A crucial element of the agreement between Alberta and Ottawa regarding a new pipeline is the establishment of a $130-per-tonne “effective credit price” for industrial carbon emissions. However, there is a discrepancy in how the two governments are interpreting this figure, leading to confusion and questions about their level of mutual understanding.
Prime Minister Mark Carney has emphasized that the deal signifies a substantial increase in the industrial carbon price, while Energy Minister Tim Hodgson has pointed out that it surpasses the current market price in Alberta. Conversely, Premier Danielle Smith and her team have juxtaposed the $130-per-tonne level with the $95-per-tonne price that the province currently collects from large emitters.
The memorandum of understanding specifies that the federal government’s interpretation aligns more accurately with the agreement. Nevertheless, the figures cited by the provincial government also hold validity. The crux of the issue lies in the discussion of two distinct yet interconnected carbon prices.
For simplicity, let’s refer to them as the “headline price” and the “market price.” The headline price is the amount paid by polluters to the Government of Alberta under the industrial carbon pricing system, currently set at $95 per tonne. On the other hand, the market price pertains to the cost of carbon credits traded on the open market, currently valued at less than $20 per tonne.
The discrepancy in these prices is significant as it impacts actual emissions reductions and the viability of projects like the Pathways carbon-capture proposal. The MOU hints at potential approaches to influence the market price for carbon credits, with further details expected by next spring.
The low current market price for carbon credits can be attributed to various factors, including the relaxation of carbon-price stringency on oil producers and the rapid growth of renewable electricity generation in Alberta. These have led to a surplus of credits in the market, diminishing the incentive for emission reductions.
To bolster the market price for carbon credits, the federal government aims to collaborate with Alberta to elevate the minimum effective credit price to $130 per tonne. This effort involves considering sector-specific stringency factors for large emitters, potentially replacing the existing facility-specific benchmarks.
The success of this initiative is crucial for supporting projects like the Pathways Alliance Carbon Capture and Storage project, which relies on generating carbon credits through carbon capture and storage. The MOU outlines steps to back this project and extend support to Indigenous co-ownership initiatives.
Ultimately, the details of the carbon-pricing agreement, expected to be finalized by April 1, have the potential to significantly impact emissions reductions in Alberta and across Canada. While the negotiations continue, ensuring clarity and alignment on the pricing mechanisms is essential for the success of these climate initiatives.
