Ottawa-Alberta Deal Strangles Energy Sector with Red Tape

The recent agreement between Ottawa and Alberta on a potential new pipeline has come at a steep price for Alberta's energy sector. The province will have to pay a higher industrial carbon tax, which will reach $130 per tonne by 2040, up from the current rate of $95 per tonne. This increase is part of a broader deal that includes renewed support for the costly Pathways carbon-capture project.

The carbon tax system in Alberta sets greenhouse gas emissions limits for large facilities, such as oilsands operations and refineries. Companies that exceed these limits must either pay a fee to the government or buy credits from companies that emit less than allowed or undertake emissions-reduction projects. The new agreement builds on last year's memorandum of understanding.

Despite a slower increase in the carbon tax, it will still have significant impacts on Alberta's energy sector. A tax set at $170 per tonne by 2030 was projected to reduce global emissions by less than 0.17 per cent, so a slower increase to $130 by 2040 will achieve even less.

Raising the cost of investing in Alberta's energy sector will shift investment to regions with more competitive tax and regulatory environments, potentially leading to higher emissions elsewhere. The agreement also confirms Alberta's commitment to stricter methane rules, which could further erode the competitiveness of the province's energy sector.