The province’s financial stability and future are at stake with upcoming climate regulations

Lennie KaplanAs we navigate the evolving landscape of climate policy, it is crucial to consider both the environmental benefits and the economic consequences.

While recent preliminary analyses have focused on the impact of the proposed oil and gas emissions cap (OGEC) on Alberta’s economy and government finances, there has been a glaring omission: a comprehensive public analysis of the fiscal impact on Alberta from the full spectrum of federal and provincial climate change policies.

The climate policies under consideration are extensive. They include the Healthy Environment and Healthy Economy (HEHE) policies, the Emissions Reduction Plan (ERP), the OGEC, the proposed Clean Electricity Regulation (CER), the Medium- and Heavy-Duty Emissions Standard, the National Net-Zero Emissions Building Strategy, waste methane capture, the Light-Duty Vehicle Emissions Standard, and a 75 percent reduction in oil and gas methane emissions, among others. These policies, collectively, will have profound effects on Alberta’s public finances between 2025 and 2050.

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It is crucial to adopt a comprehensive approach in our analysis. Focusing on a single policy does not capture the complex interactions between various climate policies. My findings indicate that implementing the full package of federal and provincial climate change policies could result in a cumulative negative impact of $38 billion to $61 billion on Alberta’s total government revenues between 2025 and 2050. This range depends significantly on technology cost assumptions.

To guide our analysis, I engaged Navius Research, an independent and non-partisan consulting firm recognized as one of Canada’s leading experts in modelling the impacts of energy and climate policy. Using its comprehensive gTech-IESD model, Navius Research simulated the fiscal implications of two climate change policy scenarios compared to a reference scenario based on existing legislated policies.

The first scenario, the Legislated Policy Scenario (reference case), includes all current federal and provincial policies but excludes several proposed measures, including the OGEC and CER. It projects an Alberta TIER price rising to $170 per tonne by 2030, along with a similar increase in the federal fuel charge.

The second scenario, the ERP Policy Scenario (more stringent), incorporates all announced and developing policies, assuming no overlap between the Alberta TIER and the proposed OGEC and maintaining a $170 price signal in the credit market. This scenario reflects a more aggressive approach to emissions reduction.

My analysis reveals stark differences in fiscal outcomes between these scenarios. Alberta’s total government revenues are projected to be significantly lower under the ERP Policy Scenario, with reductions of $1 billion in 2030 and between $2 billion and $4 billion by 2050, depending on technology cost assumptions. Cumulatively, this scenario could result in a $38 billion to $61 billion decrease in total revenues between 2025 and 2050 compared to the reference scenario.

One key takeaway is that the negative fiscal impact of these climate policies on Alberta could be mitigated if technology costs for carbon capture and storage (CCS), Direct Air Capture (DAC), renewable generation, and battery technologies decline more rapidly than anticipated. This potential for mitigation underscores the importance of ongoing technological innovation and investment.

To add rigour to my analysis, I introduced three technology cost sensitivities: the ‘pessimistic sensitivity,’ the ‘intermediate (reference) sensitivity,’ and the ‘optimistic sensitivity.’ These refer to scenarios in which the technology costs for carbon capture and storage (CCS), Direct Air Capture (DAC), renewable generation, and battery technologies vary through 2050.

Examining federal climate change policies as a comprehensive package offers a more accurate representation of their fiscal impacts than analyzing individual policies in isolation. The complex interactions between various climate measures require a sophisticated analytical approach, such as the Navius gTech/IESD integrated model, to capture their full economic implications.

As we continue to pursue ambitious climate goals, it is imperative to balance environmental sustainability with fiscal responsibility, ensuring that our policies support both a healthy planet and a healthy economy in all federal and provincial climate change policies through the use of the Navius gTech/IESD integrated model, a much richer analytical tool than other models.

Lennie Kaplan spent over two decades in the public service of Alberta, including as a senior manager in the Fiscal and Economic Policy Division of the Ministry of Treasury Board and Finance, where he worked on cross-ministry initiatives evaluating the fiscal and economic impacts of federal and provincial climate change policies.

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