Delphi’s Watch List on Energy and the Environment in Alberta Post-Election
After 44 years of governing in Alberta, the PCs are out. The NDP is in. In the words of Alberta’s new premier-designate, Rachel Notley, “change has finally come to Alberta”.
This is uncharted territory; no one really knows how the NDP’s victory will impact Alberta’s energy sector and carbon policy. Due to this uncertainty, we have put together a post-election watch list: five things to keep an eye on in Alberta.
What does this election mean for…
The Premier-elect has said she will withdraw provincial support from the Northern Gateway oil pipeline due to “environmental sensitivity” and because of the concerns of indigenous groups. She has also indicated she won’t be lobbying Washington, D.C., to approve the Keystone XL pipeline.
However, she doesn’t write off pipelines altogether, expressing support for the Energy East and Trans Mountain pipeline projects. In addition, her withdrawal of provincial support in the cases of Northern Gateway and Keystone could represent a withdrawal of resources (time and money), not unmitigated opposition.
What to watch for: The NDP’s position on carbon pricing. Ms. Notley has suggested that her government – unlike the PCs — may be able to help pipeline projects with their social license to operate. While carbon pricing didn’t figure prominently in the discussions leading up to the election, it will be interesting to see whether Ms. Notley links a more aggressive carbon pricing system in Alberta to achieving social license.
2. Investment in the Energy Sector
Despite oil prices closing out higher this week than they have in five months – signaling that they could be on a recovery trajectory sooner than expected – Canadian energy stocks fell following the NDP victory.
Investors don’t like uncertainty. An investment in oil production, whether oil sands or conventional, is a high-risk enterprise. The risk is mitigated by price appreciation. Add “above-ground” risk, or economic uncertainty, that a new and left-leaning NDP government represents, and you have a less-than-stable investment environment. At the same time, investors don’t yet seem to recognize the effect social license can have on capital expenditure plans.
Ms. Notley has proposed several things that concern the energy sector, as well as potential investors:
- A review of Alberta’s energy royalties
- An increase in corporate taxes from 10% (the lowest in Canada) to 12% (in the range of BC).
What to watch for: The outcomes of the royalty review, the implementation of a higher corporate tax, and the short-to-medium term impact on investment decisions in the energy sector.
3. Refining and Processing
Ms. Notley has suggested that Alberta should be doing more processing and refining in the province, versus shipping raw bitumen elsewhere (to places like Texas, for example). This position is aligned with her withdrawal of support from Northern Gateway and Keystone XL, which facilitate exactly that.
However, the proposition to create more processing and refining jobs in Alberta is not an uncomplicated one. Building new refineries and upgraders is a massively capital-intensive and challenging venture, as has been demonstrated by the likes of the Sturgeon Refinery (over budget), the Voyageur joint-venture project (cancelled), and Kitimat Clean (unable to secure significant financing). In addition, it’s cheaper to export crude than refined product. There is also a significant emissions challenge that would come along with any increase of in-province refining.
What to watch for: How Ms. Notley’s position on processing and refining plays out, particularly relative to any new climate goals that may be set by her government.
4. Greenhouse Gas (GHG) Policy
At this point we don’t know too much about the NDP’s position on this because their platform was vague.
As mentioned earlier, an aggressive approach to carbon pricing could help build social license and also be a point of differentiation from the previous regimes. However, a shift from the current baseline and credit model (SGER) to a carbon tax or cap-and-trade may be too dramatic for a new government seeking to assuage industry concerns. They may simply focus on enhancing the rigor of the existing regulations.
Additionally, they’ve said they want to take a leadership position on the issue of climate change and reduce emissions. They agree with Jim Prentice’s commitment to phase out coal-burning electrical generation, and have talked retrofits, public transit, energy efficiency, and renewable energy.
What haven’t they talked about? The emissions from Alberta’s oil and gas sector.
What to watch for: How the NDP will assume a leadership position on climate change and GHG reduction while adding (potentially) refining and processing jobs into the mix – and exploring new markets for Alberta’s oil product. Will they define this position ahead of the next UN climate conference in Paris in November/December of this year?
5. Federal-Alberta Relations
In recent history, Alberta and the federal government have been strong allies, particularly when it comes to energy policy.
However, the landscape has shifted following the election of two progressive mayors in Calgary and Edmonton and, now, a decisive NDP victory at the provincial level.
In her victory speech, Ms. Notley indicated she is looking forward to working with Prime Minister Harper because Alberta “is part of Canada”. Harper has issued similarly polite remarks. It’s very early days.
What to watch for: How the Notley-Harper dynamic plays out…will they carve out some common ground and mutual interests, or will partisan politics prevail? And will an NDP victory in Alberta have an impact on the federal Conservatives’ fortunes in the next election?
What do you think the NDP victory in Alberta will mean for the province’s energy and climate policy?
By: Alex Carr — Senior Associate (email@example.com)
Edited by: Jessica Butts — Consultant, Policy lead (firstname.lastname@example.org)