Alberta Premier Danielle Smith welcomed a promise from the Conservative Party of Canada on Monday to eliminate the federal backstop on industrial carbon pricing, if it were to form the next federal government. Although it appears unlikely the province would abandon its longstanding pricing system altogether.
“We fully support Pierre Poilievre’s commitment to return jurisdictional authority back to the provinces to regulate their own industrial emissions,” Smith said in a written statement.
Back in 2007, when Stephen Harper was prime minister and Ed Stelmach was premier, Alberta became the first jurisdiction in North America to put a price on industrial carbon emissions.
This policy is separate from the consumer-level carbon pricing — commonly known as the “carbon tax” — that Alberta adopted in 2017 under NDP premier Rachel Notley, then repealed in 2019 under UCP premier Jason Kenney.
Almost immediately after that, Alberta became subject to the federal carbon tax under Justin Trudeau’s Liberal government, which has now been effectively killed by Mark Carney’s Liberal government.
Throughout all this flux, Alberta’s industrial-scale pricing system has persisted. It has, however, undergone numerous changes over the years, including per-tonne price increases that keep it in line with the requirements of the federal backstop.
On Monday, Conservative Leader Pierre Poilievre pledged to eliminate federal carbon-pricing law altogether, including the backstop, if his party wins the next federal election. Provinces would be free to do as they like with their own industrial policies, he said.
How Alberta’s industrial carbon-pricing system works
Large-scale emitters — such as oilsands facilities, power plants, and other facilities with more than 100,000 tonnes of annual emissions — are subject to this industrial system of carbon pricing.
The carbon price only applies to the portion of their emissions beyond facility-specific “benchmarks” that are calculated by a complex formula.
At the same time, facilities can also receive credits for cutting emissions below their reduction targets.
Low-emitting facilities can sell their credits to higher-emitting facilities, which can then use the credits to avoid paying a portion of the carbon price they owe. This effectively creates both a carrot and stick within a single policy, with the carrot for low-emitting facilities being funded by the stick that applies to high-emitting facilities.
The money from facilities that do pay the carbon price goes into a fund that is administered by a provincial agency which offers grants to support projects and new technologies “that reduce emissions, lower costs, attract investment, and create jobs in Alberta.”
This approach to industrial carbon pricing has seen broad support from a variety of Alberta leaders, including former premier Jason Kenney.
“That fund, paid for by major emitters, I think is a good way of doing it,” Kenney said in 2018, even as he campaigned against Alberta’s consumer-level carbon tax.
Past support, future tweaks?
Smith, herself, has expressed support for the system, too, citing reductions in oilsands emissions intensity as proof of its effectiveness.
“We’re going to continue with an industrial carbon-pricing strategy because it is working,” she said last May.
Alberta Environment Minister Rebecca Schulz said Monday the province may look at tweaking the details of its industrial carbon-pricing policy, if the federal backstop were to be removed.
Noting Alberta’s system has been in place “long before the federal Liberals came into power,” Schulz said it has “historically worked well for industry.”
“However, I would say that the backstop and the carbon pricing put in place by the federal Liberal government has made our industry less competitive,” she added.
“So we’re working with industry right now to gather their feedback on how we could do better.”
Alberta NDP Leader Naheed Nenshi said Monday the federal government has mismanaged the consumer carbon tax but the industrial carbon price has “always worked,” in his view.
Getting rid of the industrial pricing system altogether “would be disastrous for the industry and disastrous for the environment,” Nenshi added.
Andrew Leach, an energy and environmental economist at the University of Alberta, said it’s “probably likely” that Alberta would keep its system in place, if a Poilievre-led government were to scrap the federal backstop.
“The question is whether it will remain as stringent and biting as it otherwise would have been,” he said, adding that a key issue is whether there will be enough pressure to ensure policies actually reduce emissions, if the federal policy were to be cancelled.
Who pays for the carrot?
As part of his announcement Monday, Poilievre also promised to expand eligibility for existing federal tax credits to “reward heavy industries who make products with lower emissions than the world average.”
He said his government’s approach would be “carrot, not stick.”
But removing the carbon-price stick in favour of a larger tax-credit carrot also means taxpayers would cover more of the cost of that carrot, said Chris Severson-Baker, executive director of the Pembina Institute, a clean energy think-tank.
“This proposal really is to shift from a polluter-pays system … to taxpayer-pay system,” he said.
“It would be shifting entirely to a system of subsidies, rather than a mix of incentives to reduce emissions, combined with incentives to invest.”
Conservative Leader Pierre Poilievre is asked if he is prepared to commit Canada to any kind of emissions targets if he were to become prime minister.
In Severson-Baker’s view, the proposal also introduces “an enormous amount of uncertainty” into the decisions companies are trying to make around new investment in the country, at a time in which Canada is already grappling with a new landscape under U.S. President Donald Trump.
“The last thing we want to do is add to the uncertainty that investors are experiencing in Canada right now,” he said.
Federal Energy and Natural Resources Minister Jonathan Wilkinson said Poilievre’s plan would also hurt Canada’s ability to expand and diversify its trading partners.
“I would say Mr. Poilievre actually doesn’t really understand how the industrial pricing system works,” he said.
Wilkinson noted that “the European Union is in the process of putting in place border carbon adjustments, which means that decarbonization is really important if we want to trade with Europe.”
“Long-term competitiveness and jobs and economic growth rely on us actually moving forward with decarbonization,” he said. “In Alberta, most of the money that comes from the industrial price is recycled to industry to actually invest in decarbonization projects.”
The Pathways Alliance, which last year publicly pressed Poilievre to clarify his position on industrial carbon pricing, told CBC News on Monday it had no comment on his promise to get rid of the federal backstop.
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