higher because then the province runs the risk that some of its industries could be at a disadvantage with competitors in other provinces and states. The Ecofiscal Commission warned about this in a study back in November.

"At $30 a tonne, there is Alberta and British Columbia at the top. Nowhere else in North America will come close," said Tombe.

Only after other provinces and states catch up would it make senseto go higher.

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