On November 22, Alberta’s new government released its new climate plan. From the lens of Alberta, home of the oil sands with a 40+ year history of governments which coddled the oil and gas industry, it’s astoundingly good. From outside of Alberta, looked at with a more global view, it’s merely okay, portions of it are not nearly aggressive enough, and others leave me scratching my head. Let’s look at the major components of the plan.
Assessment indicates that the coal shutdown and carbon tax are fairly timid by global standards, and the oil sands emissions cap hides a potential for almost doubling real emissions.
Shutting Down the Coal Generation Fleet
Following in the footsteps of Ontario, Alberta has committed to shutting down all coal generation in the province in 15 years. This is a longer timeframe than the Ontario government committed to for about the same absolute amount of generation, but it’s also respectful of the reality that coal provides 55% of Alberta’s generated electricity. This is the same ratio as nuclear in Ontario. In 2014, coal plants in Alberta generated 44,442 GWH of electricity. The goal is to replace all of that by 2030, and to have two-thirds of it replaced by renewables.
… the renewables target translates into about 5.8 GW of wind capacity and 9.4 GW of solar capacity. That’s over 15 years, or about 390 MW of wind and 624 MW of solar implemented annually.
In my opinion, this is far too respectful of coal’s dominance and not nearly aggressive enough with the renewables targets. Alberta has tremendous wind and solar resources. It’s huge and mostly empty. Alberta should easily see the industry averages of 25% capacity factor for solar and 40% for wind energy. Using these capacity factors and assuming 50% wind and 50% solar, the renewables target translates into about 5.8 GW of wind capacity and 9.4 GW of solar capacity. That’s over 15 years, or about 390 MW of wind and 624 MW of solar implemented annually.
That sounds like a lot, but let’s put it in perspective. Ontario is acquiring 2 GW of wind and solar in 2015 alone. China put in 16 GW of wind capacity alone in 2013. Canada excceeded 10 GW of wind capacity this year. In the US states just to the south of Alberta, wind energy averaged about 2 cents USD per kWh on 20-year power purchase agreements in 2014. PPAs are the basic measure of the wholesale cost of electricity. In the USA, there’s the production tax credit which provides tax breaks per kWh for 10 years. Adding this on raises the cost of new electricity to just over 3 cents USD per kWh. Solar PPAs are hitting 5 cents USD per kWh regularly in our neighbor to the south, and solar is dropping in cost even faster than wind energy, so I won’t bother adding the similar amount for the US tax credit applicable to solar.
One more piece of perspective. Ontario had 42,400 GWh of contribution from its fossil fuel fleet in 2001. That’s virtually identical in scale if not ratio of generation to Alberta’s coal contribution today. And Ontario shut down the fleet in a decade.
The entire Alberta renewables effort appears to be smaller than a single oil sands project, and slower to implement. There are about 100,000 skilled laborers who have been laid off from the oil and gas industry in Canada and the USA who could be retrained easily to be wind and solar installers. There are innumerable oil and gas services companies which are running at minimal capacity right now who would leap at the chance to expand their businesses.
It would be very easy for Alberta to replace the entire generation of coal in 10 years based on the market situation if Alberta wanted to get aggressive. It would take about 873 MW of wind and 1.4 GW of solar capacity installed annually or just a bit more than Ontario’s 2015 acquisition.
Insiders tell me that the energy operators didn’t think that they could displace coal in 10 years. This is obviously incorrect based on Canadian and global examples of implementation of renewables at this scale. As a result, coal plants will persist longer than they need to. Alberta could have been much more aggressive on this, and turned it into an amazing near-term jobs plan. They didn’t. And as a result, the coal operators will be dragging their feet and there will be no innate sense of urgency in the renewables deployment. The government will have to manage this very carefully in the short term and put in place incredibly stringent constraints on future administrations to prevent them from shutting down the initiative.
Don’t get me wrong. It’s amazing that Alberta has committed to shutting down its coal fleet. But it could have been more aggressive and reaped a lot more rewards. This is a key point of the plan where the Alberta perspective and the global perspective are at odds.
Carbon Tax of $30
Before the announcement, Alberta had a carbon tax. It was about $15, was only applied to major emitters – facilities emitting more than 100,000 tons annually — and only applied to amounts by which they didn’t meet reduction targets. It wasn’t a great carbon tax and had lots of cutouts.
