Canada Carbon Tax | Alberta Withdraws Provincial Carbon Tax

INFORMATION UPDATED FROM THE ORIGINAL POST DATE ON 6/6/2019.

As of May 30, the Canadian province of Alberta officially withdrew its consumer carbon tax, removing a surcharge mechanism that added incremental cost to fossil fuels like gasoline and diesel.

Current Alberta Premier Jason Kenney pledged in his campaign to repeal the provincial carbon tax, which was a critical factor in his successful election – and he made good on that promise. Kenney and his UCP advocates claim that the nation’s efforts to financially penalize fossil fuel consumers have failed to reduce emissions, while simultaneously burdening household income. Alberta is also Canada’s largest oil-producing province and has historically been the nation’s heaviest emitter of greenhouse gasses.

Members of the legislature officially passed this Carbon Tax Repeal Act on June 4, 2019, just one week after the bill was first introduced. Prior to the May 30 date of enforcement, the carbon tax of 30 CAD per metric ton (MT) of carbon added 8.03 CAD ¢/liter for diesel in Alberta. Though this tax has been legally removed on the provincial level, the mandatory carbon backstop price will be applied by the Canadian federal government in response.

To solidify this stance, the Canadian federal government clarified its plan to enforce the federal carbon backstop just two weeks after Alberta’s decision to scrap the carbon tax. Canadian Environment Minister, Catherine McKenna, wrote that the backstop will not be imposed until January 1, 2020, citing Alberta’s large fossil fuel footprint as the nation’s highest provincial emitter and the need to continue tackling climate change on a national level.

Originally intended as Canada’s method of adhering to tenets of the Paris Climate Accord, the carbon backstop price is a key element of the Pan-Canadian Framework. At present, the backstop adds 20 CAD per MT of carbon produced, translating to about 5.37 CAD ¢/liter for diesel – with an additional ~2.68 CAD ¢/liter added annually until 2022 as shown in the table below. The backstop was first implemented for non-compliant provinces on April 1, 2019, and Alberta will now be the only province operating without a carbon price until the January 1 imposition.

Although provinces are permitted to create their own unique carbon programs, Alberta now joins ranks with New Brunswick, Ontario, Manitoba, and Saskatchewan as provinces that do not meet the mandate set forth by the Canadian government. Currently, British Columbia, Quebec, and Nova Scotia are the only provinces with carbon pricing above the federal-mandated level.

As the 2019 federal elections approach, the dispute will also likely continue at the judicial level regarding the constitutionality of the federal carbon tax. In response to the government’s imposition of the federal backstop, Alberta will likely join Saskatchewan and Ontario in fighting the mandate, deeming the tax unconstitutional.

In July 2018, Ontario backed out of the cap-and-trade program it implemented the previous January, prohibiting all future trading of emissions allowances. Manitoba also proposed a 25 CAD/MT carbon tax – however, without an escalation mechanism or the support of the new premier, the plan was removed in October 2018 before it was ever implemented.

Each province is expected to appeal the cases in Canada’s Supreme Court, prolonging an official ruling. This recent opposition acts as a likely precursor for potential conflict over the country’s carbon requirements ahead of a national election this fall. Whether the political success of Alberta’s conservative candidate will translate into success for opponents of current Canadian Prime Minister Justin Trudeau in the federal election this fall remains to be seen. Conservative Party of Canada leader Andrew Scheer has been critical of the tax, stating that if elected he would likely work to repeal it.

Regardless of future political outcome from the Alberta decision and the Canadian federal government’s response, this demonstrates the volatility political realignment can have on carbon pricing, and in turn the price paid for products like gasoline and diesel.