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Carney and Smith adopt the Trudeau-Notley plan

Carney and Smith adopt the Trudeau-Notley plan

I apologize in advance for the acronym hell you are about to read.

Last week’s Memorandum of Understanding (MOU) between Prime Minister Mark Carney and Alberta Premier Danielle Smith saw Alberta sign on to Justin Trudeau and Rachel Notley’s major climate policy objectives.

This will take a bit to unpack. I apologize in advance for the acronym hell this will entail.

The centrepiece of Rachel Notley’s Climate Leadership Plan was the industrial carbon price. Her industrial carbon price was copied when Trudeau designed the Federal Carbon Pricing Backstop and said the target price would rise to $170/tonne by 2030. The Canadian Climate Institute says this industrial carbon price is doing most of the heavy lifting to meet our climate targets.

Alberta’s Technology Innovation and Emissions Reduction Regulation (TIERR) program is what former premier Jason Kenney renamed Rachel Notely’s industrial carbon price when he made some relatively minor tweaks. Since becoming premier, Smith has allowed TIERR to become much less stringent, or effective, so the actual effective credit price is much lower than the $95/tonne price that Smith froze it at earlier this year. University of Calgary economist Blake Schafer calculates TIERR is in practice a $32/tonne carbon tax

In the MOU, Alberta agreed to raising TIERR to a “minimum effective credit price of $130/tonne.” Like much in the agreement, these terms have not been explicitly defined, but leading Canadian climate economist Dave Sawyer, who has done most of the modelling of Canada’s industrial carbon pricing systems, said a minimum effective credit price of $130/tonne is equivalent to Trudeau’s $170/tonne target. At the very least, an “effective credit price” means that Smith’s games to reduce the stringency and effectiveness of TIERR has been called out.

The MOU does not, however, identify the date when this “minimum effective credit price” must be reached.

Or does it?

In the MOU, Alberta agreed that no pipeline project will be proposed for approval without the Pathways Alliance Carbon Capture, Utilization and Storage (CCUS) project moving forward. The Trudeau government created a generous Investment Tax Credit (ITC) that Pathways required for the CCUS project to move forward. The MOU commits the federal government to that ITC.

But here’s the catch.

The design of Trudeau’s CCUS ITC assumed Trudeau’s industrial carbon price target of $170/tonne. Without the certainty of a rising industrial carbon price — and $130/tonne “effective credits,” the Pathways project is uneconomic. The MOU does reference the Alberta Carbon Capture Incentive Program (ACCIP), which is an Alberta’s companion incentive for Pathways.

Which leaves Alberta with a choice. It can rely on a rising industrial carbon price that shifts some of the cost of the Pathways program onto higher industrial polluters via those credits. Or it can rely on Alberta taxpayers to make up the billions of dollars in those credits by boosting the ACCIP subsidy. Alberta has saddled its taxpayers with stupid costs for pipelines in the past, but I’d bet Danielle Smith would rather make polluters pay.

She has two more reasons to do so.

Smith and her spinners have been saying that the MOU cancelled Trudeau’s oil-and-gas production cap. But like so much of what they are saying, this is not technically correct. Carney has not promised to eliminate the cap. He has promised to make it “unnecessary.”

Whatever could this mean?

The MOU makes clear that Carney will require a high enough industrial carbon price to make the cap unnecessary. Trudeau introduced oil and gas emissions cap to contribute to our 2030 emissions goals, but equally to meet the net zero emissions target for 2050. The MOU also commits to “net zero by 2050.”

In other words, Alberta has agreed that the end of the oil-and-gas cap will require an industrial carbon price beyond 2030 that renders the cap “unnecessary.” Now I don’t know exactly what that price trajectory is, but carbon prices must at the very least hit Trudeau’s $170/tonne by 2030. And rise further beyond that

It’s the same story for the Clean Electricity Regulations (CER) that Alberta says have been killed, cancelled or carved out.

Not quite.

Here’s what the MOU says: “Upon completion of the new carbon pricing agreement and factoring all other measures to the satisfaction of both parties, Canada will place the CER in Alberta in abeyance.” Putting aside that abeyance means “temporary disuse or suspension,” this clearly means that Alberta has agreed to an industrial carbon price “which includes the electricity sector” that will be stringent enough to make the CER moot. If not, the CER will not be abeyed, if that’s a word.

Trudeau lacked confidence that his, and Notely’s, industrial carbon price would be enough to meet his climate objectives. So he doubled up on that market mechanism by adding CER and an oil and gas cap.

Carney hasn’t abandoned Trudeau’s objectives, he’s just relying more heavily on Notley’s toolbox — the industrial carbon price. An industrial carbon price that, to meet the objectives in the MOU, must rise to at least Trudeau’s $170/tonne by 2030, and higher beyond that.

Smith’s spinners have denied this. But perhaps they are the ones who got played last week.