… middle-class households won’t be seeing the $500 to $900 in a lump sum and won’t have their buying patterns impacted nearly as much as a result.
The new tax is a lot better. It applies to almost everything, so the drivers of carbon-reduction behavior will be much more broadly felt across society, including on home choices related to use of natural gas for heating and fuel for cars. This will naturally build in economic incentives for shifting to electricity for homes and vehicles, and with the shutting down of the coal plants will mean that the electricity is increasingly carbon neutral. This is a very virtuous pairing with the shutting down of coal plants. The increased governmental revenues will pay for a lot of their other climate plans.
And the $30 is what the administration promised in their campaign. So far, so good.
However, they are not implementing it soon, but in a graduated way. They are deferring start of the increase until January 2017 and only starting with $20 for that year. They only hit the $30 mark in 2018, more than two years from now. Which means that the slow-moving societal and industrial changes that come from this increase are deferred for more years after that.
Once it’s in place, it will have a budget impact of $500 to $900 per household per year. And the government has promised that lower-income households will get some relief. What this means is that most middle-class households will have a very small increase on a lot of small transactions spread over the year. Most won’t notice. Gas will be a bit more expensive. Their natural gas monthly utility bill will be a bit higher. But middle-class households won’t be seeing the $500 to $900 in a lump sum and won’t have their buying patterns impacted nearly as much as a result. It’s just human nature.
Don’t get me wrong. I’m strongly in favour of carbon taxes broadly applied. They are one of the best and most effective mechanisms of reducing emissions. But this one is too timid and scales too slowly for the results to be really felt until after the current administration’s mandate is over.
Once again, amazing for Alberta, but not so amazing from a global perspective.
Emissions Cap on the Oil Sands
The plan calls for an annual emissions cap of 100 megatonnes from the oil sands. That sounds great, until you look at it more closely and realize that there are two problems with it.
So that’s the real elephant in the room. This deal allows major oil producers to massively increase emissions without any innovation and potentially double total emissions by innovating around the in-Alberta emissions.
The first problem is the scale of increase this permits. Oil sands are emitting about 70 megatonnes today. That means that the cap is a 43% increase over the current emissions. Ontario shutting down all coal generation was worth about 37 megatons annually last time I saw numbers, and as you’ll remember, Ontario shut down virtually the same amount of coal as Alberta.
The scale of increase allowed in the tar sands is roughly the same order of magnitude as shutting down Alberta’s coal plants. Of course, Ontario didn’t replace the coal plants with the same volume of renewables, so Alberta’s emissions reductions from its coal plants should be greater overall, but it looks an awful lot like most of the gains from generation are going to be consumed directly by allowed emissions in the oil sands.
And that ignores the second big problem. The emissions cap only applies to the emissions for extraction, processing and distribution of the oil from the oil sands. The actual carbon sequestered in the oil is excluded from this. Oil sands are notoriously carbon intensive to extract, ranging from 8% to 37% greater than for conventional crude per Pembina Institute numbers. The intent of the cap is to drive innovation for extraction, processing, and distribution within Alberta. That’s good.
However, the vast majority of the emissions, on average 70%, are from combustion of the oil, not extraction, processing, and distribution. The implication of a 30 megatonne increase from today is really an increase of 100 megatonnes from total oil sands emissions. And that’s if the oil sands don’t do a thing to reduce emissions intensivity. If they halve emissions per barrel, they can ship double the barrels with much greater overall carbon emissions. That’s part of the reason why recent studies suggest that 99% of Canadian oil sands should remain in the ground if we want a 50% chance of keeping to the two degrees by 2050 target.
So that’s the real elephant in the room. This deal allows major oil producers to massively increase emissions without any innovation and potentially double total emissions by innovating around the in-Alberta emissions. If they powered their SAGD extraction with wind and solar, they could massively increase the amount of oil they ship.
It’s hard to see this as a win for the climate. Basically, for Alberta’s total contribution to climate change to actually fall depends on drastic reduction in demand for its product from the rest of the world. On a scale of 1 to Alberta, this is an 11. On a scale of 1 to California, it’s a 7.
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