On the Politics of Canada's Industrial Carbon Pricing

Shortly after the federal Conservative Party announced its platform intention last week to remove the federal industrial carbon price and let provinces/territories work through their own regulatory carbon frameworks, the CEOs of 14 Canadian energy companies released an open letter (see below) advocating for the same approach, describing the current approach as ‘not globally cost competitive’. To be clear, I don’t disagree with some of the points their letter brings up - incentivizing Indigenous co-investment opportunities, efficient project approvals, and simplifying regulations are all great ideas to me.

It fills me with rage, however, to see them looking to dislocate the industrial carbon price.

The Canadian energy sector has bemoaned for years that there is too much regulatory uncertainty about carbon pricing and has (seemingly consequently) hit the brakes on investing in significant infrastructure and decarbonization projects, such as the massive proposed Pathways Alliance CCUS project. They were given a linear trajectory - up to $170/tonne by 2030, announced in 2021 – a decent 9-year price horizon at the time.

Now, these companies, it seems, don’t really care to invest in any of these projects, despite calling out the ‘investment’ that they have made into CCUS.

I don’t know, maybe this is capitulation of these companies that we in Canada should be subservient and follow the United States' federal approach on everything?

Alongside their position on the issue, the Conservative Party also announced a plan to expand the investment tax credit framework, initiated by the Liberal government in response to the US approach to decarbonization flowing from the Inflation Reduction Act.

In contrast to industrial carbon pricing, in which the financial implications for the average Canadian are negligible (Dave Sawyer, expert Canadian economist at the Canadian Climate Institute / Institut climatique du Canada writes prolifically on these issues), expansion of the tax credit framework would leave Canadian taxpayers on the hook for substantial subsidies for decarbonization projects.

The industrial carbon pricing framework has been so successful, especially in Alberta, in catalyzing investment into innovative technology via recycling of a significant proportion of revenues into Emissions Reduction Alberta (ERA) while reducing emissions intensity metrics. Many other governments – including ones in Asia – have looked to Alberta’s system as the shining example to follow. I’ve experienced that myself travelling through Asia over the last few months.

This is all besides the point that as an investment, many of these companies – and I know of several with complete certainty - have been holding on to millions of dollars worth of credits generated as a part of the industrial carbon pricing markets. I’m not so sure these CEOs are aware.

What we need is certainty for a longer industrial carbon pricing trajectory – maybe a leveling off at $170/tonne from 2030-2035, or a rise to $200/tonne from 2030 to 2035, allowing a 10-year investment horizon for projects seeking to make Final Investment Decisions (FID) today.

I’m aware of many of the leaps and bounds that are required to bring significant infrastructure projects to FID. We – Canada – should be enabling these projects – they are in the national Canadian interest, capable of generating significant jobs both for construction and operations, increasing the sector’s global competitiveness, and addressing climate goals at the same time.

As a proud-as-hell Canadian, having worked with the energy sector for many, many years, I hope we can get aligned on this.