Pathways to Pipelines - Positive Signals
I’m still unpacking the Implementation Agreement published on Friday that articulates some of the negotiated outcomes between Alberta and Canada’s governments following the MOU signed in November, and I’m sure much more will become clearer on the implications for other P/Ts in the coming weeks.
Why is this important? Industrial carbon pricing is the one of the most significant pieces of policy forming the foundation for investment in decarbonization projects.
At a high level, great news:
A price floor for TIER (Alberta carbon market) credits, which had been trading at $20-30/tonne moving to minimum $60 in 2030.
A 13-year runway for investment in decarbonization projects through to 2040.
Good news:
Alberta and Canada’s governments put up 50% of the liability of 75M tonnes worth of contracts for difference (CfDs), ensuring each government has a vested financial interest in ensuring the carbon market is functional; stroke of pen risk is mitigated more so than ever.
Not in the agreement itself, but in the press release: “This agreement creates the potential to expand credible, effective carbon markets across Canada”, creating bandwidth for more effective national and - longer term - international credit trading processes.
Not so good news:
TIER stringencies’ ramp down is weakened from what it was.
Context is important here – for reducing emissions, and for enhancing competitiveness:
This is a much, much better outcome we would have seen under a Conservative federal government. It seems obvious, but it’s worth underlining.
I listened in to the signing event, and Danielle Smith and Mark Carney’s press conferences later that afternoon. Two key takeaways:
Perhaps unsurprisingly, Mark Carney seems to genuinely understand the market mechanics and issues (besides the politics) and could answer intelligibly about them; this tells me that he, and his government, very much want this to succeed beyond optics.
I agree with Danielle Smith when she described that this agreement, and the further details it has yet to deliver on, will likely tamp down some Alberta separatist sentiment, which has caused damage by allowing potential investors (in Alberta, period) to sit on their hands.
Public rhetoric is not the same as conversations in the boardroom, but the rhetoric itself has changed, with Enbridge CEO Greg Ebel expressing optimism on pipeline construction, a step change from his own comments just a few months ago. Personally, I see the TMX route as the most realistic one, that would politically and fiscally work in David Eby’s favour (more to come on that this week…).
The investment climate in Canadian energy is hardly ‘uncompetitive’ with carbon pricing given that Shell just pumped $16B into the Montney region and ARC Resources.
Communications around this are key – the muddying of ‘headline price’ and ‘effective price’ is well underway, but there is a dramatic distinction between them; I can very much appreciate that Smith herself clarified for the media the distinction between the consumer carbon tax and the industrial carbon price.
The Implementation Agreement and its contents should be viewed in a broader context for decarbonization at large – the Clean Fuel Regulations, the National Electricity Strategy (published last week as well), and the entrance of Asian EVs into Canada’s market all bode well for a strengthened Canada on multiple fronts.
