Emissions cap in Alberta—high cost, little benefit

The Alberta government plans to cap greenhouse gas (GHG) emissions in the province at 100 megatonnes (Mt) annually.

But before understanding the potential impacts of the cap, we need to understand how oilsands production might grow in the future. The National Energy Board (NEB) recently forecasted that oilsands production could more than double, from 2.30 million barrels per day in 2014 to 4.76 million barrels per day in 2040. Of course, this additional production could provide Albertans and Canadians with immense economic benefits including higher royalty revenues for governments.

But an emissions cap may jeopardize some of this potential future oilsands production. A recent Fraser Institute study estimated future emissions levels from oilsands production using the NEB’s estimates of potential production to 2040.

For example, if producers reduce the emissions intensity of oilsands production by a modest amount, cumulative production losses may total two billion barrels of oil between 2027 and 2040. If producers aren’t able to reduce their emissions intensity levels, the cap could have a larger effect and more oil would be left in the ground.

The amount of oil left in the ground would also come at a high cost. Based on projections of future oil prices, and accounting for things such as the cost of preparing oil for transportation, the cumulative value of lost production from 2027 to 2040 could total C$150 billion (in 2015 dollars).

And this high cost will come with very little environmental benefit. Over the last few years GHG emissions from the oilsands have comprised less than 0.15 per cent of global emissions. Based on estimates of how much oil might be left in the ground if oilsands producers improve the emissions intensity of production, emissions from the oilsands could be only 15 Mt lower in 2040 compared to a no-cap scenario.

To put this into perspective, in 2012 global GHG emissions were estimated at just under 45,000 Mt, making the reductions from Alberta’s emissions cap a drop in the bucket. And global emissions are expected to grow in the future, unless counties take unexpected dramatic actions.

The emissions reductions from the cap will also come at a high cost of more than $1,000 per tonne of GHG reduced. By comparison, in 2018 when Alberta’s revised carbon tax is fully phased in, emissions will be priced at only $30 per tonne.

Simply put, Alberta’s 100 Mt cap on GHG emissions could come at a high cost with little environmental benefit.